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

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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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41 Comments

David

I personally don’t see the appeal. There are other perfectly good firms such as CMS.

Kirkland NQ

What’s a CMS? Do I eat it? Do I pay money into it?

Circle is where the magic happens 🪄

No stop cause I’m dying at this comment😂😂😂

Anon

Some fair comments but the impartiality of Ince & Co / Arden Partners should be questioned. Certainly an element of propaganda with an Ince & Co subsid pushing alternative legal services as an alternative to the magic circle.

Anon

100% this. Wishful thinking by advisors of a sh*t firm. The Big Four are not taking work away in any areas that matter. Source: I’m still working with all my clients.

US on the other hand…

Barney the tadpole

Very interesting read.

It’s becoming increasingly clear that the Magic Circle is nothing more than a group of firms that once were idolised in the UK yet are now struggling to maintain the allure.

Disgruntled

Not sure where the Big Four come into this? With their approach to Audit, I wouldn’t let them near legal work. That and their must be a multitude of conflicts.

Anon

Yep – this is nonsense re the Big Four – they’re never going to compete with the leading finance or corporate teams at MC or US.

CC Insider

Who cares what Arden/Ince has to say on the corporate legal market? Some excellent lawyers go to US firms for sure but I’ve also seen a lot of our rubbish lawyers who have been pushed out here / people not offered qualification after training join them too. Not nearly as ‘elite’ as you think. Great whack though.

Allergic to bs

Big Four taking premium work from MC? Pull the other one, it has bells on it

Newsflash: MC is doing fine

It’s always funny to see the disconnect between these reports and the commentariat in general and the actual state of the market.

Which begs the question: why do those who don’t work in law (students, recruiters) feel comfortable generalising about five huge, diversified firms, especially when their experiences conflict with what actual lawyers are seeing in the market.

Also just FYI, MC firms already do a lot of mid market work, “mid market”ness doesn’t always mean less profitability.

Kirkland NQ

We ‘landers think very highly of MC lawyers, actually, and we hired one just last week. For the record, he is great at waxing my Lambo and poured my Vintage Krug admirably. Keep the talent coming MC!

Bullish Britdog

Chav

Ex-MC US lawyer

The US firms are slowly but surely establishing themselves as the top-tier transactional firms in the City.

The Magic Circle is excellent for training and breadth of practices (particularly advisory departments). They’ll still be top law firms but not quite the dominant position they’ve held for the last few decades so the report is right to highlight a potential move/emphasis on mid-market work.

Lol at the idea the Big 4 are taking any serious amounts of work from the MC

MC Ass

Quite. There’s also huge variation between US firms. Latham, Kirkland and STB have proper London offerings that compete with MC firms.

But then you have the joke shop US firm offices that just chuck cash at the useless associates who couldn’t hack it at a good firm, and just basically do English local counsel work.

Lumping them all in together as “US firms” is extremely lazy stuff and implies that Proskauer or Wilkey are presenting a serious challenge to A&O and CC, when in reality there’s only about 4-5 US firms that are genuine competitors
in London.

K&ERecruiter

A&O is full of associates who are willing to accept frozen salaries while the partner remuneration continues to rise. If you come across an A&O associate they are either spineless, stupid, or both.

Future

I honestly don’t see the Big Four as competition to the Magic Circle, US Firms or sizeable International firms. That was a big worry a few years ago, but nothing has really materialised. They just don’t seem to be doing high value work or attracting the best talent.

US Firms though? Absolutely. Why work every hour god sends at an MC firm when you could go to a US firm instead and make far more with a better bonus? Big international firms like HSF are paying more than Linklaters at the moment. If you are willing to put up with the long hours, go US and make far more than the MC. If you don’t want to work those hours, there’s plenty of other firms (Silver Circle, large international) or in house, each with varying hours and many still paying highly. MC seems kind of stuck between a rock and a hard place at the moment.

I would also, however, question the impartiality of Arden as they are owned by another firm.

Not buying that

It’s bollocks though. When it comes to social status capital is MC or not MC. The US firms are very new money in their London offices.

