Profits rankings dominated by US firms but ambitious UK practices beef up global clout via mergers

Rising profits at expansive US law firms and continued weakness in sterling look set to sustain competitive pressure on globally ambitious UK firms for years to come, according to new research.

This year's Global 100 – a joint initiative from The American Lawyer and Legal Week – shows leading US players gaining a stronger grip on the upper echelons of the profession globally, based on both profitability and fee income. The three largest law firms in revenue terms are either US-based or the result of unions structured through vereins – with Baker & McKenzie, Skadden Arps Slate Meagher & Flom and DLA Piper topping the income rankings.

The highest-ranked magic circle firm is Clifford Chance (CC) in fifth place, directly followed by Linklaters, Freshfields Bruckhaus Deringer and Allen & Overy. Just two years ago the top three slots were held by City firms. Meanwhile, Slaughter and May is the only UK firm to rank within the top 10 most profitable firms in the world.

Other key findings include:

  • global revenues across the group grew by 3% annually in the most recent financial year to reach $76.7bn (£49.1bn);
  • profits per equity partner (PEP) across the group reached an average of nearly $1.5m (£961,000) with 70 firms exceeding $1m (£641,000);
  • 21 firms generated fees in excess of $1bn (£641m); and
  • revenue per lawyer averaged nearly $810,000 (£519,000).

The results also suggest that the long shadow that elite Manhattan firms once cast over the global market is gradually fading. Two firms born outside of New York – Kirkland & Ellis and Quinn Emanuel Urquhart & Sullivan – now rank in the top five for profitability. A comparison with the first global ranking in 1999 also shows a growing band of US firms challenging the huge lead in profitability once held by Wall Street leaders like Wachtell Lipton Rosen & Katz.

Despite the impact of sustained weakness in sterling's value – the rankings are compiled on an average pound/dollar conversion of 1:1.54 – a number of expansive UK law firms have managed to improve their showing in the rankings.

Twelve UK-based law firms make the top 100, excluding verein-structured unions like Hogan Lovells and DLA Piper, with Berwin Leighton Paisner and CMS Cameron McKenna entering the list this year.

Hogan Lovells moved up the table to reach ninth place following last year's union of Lovells and Hogan & Hartson, while a change in methodology sees the verein-backed DLA Piper ranked in third place. Norton Rose also moves from 67th to 34th place thanks to its tie-up with Australian practice Deacons.

Herbert Smith global corporate head James Palmer (pictured) commented: "It is very fair that Hogan Lovells and DLA Piper are now in these rankings – they are now without doubt significant onshore US firms. I am not surprised at the export by US firms and, to a lesser extent, the import into the US by non-US firms. Globalisation is here to stay. The issue is how each firm chooses to deal with it."

The research also illustrates the relative growth of Australia's leading law firms thanks in part to the strength of the local dollar. All of Australia's 'big six' make the rankings and achieved PEP of at least $900,000 (£577,000). The most profitable – Mallesons Stephen Jaques – achieved PEP of $1.235m (£792,000). The results look set to fuel further interest among international law firms in Australia as a key strategic market.

Mallesons Stephen Jaques London managing partner Robert Hanley said: "The increasing presence of non-US firms in the global rankings of course reflects the globalising nature of the legal market and I think Australian firms and other firms outside of the US have used common time zones and proximity to the growing markets in Asia to their advantage with."

Additional reporting by Suzanna Ring.

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braham-edwardGoing global – views from the top

"Our clients are increasingly looking for a much more joined-up approach to international work. They are seeing their main growth coming from emerging markets and other countries they are not familiar with. Legal problems often involve the laws of more than one country and clients need the support of a firm that instinctively thinks internationally and has a diverse range of relevant experience around the world."
Ed Braham, global head of corporate, Freshfields Bruckhaus Deringer

"The international growth of UK-based firms over the period has been impressive and reflects the shift in economic power in world markets, the international aspirations of the firms, English law as an effective and popular choice of law and some limits on growth in the UK market. Whether all this work is as profitable is, of course, another question."
Paul Olney, practice partner, Slaughter and May

"Client demand for a strong, integrated international capability within their top-end law firms is becoming increasingly clear, both in the Western markets and in major growth regions. Last year 37 of our largest clients worked with us across 20 or more Clifford Chance offices. This trend is being driven by the unabated globalisation of business and the increasing extra-territorial nature of much of the regulation that is now coming into play. For us, this reinforces the importance of our capability in New York and Washington DC, and our ability to advise clients on cross-border issues as well as domestic concerns there. Our Americas teams also play a critical role in advising on Latin American deals and on much of the 'South to South' trade that is ever more important in the global economy."
David Childs, managing partner, Clifford Chance

"[DLA Piper's] results represent a strong performance thorough what was a challenging trading period. During uncertain times, which we believe are set to continue, we have the unrivalled benefit of geographic, practice and sector diversity – the drift south and east in economic terms plays to our unique strengths as we see an increasing number of global mandates from our clients in developing and emerging economies."
Nigel Knowles, joint chief executive, DLA Piper