Looking at the bumper results coming out of most law firms this year, it is almost possible to forget about the bleak market conditions. But looking at the deal releases coming out of the top City firms reveals a very different story.

Put aside a handful of big-ticket deals and many of the announcements coming out of the magic circle regarding their transactional work would have been unlikely to see the light of day 12 months ago.

Of course, large firms are always doing smaller deals, but the point when the bread-and-butter work becomes their 'latest news' is a worrying indicator for smaller law firms, which are already facing the prospect of larger rivals moving in.

Those outside the magic circle often get defensive when questioned over the threat of predatory City giants moving into their natural hunting ground, but claims that loyal clients will not desert them for fairweather friends are not supported by history.

As one partner at a top 10 City firm says: "What happened in the last two downturns was a flight to quality. Banks only want to do good deals, so there is a reduced volume of transactions and fewer firms instructed. The people losing out hardest are the third, fourth and fifth preferences, who may not see any work at all."

It is probably not quite that simple – market cycles refuse to break down to affect different tiers of law firms in predictable ways. But figures compiled by Mergermarket for Legal Week suggest the magic circle is already pushing further into the mid-market to keep deal teams running. At Linklaters, for example, the firm worked on 62 deals in Q4 2007 with an average value of E517.5m (£409.7m). In contrast, over the same period in 2006 it acted on 82 deals worth double that figure.

Admittedly, with roles on some mega-deals at the beginning of this year the firm's Q1 value figure for 2008 was significantly up, but the statistics are broadly replicated across the magic circle.

Clifford Chance saw its European deal volume fall by 46% between Q4 2006 and Q4 2007, with volume for the first quarter of this year down by 36% compared with the same period the previous year. Freshfields Bruckhaus Deringer saw average deal value across both quarters significantly down.

Overall, volume levels across the magic circle are down around 30%-40% comparing the bull market of the first half of 2007 with the tougher conditions of 2008. Considering the sharp slump in deal activity at the top of the market, that the fall is not deeper suggests the top firms are already moving aggressively into lower sections of the market.

True, the magic circle is better organised as a group than in the previous downturn and they also have the advantage of more mature and profitable international networks. But shrewd watchers of the market believe London's top firms have been aggressively targeting market share since the beginning of the year and the expectation is that this trend will step up further before the end of 2008.

The related fields of leveraged finance and private equity – two of the worst-hit practice areas – promise to witness some of the most intense jostling, probably even more so on the more fluid corporate side.

One veteran consultant told Legal Week: "Whatever they say, the magic circle deliberately push down. It's like the song -'there's so many in the bed and one fell out'. We just don't know how big the bed is or who's going to fall out yet."

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