This year's Global 100 shows that the big are still getting bigger despite the turbulent economy, but the numbers suggest it is far from a simple march to one-stop shop domination. Georgina Stanley reports

At first glance the 2012 Global 100 rankings, which show revenues for the world's largest law firms rising to an all time high of $81.9bn (£50.8bn) during the last financial year, do much to prove the well-coined expression that, rain or shine, people (or at least major public companies) always need lawyers.

But, while the table – compiled by The American Lawyer in collaboration with Legal Week – demonstrates the resilience of the legal market, it also reflects the changing shape of the industry, as globalisation has left firms battling for market share amid financial uncertainty.

With firms looking overseas for growth opportunities while trying to limit launch costs, the emergence of global giants through mergers and more loosely aligned Swiss verein-style tie-ups (which allow each party to operate different profit and revenue pools) has transformed the legal landscape and the rankings.

While some, such as Squire Sanders, SNR Denton and Norton Rose, soar up the tables due to verein deals, their expansion has, superficially at least, come at the expense of traditional premium advisers that stick with their domestic focus rather than international growth. Slaughter and May, Cravath Swaine & Moore and Wachtell Lipton Rosen & Katz have all once again drifted slowly down the revenue rankings.

And with seven firms within the Global 100 already structured under verein-style deals, including the two largest law firms in the world, Baker & McKenzie and DLA Piper, which respectively posted turnover of $2.3bn (£1.4bn) and $2.24bn (£1.39bn), there seems no reason to believe the current busy run of international consolidation will slow.

Next year's rankings will incorporate at least two more significant tie-ups – the much-touted China/Australia merger between King & Wood and Mallesons, which went live in March 2012, and the union between Herbert Smith and Australian leader Freehills, which launched this month.

Herbert Smith Freehills senior partner Jonathan Scott comments: "Clients increasingly require premium legal advice across a single global platform and we expect this internationalisation of the legal market to continue."

Verein accounting

Twenty-three of this year's Global 100 – which is compiled from financial results for the 2011 calendar year for US firms and the 2011-12 financial year for UK and international firms – achieved revenues of more than $1bn (£621m) during the last financial year, compared with 21 firms in 2011. Overall revenues for the top 100 grew by just under 7% to hit this year's record high.

Given the continued difficulties in the global economy, the group's ability to continue growing income in turbulent conditions is impressive but, in reality, headline figures have been significantly skewed by consolidation.

The top 25 now houses five firms operating as vereins or similar structures including three firms in the top 10 – Hogan Lovells, Bakers and DLA – with Norton Rose now only just outside in 14th place thanks to the latest additions to its verein in South Africa and Canada.

In contrast, five years ago Bakers was the only verein in the top 100, with the rankings only including other such deals – including DLA Piper, which operates distinct US and international profit pools – from 2010. Strip away the results of some of these recently-formed vereins and actual growth across the top 100 falls from 6.8% to a more modest 4.6% over the last year, though this is still enough to outstrip inflation in most economies and global GDP growth.

Squire Sanders, for example, rose 23 places to number 41 thanks to its 2011 union with legacy UK practice Hammonds; SNR Denton climbed from 74 to 43 through the transatlantic merger between Sonnenschein Nath & Rosenthal and Denton Wilde Sapte; while Norton Rose, which had already climbed from 67th place in 2010 to 34th in 2011 through its combination with Australia's Deacons, jumped to 14th as results from three new combinations were included – South Africa's Deneys Reitz and Canada's Ogilvy Renault and Macleod Dixon. Taking growth across all four parts of the business into account, combined revenues for Norton Rose Group in 2012 stood at $1.32bn (£820m) – up 175% in two years.

Meanwhile, CMS Legal saw turnover from all 10 member firms in its European Economic Interest Grouping (EEIG), which is similar to a verein and allows for the sharing of costs but not profits, included for the first time.

It is the flexibility of the verein-style structure that is rapidly making it the vehicle of choice for those seeking fast international expansion, though critics still contend that the model makes it too easy to avoid difficult integration decisions and that it is prone to institutional weakness.

But in retrospect it is also clear that two unions that went live in 2010 – Norton Rose's tie-up with Australian mid-tier Deacons and Lovells' merger with US firm Hogan & Hartson – had a material impact in terms of popularising and giving credibility to the model.

While the profession remains split on the long-term viability of multi-profit centre
mergers, proponents of the strategy assert with increasing confidence that such deals are allowing these firms to rapidly forge genuinely global legal brands.

