Allen & Overy tops magic circle financial results growth league, with Clifford Chance coming in second

Linklaters is third and Freshfields fourth, while Slaughter and May declines to take part in summer bling fest

The magic circle has shrugged off fears about the threat of new technology to its business model with a storming collective set of financial results.

Leading the way is Spitalfields Market-headquartered giant Allen & Overy (A&O). The firm boosted profit per equity partner (PEP) by over a quarter (26%) to £1.51 million and lifted revenue by 16% to £1.52 billion. In an interesting footnote to the firm’s freshly released 2016-17 financial report, it is revealed that A&O’s highest earning partner pulled in an eye-watering £3.519 million last year.

Bagging the silver medal is Clifford Chance (CC), whose home is over in Canary Wharf. CC boosted its PEP by 12% to £1.375 million, and upped revenue growth by 11% to £1.54 billion.

Barbican-based Linklaters did pretty well too. PEP exceeded £1.5 million for the first time ever, growing by 8% to £1.568 million. Revenue went from £1.31 billion to £1.43 billion — a nearly 10% rise.

Bringing up the rear this year is Freshfields Bruckhaus Deringer. The firm, which is preparing to move from its Fleet Street address to a new office in City skyscraper 100 Bishopsgate, increased PEP by 5% to £1.547 million but managed to raise revenue by just 0.3% to £1.33 billion.

Slaughter and May declined to make public its results.

So where does that leave us in terms of overall figures?

2016-17 Profit per equity partner

1. Linklaters — £1.568 million
2. Freshfields — £1.547 million
3. Allen & Overy — £1.51 million
4. Clifford Chance — £1.375 million

2016-17 Revenue

1. Clifford Chance — £1.54 billion
2. Allen & Overy — £1.52 billion
3. Linklaters — £1.43 billion
4. Freshfields — £1.33 billion

Lots of factors play a part in law firms’ annual financial results. This year, it seems that the fall in value of the pound has been significant, with the very international nature of the magic circle meaning that revenue from abroad is effectively worth more. For example, A&O reported that 74% of its revenue came from matters involving two or more countries and 30% of revenue derived from matters involving five or more countries.

What typically hits firms’ figures is retirements of big-earning partners (most City lawyers retire aged around just 55, so this is a big issue) and deals falling through (the collapse of the proposed merger of Deutsche Boerse with the London Stock Exchange was a blow for Freshfields).

Investment can also skew things. Low cost hubs like A&O’s Belfast base and Freshfields’ Manchester hub require big sums to get them off the ground before they become profitable. However, Legal Cheek understands that the wave of lawtech investment of the last year has come at a much cheaper cost, thanks in part due to start-ups’ currently competitive rates. Meanwhile, eye-catching announcements like A&O’s new Fuse tech innovation space don’t require a great deal more than repurposing existing office space, at first at least.

Over time, there is speculation that new artificial intelligence-linked technology could disproportionately hit the magic circle firms because of the high number of trainees and junior lawyers they employ. The received wisdom is that the admin-level document review and due diligence work done by rookies is vulnerable to automation. But these are early days for AI, with most law firms still just trialling the technology. And indeed this is reflected in the firm’s financial results, with the 2016-17 turnover growth demonstrating that these mega firms are not ready to start shrinking yet.

As you can see from the Firms Most List, PEP at other big English firms is usually lower than the magic circle, in some cases quite substantially. However, the highest PEP in the world is at the leading US firms, which blow everyone out of the water.

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