US law firms in London outperform UK rivals thanks to focus on high margin work

Partners generate bigger profits 🤑

Partners at US firms in London are outperforming their UK rivals thanks in part to their focus on high margin work, new research has found.

US partners generate an average of £1.23 million in profit, 25% more than the average £985,000 of their counterparts at the top 15 UK law firms, according to figures published by chartered accountants Hazlewoods.

The research suggests that higher US partner profits may be in part due to their focus on work in lucrative areas such as mergers & acquisitions (M&A), private equity (PE), corporate finance, and banking.

It further found that US firms can maintain these high margins by sidelining other less lucrative areas including employment law, even going as far as to outsource this work to other firms when it comes as an unavoidable part of M&A or PE work.

The Legal Cheek Firms Most List 2023 shows US firms dominate when it comes to profit per equity partner (PEP). Kirkland & Ellis comes top with a staggering £6 million, sitting ahead of other US players including Davis Polk (£5.9 million), Sullivan & Cromwell (£5.2 million) and Latham & Watkins (£4.6 million). Macfarlanes is highest ranking UK firm with a PEP figure of £2.4 million.

The 15 largest US law firms in the UK generated a total of £925 million pounds of profit in the past year, compared to £4.7 billion made by the top 15 UK law firms, according to the research.

“There are certain aspects of how US firms operate that all UK law firms could examine for possible lessons,”said Ian Johnson, associate partner at Hazlewoods. “Being a ‘full service’ firm is appealing when trying to spread the risk of fluctuations in certain practice areas but is it the best model for everybody?”

“US firms in London have become known for concentrating on what they see as the most profitable work — and that does seem to be working for them,” he added. “It can however leave them more exposed to changeable market conditions such as a downturn in M&A and PE if markets get spooked by economic events like those we’ve been seeing over this past year.”

Johnson went on to flag that US law firms with a presence in London often offer newly qualified solicitors’ salaries within the £120,000-£150,000 range, whilst leading UK outfits struggle to keep pace, often offering rates of around £100,000.

“Being able to attract the most outstanding young talent is a key part of US firms’ strategy in London and, while those firms are able to deliver such impressive profitability, we don’t see how that will change any time soon,” he said.