The Magic Circle is ‘being attacked from all angles’ by US and Big Four competitors

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By William Holmes on


New report suggests elite UK quintet may need to focus on mid-market work

A new thought leadership report has produced a damning assessment on the Magic Circle’s future in the legal market arguing that the elite UK firms may need to re-invent themselves.

The report titled A requiem for the Magic Circle?, which was published by the Ince-owned corporate advisers Arden Partners, predicts that Magic Circle firms “may need to re-invent themselves and reposition towards a mid-market position” in light of fast-growing US competition and the increasing market share gained by the Big Four accountancy firms.

There are three factors highlighted in the report that explain this prediction.

First, the analysis suggests that Magic Circle firms are being out competed for top-end work, citing the fact that US firms are beginning to overtake their UK counterparts in corporate revenue.

The report explains that “the fundamental issue for the Magic Circle is that there is only a limited number of firms that can reliably colonise a space in advisory work for transatlantic mega-corporations”.

Given the importance of having a strong US client base, the report notes that “since the financial crisis it’s been increasingly difficult to sustain a top-tier practice in London without having a credible US presence” — something that the researchers are not convinced that the Magic Circle have been able to do.

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Second, it highlights how UK firms are not keeping pace with US firms’ growth. According to the report, the top 50 US firms in London have almost doubled revenue since 2020 (and accounting for two-thirds of the market growth) in contrast to a 30% increase for UK law firms.

Similarly, the research characterises the Magic Circle’s PEP growth as “a little underwhelming” when compared to the likes of Latham & Watkins which saw its PEP jump 26% to $5.7 million (£4.9 million). This leads the researchers to speculate that US firms are likely to overtake UK firms next year.

Third, Magic Circle firms are being priced out of top junior talent and do not have the capacity to match what US firms can offer junior lawyers. “The Magic Circle are facing relentless wage inflation and they simply can’t compete,” the report states. “That’s not sustainable, since if you can’t get elite people into an elite model, then it simply doesn’t work.”

And the cumulative effect of all these factors does not make good reading for the Magic Circle. “It has taken US law firms the better part of two decades to reach critical mass. From here, the competitive challenge is likely to snowball” argues the corporate advisor company.

At the same time, the report contends that the Big Four have obtained a sufficiently large market share and roster of clients to seriously compete with mid-market and top-tier firms. This makes for a dangerous squeeze on the UK elite quintet: “With the Big Four and ALSP’s attacking the soft underbelly, the Magic Circle are being forced to focus more on the high end but are being increasingly outcompeted by the Americans.”

The report concludes: “They [the Magic Circle] are a room full of millionaires that refuse to believe that their business model is in trouble”.

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