In the mid- to late-1990s, just when the magic circle was embarking on its invasion of Europe and the rest of the world, a familiar name in the City was sliding down the ranks. Penningtons, the City and southeast firm which, together with the likes of Allen & Overy (A&O), was famously tipped for greatness in the Legal 500s of the late '80s and early '90s, now sits firmly outside the top 50 UK firms by turnover.

But while Penningtons might not have achieved the heights of A&O, it has proved itself more resilient by far than a number of other firms that appeared in the same bracket in 1989, which have disappeared altogether or been swallowed up by larger rivals. So how did Penningtons survive a fall that would have spelled the end of a lesser firm?

Disaster hit Penningtons in 1993, a time when it ranked among the City's top 20, when its Broad Street headquarters was badly damaged by the IRA's Bishops-gate bomb. Staff had to relocate to alternative premises for more than two years while repairs were made, but the overheads in the temporary offices began to unsettle some equity partners. The snowballing of costs focused attention on the firm's financial footing, prompting a number of partners to rethink their positions. In 1995, just after it moved back into its newly-repaired City offices, the firm lost its highly profitable Bournemouth office, as six partners, including senior partner Lionel Fynn, broke away to go it alone. The loss of the office, which boasted a large licensing practice that contributed a solid fee income, was significant and marked the beginning of many more partner losses, including senior figures such as family lawyer David Davidson, who moved to Charles Russell.

In 1996, Penningtons strove to cut costs by moving from its Broad Street home, at the same time trimming about 20 support staff. The firm went on to review its entire cost base, a process that saw the number of partners at the firm fall from 66 in 1995 to just over 40 the following year. Resignations and redundancies ran through all levels of the firm, covering its London base as well as offices in Basingstoke, Godalming and Newbury. The scale of its partner losses left the firm deeply shaken. Its erstwhile managing partner David Stedman said at the time that the firm would be concentrating on the key areas of IT, energy and commercial property. But this strategy was dealt a blow the following year when key energy partners Martin Byatt and Michelle Dunne left for Clyde & Co.

While the Bishopsgate bombing heavily contributed to the firm's woes, it was not the only firm affected by the bomb. The damage done to rival firm Norton Rose's offices meant it also had to move out, but it was back in its offices within 18 months after a £20m revamp. While the firm undoubtedly suffered a setback because of the bomb, it is now the eighth largest in London and in the top 15 firms nationwide. In many ways, conversely, it is remarkable that Penningtons survived its subsequent partner haemorrhage at all.

The firm's current profile is much lower, even within the southeast. As fellow south and southeast firms are driving to raise their profile, flagging up client wins, major deals and new recruits to shake up the market, Penningtons remains quiet, despite a highly respectable set of figures for several years in succession.

The firm has, in fact, been considerably more successful in achieving some of its stated aims than may at first be apparent. Of the law firms recognised as being in its tier in the early '90s – in addition to A&O, these included Gouldens, Simmons & Simmons and Turner Kenneth Brown – many no longer even exist as independent entities (Gouldens and Kenneth Turner Brown, for example, have since merged with Jones Day and Nabarro Nathanson respectively). Penningtons, exactly as it said it wanted to, remains independent.

Such an outcome was by no means inevitable. In the mid-'90s, rumours began to circulate that Penningtons would seek a merger to save itself, but despite ongoing partner losses, David Stedman steered an unequivocal course of independence. In 1997, current managing partner Lesley Lintott took over from Stedman. Lintott has overseen a steady rebuilding of Penningtons' partnership. She oversaw a huge growth in equity partners in 2001, from 20 to 37 – a reflection of the firm's stronger financial base. Partner numbers are back up to 60 this year.

Penningtons' London base outstrips its southeast offices in size and turnover, with more than double the number of partners working from the City – 31 – than in Basingstoke, Godalming or Newbury, which boast 12, 15 and 15 partners respectively. While the firm's small- to-medium City base feeds work outside the capital, and may give the regional offices an edge on competitors, the spread of partners means Penningtons is small in London and not big enough to make the top three by size in the southeast.

