The Am Law 100 2018: UK firms face growing challenge to compete as US elite hit new heights
With the UK financial reporting season almost upon us, all indications are that many law firms are expecting to post respectable results for 2017-18. However, the latest figures from the other side of the Atlantic suggest they are unlikely to see the steady drip of talent lured by dollar-denominated paycheques decline any time soon. The 2018 Am Law 100 rankings, released by our colleagues at The American Lawyer today (24 April), reveal that growth across the 100 largest US law firms was greater last year than at any point since the financial crisis, with total revenue up 5.5% to $91.4bn and the all-important profit per equity partner (PEP) metric nudging up by an average of 6.3%. The good news is that while these growth rates are strong, they are not so high as to be unachievable for firms on this side of the Atlantic, with some UK firms already predicting double-digit hikes in revenue for the financial year ending later this month. The figures also reassert the underlying stability of the legal profession in the world’s largest legal market, even in the face of economic uncertainty and fundamental shifts in both client expectations and service delivery - which is likely to be taken as a positive for firms over here too. But average figures mask a world of differences in individual firm performances, and a closer look at the numbers does suggest some cause for concern, despite the relative strength of the pound compared with the previous year. Because, of course, when we talk about the march of the US firms in London, not all US firms are equal. In practice, only 20 or so of these firms are serious players in the City, and only a handful of these recruit so aggressively as to evoke fear in the likes of the magic circle. And here’s where it gets challenging. Because the rankings show that the biggest firms in the US - particularly the elite, non-verein firms with large London presences - are continuing to pull away from those lower down the rankings, achieving global growth that will make it even easier for them to cherry-pick star performers from the magic circle and elsewhere. Take Kirkland & Ellis, for example, which stormed to the top of the revenue rankings this year after seeing turnover jump up nearly 20% to a record high of $3.165bn – a growth rate that is more than double that of second-placed Latham & Watkins, which managed a mere 8.5% hike to also clear the $3bn mark. To put Kirkland’s growth into context, it managed to add $514m (£367m) to its top line during 2017 - that’s more in year-on-year revenue growth alone than all bar the 15 largest UK law firms took in overall revenue last year. And, given the UK accounts for around 10% of Kirkland's global turnover, that means the firm's London base alone is bigger in revenue terms that every UK firm outside the top 20 globally. Profit numbers are every bit as concerning. Even slight drops in PEP at top earners Wachtell and Quinn Emanuel (1.7% and 5.6% down respectively) don't change much. Because even with these dips, Wachtell’s 2017 PEP stands at $5.7m and Quinn’s at $4.735m. And Kirkland isn’t too far behind at $4.7m, thanks to a near 15% rise last year, shortening the odds on more $10m-plus David Higgins-style hires. A full 16 US firms now have average PEP of more than $3m, with a further 22 on more than $2m. That compares to only nine UK firms reporting PEP of more than £1m last year. It's little wonder that even after a spate of lockstep shakeups, the magic circle have been forced to acknowledge that no amount of tweaking is going to enable them to come even close to meeting the top packages on offer at US rivals. As one London managing partner said recently, for partners in their fifties, the packages on offer at some US firms are now a “no brainer”, even if they are only guaranteed for a few years. The issue is how they get round this. As Quinn Emanuel London co-head Richard East says: “The most successful US firms in London tend to focus primarily on seeking out and hiring the most talented lawyers. The belief is that if you hire the best lawyers they will attract the top work. "In my view, UK firms need to think more about how they remunerate and reward their best lawyers and how they retain the best talent. They can only be as good as the talented lawyers they retain or hire.” White & Case London head Oliver Brettle adds: “A strong presence in the US market is a requirement of a leading global law firm. As of now, the magic circle have not been able to do that.” The obvious problem being that while establishing a substantial US presence may be more important than ever for top UK firms, the scale of the challenge continues to increase as the profit gap widens. No pressure Wim. Additional reporting by Anna Ward.
THE AM LAW 100 2018: IN NUMBERS Top five US firms by revenue (% change)
1. Kirkland & Ellis - $3.165bn (+19.6%)
2. Latham & Watkins -$3.064bn (+8.5%)
3. Baker McKenzie - $2.67bn (+1.9%)
4. DLA Piper - $2.634bn (+6.6%)
5. Skadden Arps Slate Meagher & Flom - $2.582bn (+3.5%)
Top five US firms by PEP (% change)
Wachtell Lipton Rosen & Katz - $5.7m (-1.7%)
Quinn Emanuel Urquhart & Sullivan - $4.735m (-5.6%)
Kirkland & Ellis - $4.701m (+14.7%)
Paul Weiss Rifkind Wharton & Garrison - $4.563m (+4.2%)
Sullivan & Cromwell - $4.271m (+5.5%)
