US law firms have transformed the London legal market over the past two decades, moving from challengers to many of the most dominant players in the City. According to Filippo Falchi, this shift has been fueled by the growth of private equity and private capital, longstanding client relationships with major U.S. asset managers, and a profitability advantage that has enabled U.S. firms to attract and retain top legal talent.
Key Takeaways
- U.S. law firms have grown significantly faster than their UK counterparts in London and now occupy many of the top positions in the market.
- Private equity and private capital continue to drive investment and growth among the world's largest law firms.
- Many U.S. firms benefited from longstanding relationships with major asset managers, allowing them to expand internationally alongside their clients.
- The profitability gap between leading U.S. firms and many UK firms has widened considerably over time.
- Higher profits have strengthened U.S. firms' ability to recruit and retain elite legal talent, reinforcing their competitive position in London.
The UK legal market is an ever-evolving one, affected by both trends that have been unfolding over a number of years as well as by the rise of new ones. This month, data on the largest corporate law firms operating in the UK were published and some of the findings were truly remarkable: whilst 10 or so years ago the ranking was – predictably – dominated by UK firms, US firms have grown at a much faster rate in London over the last decade and have now taken up several of the top 10 slots.
Private equity and private capital in a wider sense continue to attract the lion’s share of the investment made by the largest law firms. This has had significant impact on the business of law as private capital actors tend to be less fee sensitive than banks and corporates and this has been an important factor in driving law firm’s profits upwards over the last 15 or so years.
US law firms operating in the London market have an inherent, “home turf” advantage stemming from the fact that the majority of the large, multi-strategy asset managers are headquartered in the States, and their relationship with said clients dates back decades. In practice, the early head start some of these US law firms were able to enjoy allowed them to follow their clients in new jurisdictions – including the UK – and build a strong and profitable offering off the back of their clients’ expansion. This trend has now been in motion for the better part of 20 years and is showing no signs of abating.
If a reader of this publication had consulted the UK legal rankings in 2010 or so, they would have found a list dominated by the Magic Circle and some Silver Circle players. It will not be lost on the same reader that these terms – Magic and Silver Circle – have largely been abandoned and that rankings these days are dominated by large, often PE-focused US players.
A direct consequence of the closeness of US law firms with their clients is that their profits have grown at a much faster rate than their UK peers. In other words, in the 2000s profits at Magic Circle law firms would have been marginally lower than at their US peers, whereas these days the most profitable of MC firms hardly make the top 30 global list as judged by profitability. This has in turn made it much harder for UK and non-US firms in general to retain top talent and allowed US firms to cement their lead in the market.
There are of course some exceptions, and some of the larger UK law firms have managed to hold on to some key client accounts – usually thanks to their expansive geographical reach – but the direction of travel is clear.
The question is no longer whether US firms will lead the London market, but it is whether UK firms can carve out a defensible space within it.
In terms of new trends, we are now seeing US players expand in products other than PE and private capital. Both when it comes to high-stakes litigation and public M&A transactions, US law firms seem to be laser focused on encroaching on these markets as well. A number of US law firms in London have had a public company practice for a number of years, but this was largely to address the need of their PE clients when it came to take private transactions. What we are seeing now is an appetite to build standalone M&A offerings to rival those of the Magic Circle.
Another relative recent trend is the interest of US law firms in high-stakes litigation. Similarly to PE, 15 years ago it would have been almost unthinkable for litigation rankings to be dominated by US firms. This has now changed.
What will the rankings look like in 5 or 10 years’ time? Will we find UK firms anywhere near the top 10 in the London rankings? The jury is still out.