Low social status

Lol imagine thinking anyone outside of the legal cheek comments cares what law firm you work for

Joolz

I must say, I found the MC tag did help me get lucky with other lawyers or wannabe lawyers around Chelsea bars and better weekend events at country estates, but I suspect that for most people it doesn’t matter.

Kirkland NQ

By “new” you mean “massive, Lambo owner at 23 levels”, right?

Classy

Lamborghinis are for footballers. Enough said.

10 years of this crap

The answer to those reading is that from your perspective as a trainee and associate, none of this really matters, because in practice your career is nuanced depending on your practice area, seniority, amongst other things.

No one really lasts that long at any of these places. All of these places have a bias for transactional work. For some people, they much prefer it. But in any event, you have a short life expectancy doing that kind of work. The hours, stress and expectations take their toll on most.

Between 3-6 PQE most people are out. A minority go offshore to try to get more money and a better work/life balance. Most go in-house.

There’s a common career path – train at UK firm, work for a year or two, go to Kirkland, last 2 years, go in-house to a big asset management firm. You don’t need Kirkland to get to that AM firm, it’s just for when you’ve had enough.

Also common is – train at US firm, work for a year or two, leave for boutique/West End firm or go in-house or offshore, or move to another US firm for another couple of years before accepting defeat, and then do one of the foregoing.

Also if you go to Kirkland at 1PQE, the chances of you making partner are very small. If you go at 5-6 PQE, you just have to wait it out a year or two, and they make almost everyone “partner”. However, many other US firms don’t just easily make up to partner (salaried), if they do at all, preferring lateral equity and dangling carrots to senior associates until they give up.

There are lots of magic circle senior associates who went over to Kirkland/other US firms as a senior associate/counsel and then got made up. The junior associate ranks tend to burn out.

Then the salary differential after tax in the very particular most trodden on brackets in which you are working isn’t all that gamechanging. If you go to a top tier US firm and last 2.3 years as most do, and then go take a paycut for an in-house role, whereas someone else stays for 5 years at a lower tier US or MC firm, the overall cash in pocket is about the same or the latter may have more.

Your practice area probably is the biggest issue. Corny, but it’s true – you’ll make more money doing something you love/find slightly more tolerable. Because you’ll be able to stay the course for longer and working the job will not feel so bad. Should you take a transactional role at Latham over an advisory role at Travers if you think you’re an advisory person, you like the role etc. over the work you think you’ll be doing at Latham, even though it’s Latham? Of course, Travers. Either way, chances are you’ll be out of both firms within 3 years and will be on your next firm/ in-house venture. It’s too myopic to buy too much into these articles,

Had to be said

@notbuyingthat, I rarely check LC anymore but I feel compelled to respond to you in order to avoid even more law students being influenced by such harmful trash. MC/SC/ GLOBAL firms, whatever it is all just marketing.

I recently finished the LPC and now have friends from MC firms, boutiques, US and others. Freshers reading this- NO ONE IN THE REAL WORLD GIVES A DAMN WHAT FIRM YOU WORK FOR.

And for the minute amount of people that do (i.e the poster above), they are hopelessly shallow, dreadfully insecure, sad, sad people. If you tell any lay person or anyone in the city you work in commercial law, you’re just another suit to them, a lawyer. This is a huge thing to be proud of but if you’re using the law firm you work at (who could and would replace you if you dropped dead tomorrow) as a source of your self worth, go and get some therapy.

TittleTattler

@Had to be said, the comments probably reflect the relative social status of the commenters. Those from the very upper socioeconomic tiers, that is those with decent established family capital etc, would know very well about the MC and the social cachet of these firms would matter to them. That would matter much more than grubby differences in annual pay. Those from the ITV watching classes would not care, or perhaps just care about the salary. The in-betweens would be on a spectrum.

FF Sake

You’re out of date boomer. No one gaf

TittleTattler

Aside from the casual age discrimination, which is both gauche and based on a false assumption, the contribution above does appear to go a long way to proving my point. How utterly banal and basic is this poster?

Had to be said

@Tittletattler

I totally disagree. Have you met the posho ‘upper class’ types working at firms like CRS, Travers, and Eversheds? They seem LESS likely to give a damn.

