Linklaters’ stunning returns put CC’s crown within reach

Linklaters’ stunning returns put CC’s crown within reach” />
Clifford Chance must be looking over its shoulder after arch-rival Linklaters’ revenue broke the billion-pound mark for the first time.

Turnover at the UK’s second-largest firm now lags just £73m behind Clifford Chance’s. Linklaters’ fee income stands at £1.12bn, up from £935m, compared with Clifford Chance’s £1.19bn, up from £1.03bn.

If the firms’ rate of growth remain at the same level next year, Clifford Chance will stay ahead, but if you look at the firms’ results for the past three years, Linklaters has seen a larger rate of growth in turnover and has the potential to steal Clifford Chance’s crown as the world’s largest firm.

During the past three years Linklaters has boosted its income by 55.7 per cent, while Clifford Chance’s growth lagged well behind at approximately 25.7 per cent.

One senior figure at Clifford Chance tells The Lawyer that the magic circle firm is “content” with its own revenue growth of 15.9 per cent, but is “watching Linklaters’ progress with interest”.

The partner’s main observation, however, circles around Linklaters’ average profit per equity partner (PEP), which increased by 26 per cent, from £1.06m in 2005-06 to £1.29m in the last financial year.

He explains: “Linklaters’ performance, from our understanding, puts the firm in terms of PEP up in the top 10 US firms, which is an amazing feat to achieve.”

In fact, since the 2003-04 financial year Linklaters’ PEP has soared by 93 per cent, while net profit has grown by a massive 108 per cent. And it is this huge net profit increase that has tongues wagging at Freshfields Bruckhaus Deringer.

A senior source at the UK’s third-biggest firm says Linklaters’ growth of 29 per cent to £490m, which matches Freshfields’ net profit this year, which saw an increase of 13 per cent, is “highly significant”.

He notes that being able to convert so much revenue into profit shows that Linklaters has a tight grip on its budget.

Freshfields has also shown that it also knows how to play the numbers this year. It achieved remarkable figures despite a major restructuring, which has led to the departure of around 100 partners from the equity at a cost of around £55m.

The firm stunned the market by boosting PEP by almost 25 per cent, from £831,000 to £1.04m, and increasing its turnover by 12 per cent to £986m from £882m.

Linklaters managing partner Tony Angel says the rapid growth for his magic circle firm is mainly down to its “market leadership initiative”.

“Focusing on complex deals and cross-border work has been an important factor,” explains Angel. “This has been possible through the strengthening of our global network, which allows us to offer clients an integrated response. For instance, 65 per cent of our income now involves deals from more than one office. This figure three years ago stood at 40 per cent.”

Linklaters’ stellar financial performance means that top partners at the firm will earn £1.62m, up by 22.7 per cent from last year’s £1.32m. First-year full equity partners will earn £647,000. However, several jurisdictions, such as Germany, operate on reduced equity entitlement, where the value of a point is worth a fraction of a point in London.

The total amount distributed to partners on reduced entitlement was £127m, making an average of £876,000.

Angel adds that the strategy also included offering a better work environment, which meant that the firm could attract and retain “top-notch” lawyers, ensuring that clients are willing to pay that little bit extra.

“The last three years have seen the firm’s workplace improve, which has helped us retain lawyers,” argues Angel. “Like all firms we still haven’t cracked the formula for the perfect workplace, but we’ve introduced many benefits, such as flexible working, a concierge service and time banks, which has helped make work-life balance easier.”