Norton Rose Group chief executive Peter Martyr (pictured) comments: "Our international growth has propelled us up the global index. We are seeing the benefits of deploying the verein model, which has allowed us to move quickly and enter key markets definitively, despite the ongoing economic conditions."

Certainly the odds of CMS and Norton Rose achieving their stated aims of finding and combining with firms in the US seem far greater than a firm trying to achieve this through full financial merger. And should they succeed, it would likely have a material impact on the composition of the Global 100. Given the huge impact of the Hogan Lovells union, further mergers of this ilk would likely propel many more firms to seek similar transatlantic deals.

Despite the increasing take-up of vereins, however, much scepticism remains as to whether they equate to single firms. Herbert Smith, for example, opted for a full financial merger rather than a verein for its deal with Freehills.

As Scott explains: "A single profit pool is essential to establishing a seamless service for clients across our offices. An integrated partnership encourages people across different regions to work together towards the same goals and properly use all the firm's resources and skills."

And even some lawyers who see the model as a valid tool essentially regard vereins as a useful staging post to more meaningful long-term integration, rather than a state that should be maintained indefinitely. There is also a school of thought that says such deals work more effectively when tying a number of firms to a clearly dominant 'anchor' firm, as in the case of Norton Rose, than in merger-of-equal deals that remain more prone to political infighting. Indications that Hogan Lovells has faced some internal tensions between its two legacy practices have been seized on to back up such assertions.

The UK and Australia

While Herbert Smith and Ashurst are both still waiting to reap the benefits of their Australian deals (with Blake Dawson in the latter firm's case) in terms of their placing in the Global 100 rankings, UK firms fared relatively well in the table this year. The fifth-placed CC is the highest ranked UK law firm, although it seems increasingly unlikely that a UK-headquartered law firm will ever top the table again as they often did before the credit crunch.

Twelve UK firms made the grade in 2012, with new entrants Bird & Bird and Clyde & Co (buoyed by its merger with legacy Barlow Lyde & Gilbert) joining existing firms: CC, Linklaters, Allen & Overy, Freshfields Bruckhaus Deringer, Herbert Smith, Slaughters, Eversheds, Ashurst, Simmons & Simmons and Berwin Leighton Paisner.

This is on top of the UK-linked firms operating as part of vereins: Norton Rose, Hogan Lovells, DLA Piper, CMS, Squire Sanders and SNR Denton, as global unions make it harder to define law firms by geographic headquarters.

But, leaving mergers to one side, the international firms seeing the greatest improvement in the global rankings were those in Australia, where the US/Australian dollar exchange rate helped push up revenues and profits as the regional market, with its close ties to China, also proved more resilient than Europe and the US.

Minter Ellison was the only one of five Australian firms appearing in the table to move down the rankings, due to a change in accounting, while the legacy Freehills climbed up 12 places. The region also produced the three largest increases in profits per equity partner (PEP), with Minters' partner profits climbing 37.9%, Freehills 30.4% and Blake Dawson (now Ashurst Australia) 30.1%.

Taking into account its recent merger with Herbert Smith, Freehills looks set to place at around number 13 in the 2013 rankings, with King & Wood Mallesons also set to soar up the table, though revenue figures for the Chinese leader have never been disclosed.

Indeed, as growing numbers of UK firms look to capitalise on Australia's trade links with the relatively resilient Asia Pacific economies by sealing deals with Australian law firms, Minters is now the only one of Australia's five largest law firms without some kind of tie-up or formal alliance with a UK rival.

In contrast, law firms based in Continental Europe have seen their global clout once again wane, unsurprising given the intractable problems gripping the eurozone.

The profit perspective

Whatever the shifts in profitability in other major global markets, when it comes to profits, New York law firms still lead the pack by some way. Slaughters is the only UK firm to feature in the top 10 most profitable firms, sitting in seventh place, with its 121 equity partners making an average of $2.89m (£1.79m).

While this is around 40% more than the next highest placing UK firm, Freshfields Bruckhaus Deringer in 21st position on $2.07m (£1.28m), it is significantly below the top tier US firms.

Wall Street uber boutique Wachtell Lipton Rosen & Katz leads the rankings once more with average PEP of $4.46m (£2.77m) – around $300,000 (£186,000) more than its nearest rival.