Meanwhile the firm's competitors in the southeast have by no means been idle. ASB Law, Blake Lapthorn Linnell, Cripps Harries Hall and Thomas Eggar are all bigger than Penningtons outside London, while young firms such as Brighton's DMH have taken huge strides to make their mark. Blake Lapthorn in particular has leapt up in size to the extent that it is breaking into the top 50 firms nationwide by size, the only southeastern firm to do so. Its turnover is predicted to exceed £30m this year and partner numbers stand at 76 (including London) after last year's merger with Linnells. Managing partner Walter Cha says the firm's strategy of concentrating on its three core areas of real estate, corporate and commercial and litigation, is simple. A deal closed last month saw the firm acting for the Kerry Group in a £238m acquisition of the Quest Food Ingredients division of ICI, with Freshfields Bruckhaus Deringer advising ICI. Understandably, Cha says the firm is chasing more of this kind of FTSE 250 client as part of its strategy for the new financial year.

For Penningtons, having a presence in the City brings in referral work from international companies – Lintott cites the US as the firm's main source of such work. It also has a one-partner office in Paris, the firm specialising in property work for French clients. She expects turnover to hit £23m this year – and last year the firm broke the £20m barrier on turnover, with total profits up 11%.

This compares well with other firms in the south. Cripps Harries Hall expects to finish the year up 8% on turnover, while Thomas Eggar managing partner John Stapleton predicts a 10% rise for his firm. DMH managing partner Tim Aspinall is expecting turnover of around £15m at his firm this year, representing another big increase of around 15% – last year's increase was 20%. "We have doubled our revenue in five years," he says. DMH has recruited some strong partners recently, with Richard Curtin joining from Gouldens in 2003 to head up the firm's insolvency and asset-based lending group.

Like other firms in the region, office moves feature strongly as a theme for last year and next. Penningtons took a new office in Basingstoke in 2002, and has signed a contract for a bigger office in Newbury. "We are aiming to take turnover there to almost double what it is now," Lintott says, adding that the firm is also looking for extra space to expand its third regional office, in Godalming.

Elsewhere in the southeast, Thomas Eggar will open a major new office in Gatwick next year to consolidate its Horsham and Reigate offices into a regional head office. "This will give us a strong regional presence," says John Stapleton, who is due to step down from his role as managing partner next month after 10 years at the helm.

Against such strong competition, what tricks does Penningtons still have up its sleeve? The firm's strong regional presence was undoubtedly a factor in it surviving the difficult days in the mid-'90s. It had one of the strongest matrimonial practices in the country and still boasts a weighty practice in this area in New-bury. It hired ex-Farrer & Co partner Clare Hamilton-Russell last September as a partner in the family team, which Penningtons has concentrated on expanding.

And the firm's Newbury office is growing as a whole, as Lintott points out. "We are by far and away the leaders in the field in Newbury and Basingstoke," she declares. Penningtons has a strong agricultural client base in Newbury and Lintott says the firm's typical owner-manager, entrepreneurial client is very important to them. On corporate work, Lintott says second-tier City firms are those they see on the other side of deals. It acted in September last year for the founders of Hedgefund Intelligence on its sale to Euromoney, while Nabarro Nathanson acted for Euromoney.

Property, as with most firms in the south of England, is very important to the firm, forming the highest percentage of its turnover. Penningtons acted in a major deal for client Morley Fund Management on the sale of a £69.4m retail portfolio in November last year.

Cripps Harries Hall managing partner Jonathan Denny says his firm's flagship property practice's turnover is up 25% this year. For the south of England, particularly Kent, he sees the development of the Thames Gateway as "the most colossal opportunity for firms like us". The major housing and infrastructure project will precipitate a flood of new companies into the region that firms in the south could chase. Denny says the firm is already involved in the project through clients such as Union Railways.

Penningtons was always different from the other firms in its City division, in having a sizeable regional base and a big private client and family practice. Perhaps when the firm was being compared to A&O and Simmons in the early '90s, like was not being compared with like. But the diaspora of ex-Penningtons partners across the region and the City means the memory of the firm's former troubles is deeply entrenched in firms nationwide.

As to where Penningtons is going now, Lintott says the plan is to keep on growing at a steady pace – a fact reflected in the expansion of its Basingstoke, Godalming and Newbury office space. It has no plans for a major merger, and there is little sign that Penningtons is planning an expansion of the kind that would see it leapfrog back into the City's mid-tier.

The competition within the current top 20 in the City is tough and for Penningtons to rise up the ranks again, its five-year plan would have to look a lot more feisty. Having bolted a niche travel and tourism firm on to its Godalming office six months ago and made hires into its family law team, the indications are that Penningtons will continue along the same strategic line – a southeast firm with a respectable London base. But with many of the region's firms being noisier and more aggressive in their plans for growth, Penningtons had better watch its back on the southeast turf as well.