Editors' Blog

Linklaters slows as cold wind buffets the City

Posted 1/12/2008 by Richard Lloyd and Alex Novarese

Last week (24 November), Linklaters became the latest firm to announce its revenues for the first half of the current financial year, reporting a slight increase on last year. Linklaters' billings for the period from 1 May to 31 October totalled £653m - a 3% increase on last year's £633m.

Compared with rivals that have reported H1 figures - and the vast majority of the UK top 25 now have - Linklaters falls into the 'any growth is good in this market' group, but not quite in the double-digit rise club headed by Allen & Overy and Norton Rose, which both managed revenue increase of 11%.

The first half of the firm's fiscal year reflects its first six weeks of work on the collapse of Lehman Brothers (Linklaters is acting for the bankruptcy administrators in both Europe and Asia), so it is fair to assume that it has not yet seen the full boost from the Lehman work.

Still, given that Linklaters is regarded as having had an excellent share of what big-ticket mandates have been going this year, a 3% rise heading into a slowing market will be seen as clear evidence of the challenge facing top UK law firms.

Managing partner Simon Davies (pictured) was suitably muted in his comments on the first-half numbers.

"The economic landscape has changed profoundly in the past two months," Davies said in a statement. "Undoubtedly, this presents significant challenges to our clients and to us in 2009. Our priority is to offer the best possible support to our clients as we move forward in these very challenging times."

These challenging times are squeezing the UK market, though not quite to the degree that they are hurting US law firms. Nothing in London comes close to the collapse of Heller Ehrman and Thelen, or the upheaval seen at Cadwalader Wickersham & Taft. In this market, a lockstep-derived partnership looks like a better bet than the eat-what-you-kill systems in place at firms like Cadwalader.

But even without the fireworks, the news in London is gloomy. Following the long run of layoffs at national UK firms such as Eversheds and Hammonds, recent weeks have seen cuts at the City offices of US practices such as White & Case and Mayer Brown.

Few doubt the gravity of the situation. "We are seeing partners being asked to leave or being de-equitized," says Ronnie Fox, a partnership law specialist at Fox Solicitors. "It is worse than the early 1990s, and we will see some firms go to the wall," he adds. Firm collapses are incredibly rare among large UK law firms, partly because major firms have institutionalised their client relationships. Clients tend to be clients of the firm, not of individual partners, which mitigates the damage of large-scale partner departures. That makes Fox's prediction particularly stark.

Dominique Graham, a recruiter at Graham Gill in London, says that in contrast to the downturn of the early 1990s, when most City practices aggressively cut their associate ranks, today many firms are looking at both their associate and partner rosters. "Like any recession, this downturn has focused management's eye on talent," she says.

The tougher market has also led to another change: a stark gap has opened up between the top performers and the laggards. So while the last three years have seen peer firms’ financial performance in many cases being closely aligned, H1 figures for 2008-09 have shown big disparities between the firms managing considerable growth, like Lovells, which has seen 15% revenue growth, and Eversheds, which posted a 4% fall over the same period.

Entering this recession, UK firms are also very different businesses than they were in other downturns; far more prepared to cut costs and reshape their partnerships. A few, such as Freshfields Bruckhaus Deringer - which shrunk its equity partnership by around 100 between 2005 and 2007 and introduced a non-equity partner tier - have made their tough decisions during boom times. Others among the UK's top 50 do not have that luxury.

Even without management coups or firm collapses, London's legal community is feeling the squeeze - and some are much better prepared than others.