The profit rankings remain – as they have for decades – dominated by elite Manhattan firms focused on consolidating their positions in their home ground rather than expanding internationally. Alongside Wachtell in the top five are Sullivan & Cromwell, Cravath and Paul Weiss Rifkind Wharton & Garrison, with West Coast litigation leader Quinn Emanuel Urquhart & Sullivan the sole representative from outside New York.

The drivingly ambitious Quinn, which features in second place with PEP of $4.16m (£2.58m) and also climbed 16 places in the revenue rankings, is also the only US firm headquartered outside New York to place in the top 10 other than the Chicago-bred Kirkland & Ellis. That said, while New York leaders still lead the world on profitability – the relative gains in PEP of Quinn, Kirkland and the magic circle over the last decade illustrate that the once-huge gap between such firms and out-of-towners has narrowed considerably.

Looking at the top 100 as a whole, average PEP climbed by 3.65% to $1.518m (£942,000), with those in the top half of the table taking home more than twice what partners in the bottom 50 firms made at $2.05m (£1.27m), compared with $984,000 (£611,000).

A widening gulf

Whether using revenues or profits as a gauge, overall the gulf between those at the top of the scale and those at the bottom continues to widen. With combined revenues of $38bn (£23.6bn), the top 25 global law firms brought in nearly half of the total revenues for the top 100 and almost exactly twice the fee income of the firms in the 26-50 bracket, where revenues totalled $19.4bn (£12bn).

And the growing investment muscle of the larger firms means that this trend is likely to continue, putting further pressure on those sticking with domestic strategies.

Bakers' UK head Gary Senior comments: "The bigger the firm, the more capacity it has to invest; as a $2bn law firm, we can invest a lot more than a $150m law firm would."

Hogan Lovells co-chief executive David Harris (pictured) strikes a similar note: "Firms which have a stronger and more credible international footprint are going to be better positioned to take advantage of the long term trend of increased globalisation. They are better equipped to take advantage of market developments and shifts in capital flows, such as the increase in transactions between China and Latin America. We are also seeing a longer term consolidation in some clients reducing their number of external legal advisers to take advantage of the experience the global firms provide."

Yet the long-term trend remains open to some debate. Going global has demonstrated some advantages, notably the flexibility to move with the global economy and in delivering the scale to back expansion. It is also increasingly apparent that law firms of a certain size achieve a 'brand premium' that comes in part from size alone.

That said, there has been considerable evidence of some heavily-globalised firms struggling for growth over the last five turbulent years in the economy. Hogan Lovells, Freshfields, Linklaters and Herbert Smith, for example, have seen relatively little growth in recent years (though this is partly due to a clear strategy from some leading London firms to focus on margins and pricing rather than scale).

In contrast, the last couple of years have seen a range of smaller and more focused mid-tier domestic practices outpace the growth and productivity of some much larger firms.

While there is agreement – and financial evidence – that the market has become less forgiving of unfocused national practices since the credit crunch hit in 2007, the evolutionary forces at play are less clear than some argue. As best as can be definitely said at this point, globalisation is not a magic wand or cure-all in the legal industry. It confers considerable benefits, and reduces the number of natural peer group competitors that a firm has to face. But it cannot make an indifferently-run law firm a success. Neither can it do much to strengthen a firm with a highly variable quality in its practice and partnership. Bigger just means bigger, not better and quite possibly less well organised, a risk illustrated by the collapse this year of Dewey & LeBoeuf, which ranked 26th in last year's Global 100.

Current figures suggest there are genuine drivers towards globalisation in law but those waiting for unambiguous proof that the market is being swept by transnational legal supermarkets will just have to be patient.

Slaughters practice partner Paul Olney says: "What we're seeing is a variety of models which attempt on the one hand to give the impression of global unity and reach under a single brand, while on the other hand maintaining largely segregated profit pools on account of differing partnership models, profitability and performances in different markets. There are rather more important aspects to evaluating a firm than simply gross revenues."

Freshfields senior partner Will Lawes says: "Simply getting bigger is not necessarily a winning strategy. It takes an awful lot more to succeed. Bringing together large, people-based organisations with different cultures and approaches is hard and takes a long time."

In the final analysis, going global is a means to an end, the end being success and progression in an increasingly competitive legal industry. Those hoping for simple answers or a clear formula for excellence will have to look further than merely relying on the next foreign office launch.

The tables are based on the average sterling/dollar conversion rate for 2011 of £1 = $1.6043. Australian$/US$ conversion is A$1 = $1.0332. Euro figures are reported at €1 = $1.3931.