It’s often those from LOWER class backgrounds who are putting too much emphasis on the type of firm you’re at because they often crave the social status it will supposedly give them. Great way to keep up imposter syndrome. As I said, don’t tie your self-esteem to the firm you’re at

TittleTattler

The fact you use the term “posho” indicates you are speaking on the basis of opinion not experience when it comes to the views of those born into in the upper socioeconomic tiers. Indeed, the word “posh” itself is quite the marker when it comes to such things. Chippy, angry and resentful; don’t worry we know the type.

Well

Personally I haven’t met a lot of folks from upper socioeconomic tiers in almost 5 years at one MC. Perhaps I’m in the wrong one…

US Doyen

In PE, finance, funds and restructuring, US firms have already overtaken MC firms. This is evidenced by Slaughters and FF being “downgraded” on chambers this year from band 1 to 2 on certain practice areas while the US shops are becoming increasingly prominent in the market.

Anon

You can’t/shouldn’t read too much into Chambers rankings (I know I did when I was applying but I have seen the light!)

Knowing people who work there and decide on the rankings it’s not as precise as you might want to think – the majority of it is informed guesswork based on interviews

Delusion

“the Big Four have obtained a sufficiently large market share and roster of clients to seriously compete with mid-market and top-tier firms.”

Hahahahahaha a good one!

Curious George

Two questions for those working at MC Firms:

1- how acute is the problem of people leaving MC firms to join US firms? Are you finding teams/departments depleted as a result of colleagues moving to US firms? I always see threats in comments sections from MC lawyers but curious to know if it’s coming to fruition.

2- if people are leaving in droves, what impact is that having on the types of people your firm is replacing them with? Are you finding an increase in people from silver circle/regional backgrounds, or are you just ploughing on with leaner teams?

CC Insider

It’s not really a huge problem. Leavers from the MC go to a variety of lower tiered, in-house, and US law firms. We mainly hire from a variety of silver circle, leading international, and US law firms. We’ve had associates leave for both silver circle and US, then come back because they prefer the work and/or culture here. Others leave for good and carve fantastic careers – it’s all about the individual. To claim the MC is dying is far fetched and the division on Legal Cheek re MC vs US doesn’t exist in the real world the same way it does for students.

Curious George

Thanks very much CC Insider – appreciate you taking the time to advise. Cheers.

Another MC insider

1- From my own experience at a transactional department, albeit not within a field which is dominated by US firms / hiring, I would say the problem was reasonably acute in 2021, but has more or less stabilised since the start of 2022. There seems to be a good mix of people leaving to US firms at all levels, from NQ all the way to counsel, but it’s more a trickle than a flood. Given the current state of the market, the general consensus seems to be that people are valuing the job security of being at an MC. Definitely not seeing a depletion of teams/departments…

2- As replacements, my particular MC firm hired the greatest number of lawyers internationally, followed by those with silver circle and regional backgrounds. As for your final question, my feeling is that MC HR allocation is quite fixed – if the partners decide a team should have 10 associates, the partners will endeavour to maintain this figure in both busy and quiet periods (with some flexibility), and this target figure will not change quarter to quarter / year to year, unless by intentional decision.

LMAO

Almost half of Links/A&O/Slaughters/FF finance, regulatory, PE and restructuring have quit during 2020/2021 to work for a US competitor. Partners in those shops were agonising over the loss of their top associates but cannot justify the increase of salary of the “leftovers”. The current state of affairs is frankly dire. US firms are properly supported by driven partners who go out and hunt for work, while MC firms remain complacent in relying on the old model of panel work and secondments to low value clients – any intelligent associate should know which way to go.

What?

That’s nonsense. Not even close to 50% attrition in those teams. Where have you got those figures?

Anon

Any intelligent associate can look at US trends and see that people only tend to last a couple of years there, and as soon as recessions come in the US firms are RUTHLESS with redundancies. I honestly think this is a terrible time to leave for a US firm.

Lond.

Must be easier than ever to make Partner at the MC/SC now – all the best people seem to leave for US firms. How is it sustainable to have droves of NQs leaving on qualification?

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