A Tale of Two Brexits at Four of London’s Biggest Law Firms

  • Law firms’ results tempered by merger slowdown on EU exit vote
  • Regulatory work is a short-term ‘silver lining’ at firms

Only two weeks after Britain voted to leave the European Union, the financial results posted by four of the country’s largest law firms were starting to show the effects of Brexit.

The referendum and surrounding uncertainty had already slowed work on merger and acquisitions -- one of the most profitable departments at major law firms. “Brexit began to inhibit activity" in the months leading up to the vote, according to Allen & Overy, the only member of London’s so-called magic circle of law firms to see profits drop slightly over the last year.

But if the dealmakers are beginning to find they have a bit of free time, lawyers who advise clients on the mountains of legislation and rules from Brussels and London are busier than ever.

"If the regulatory boys are not sold out over the summer, they should be," said Tony Williams, principal of Jomati Consultants, which advises legal firms on management strategy, in a telephone interview.

As the prospect of Brexit crept up -- and shockingly arrived at the end of June -- London lawyers were manning the phones as clients scrambled to prepare for every possible outcome. That allowed firms to shore up their Europe and U.K.-weighted revenues for the moment.

Revenue Growth

All four firms reported revenue between 1.3 billion pounds ($1.7 billion) and 1.4 billion pounds this fiscal year, though profit figures were more diverse: Clifford Chance posted partnership profits of 494 million pounds, Linklaters’ pretax profit excluding one-time items was 612 million pounds, Allen & Overy’s pretax profit was 562 million pounds, and Freshfields reported net income of 617 million pounds.

This year’s growth came in the wake of a legal M&A boom spearheaded by U.S. giants such as Skadden, Arps, Slate, Meagher & Flom, who dominated with 18 percent market share. Freshfields was closest, with a total deal value of $353 billion, equating to 9 percent market share, according to data compiled by Bloomberg.

Managing partner Stephan Eilers said the main reason for the success was "continued growth in the U.S., with the corporate enlargements we have taken there."

Expansion Push

Expansion into Asia and the Americas also hedged the deal slowdown in the more mature European and U.K. markets over the second half of the last fiscal year.

“People are now in a phase of wanting to see what actually happens, and those transactional levels tend to thrive in a more stable environment," Clifford Chance’s managing partner, Matthew Layton, said in an interview. "Our expectation when we launched our strategy 18 months ago was that we’d see the pace of growth in Americas and Asia-Pac ahead of the U.K. and continental Europe."

An increasing proportion of the London law firms’ income now flows from further abroad. Clifford Chance’s revenue from the Asia-Pacific region has doubled over the past eight years, increasing 9 percent in the last year alone.

"The firms that have increased revenues, by and large, have done so on the back of international expansion several years ago which is now coming good," Jomati’s Tony Williams said.

Short-Term Benefit

Moving forward, merger work is the life blood of the Magic Circle, and regulatory advice will provide only a short-term benefit, said analyst Richard Tromans, head of TromansConsulting, which provides strategic advice for law firms.

"Regulation isn’t a silver lining: I’d call it a plank on the raft,” Tromans said.

Despite ongoing unpredictability, firms are confident that their services will be indispensable in the months to come. Stephan Eilers, managing partner at Freshfields, was sanguine in a conference call last week, telling reporters “times of challenge are normally not so bad for lawyers."