For more analysis, see Globally confused – it's a winding road to legal globalisation.

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Camerons v CMS – taking the brand global

CMS' position in this year's Global 100 marks the first time the CMS network, which is structured as a European Economic Interest Grouping (EEIG), has been considered as a single entity in the rankings. The 10-firm European grouping, which includes CMS Bureau Lefebvre in France and CMS Hasche Sigle in Germany as well as the UK's CMS Cameron McKenna, enters the rankings at number 22 with a combined revenue figure of $1.11bn (£690m) against an average consolidated profits per equity partner (PEP) figure of $745,000 (£463,500) for the 2011-12 financial year. This compares to Camerons' current PEP of £534,000. The results, which put the network ahead of the likes of sizeable US players such as K&L Gates and Reed Smith, are a far cry from last year when UK member Camerons was a new entry in its own right in 98th position. 

Camerons managing partner Duncan Weston (pictured) maintains the decision to include combined revenues is sensible as key benchmarks for measuring firms should be "revenue, profitability, brand and core systems and process such as governance and conflicts policy", with the EEIG including shared IT and conflicts policies. 

Weston comments: "We're happy that our global network is being recognised in this way, as clients see us as a single firm. We spent a lot of time in previous years on rebranding and convergence programmes to build a distinct culture."

"Generally, there's no right or wrong way in terms of structuring. But we have the competitive advantage as our structure allows us to achieve international scale where other firms can't. We are not limited in terms of growth in the way that fully financially-integrated firms can be."

The network now has more than 2,200 lawyers operating in 28 countries, primarily across Europe. Portuguese outfit Rui Pena Arnaut & Associados was the latest addition to the group when it joined in October 2011. The firm is also set to launch in the Middle East, receiving a licence to practise in Dubai in September this year. 

With much of the integration efforts in Europe out of the way, the focus now is on improving the brand perception of the CMS network internationally and crucially adding on capacity in the US, with the firm potentially willing to lose the CMS brand name. CMS launched an advertising campaign in the US earlier this year as part of this ambition, with CMS chairman Cornelius Brandi leading the firm's efforts in this regard.

Pui-Guan Man

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The big horizon – views on the global legal market in 2012

"We have no interest in being the biggest law firm on the planet. Our focus is on ensuring we have the highest quality to support our clients in achieving their strategies wherever they do business. Our growth ambitions centre around building long-term client relationships and as such, our priority is to ensure we maintain consistent excellence."
Simon Davies, managing partner, Linklaters

"Despite what continues to be a tough global legal services market our performance demonstrates the advantages of the firm's geographic and practice diversity. We are focused on our ambition to be the leading global business law firm."
Nigel Knowles, joint chief executive, DLA Piper

"If you are a predominantly UK-based law firm with a limited international presence and you decide to invest in a market such as China, you're investing in markets which are already mature and that is hard to do. And that might lead you to pursue a merger, which throws up problems of its own. You're definitely going to see more mergers, as the chasing pack tries to catch up with the top firms. Do vereins matter? There's a lot of confusion here in my view. A verein is simply a method of structuring your business. Looking at how an entity organises itself doesn't really answer the degree to which it's integrated."
Gary Senior, London managing partner, Baker & McKenzie

"The climate remains challenging and we feel that this is the 'new normal'. Firms need to set their own benchmarks since the relevant metrics will vary depending on their strategy and goals. A firm which has a balance of practice areas and geographic reach is going to be less susceptible to economic fluctuations in markets and variations in transactional workflow. We expect to see further consolidation in the industry as firms develop their geographic reach, scale and depth in response to increased client demands resulting from globalisation."
David Harris, co-chief executive, Hogan Lovells

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Global 100 – key stats at a glance

• Global 100 total revenues – up 6.8% to $81.9bn
• Top 25 – up 6.9% to $38.09bn. 
• 26-50 – up 6.2% to $19.4bn
• Top 50 total revenues up 6.6% to $57.5bn
• Bottom 50 – up 7.3% to $24.4bn
• Average PEP – up 3.65% to $1.518m
• Average PEP in the top 25 – up 4% to $2.574m
• 23 firms saw revenue top $1bn
• 74 firms saw PEP over $1m
• Number of firms with offices in 10 or more countries – 24; up from 20
• Number of firms with at least 50% of their lawyers outside their home country – 14, up from nine last year

Click here for the full table of results.