If the number of taxis waiting outside Freshfields Bruckhaus Deringer's Fleet Street offices at 11pm can be used as a crude barometer of merger activity in the City, then the financial performance of firms with national practices can be taken as a measure of activity levels in the wider UK economy.

The 13 firms in the top 50 with large domestic presences beyond London saw combined revenues grow by 11.6% – driven only in part by mergers – suggesting a return to form for the UK-wide firms and the UK economy as a whole. 

claire-rowe-shoosmithsClaire Rowe, chief executive of Shoosmiths (pictured, right), sums up the trend, saying: "What I see is the success of the national firms like Shoosmiths who are doing very well in the mid-tier market. However, the international firms who are more subject to the vagaries of the international market have not had quite such stellar results. We are certainly seeing a strong success story for that mid-tier."

The firms that make up the UK-wide cohort in Legal Week's Top 50 UK rankings have a strong network of offices throughout the UK, and while firms like Eversheds and Osborne Clarke also have international practices, most of the firms in this group generate much of their revenue domestically. Given our rankings this year include the full global revenue of DLA Piper rather than just its business outside the US for the first time, we have excluded the firm from this grouping.

Combined revenue across the UK-wide group climbed from £1.714bn to £1.912bn: an increase of 11.6% in total revenue, representing an average growth rate of 15.2%. Even after stripping out the data for recently merged firms Wragge Lawrence Graham & Co and Blake Morgan, whose combinations resulted in 48.8% and 51.4% increases in respective turnover, the remaining 11 firms grew by a healthy 7.4%.

This far exceeds performance across the top 50 as a whole where combined revenue increased by 4% and average revenue was down 2.2%. Similarly the magic circle saw average revenue growth of 3%, while revenue across the top 10 firms declined by an average 0.3% as currency fluctuations took their toll.

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The UK-wide firms were also successful in 2014-15 when measured by profitability and profit per equity partner (PEP). The eight firms in the group which reported PEP figures for both 2013-14 and 2014-15 saw PEP grow by an average of 14.8%, from £389,400 in 2013-14 to £441,100 in 2014-15. Three of the top five performers by PEP growth in the whole of the UK top 50 are national firms: Shoosmiths, Pinsent Masons and Bond Dickinson, recording respective PEP increases of 42%, 32.8% and 26.2% respectively. Driven by the two aforementioned mergers, partner numbers across the group grew by 5.2%, from 1,934 in 2013-14 to 2,035 in 2014-15.

So what drove the growth at these firms and why did they fare so much better than the global behemoths that inhabit the upper reaches of the top 50?

peter-morris-burges-salmonThe return to growth in the UK economy was clearly the number one reason for the strong financial performance of the UK-wide law firms. As Peter Morris (pictured, right), managing partner of Burges Salmon, says: "Our focus is primarily the domestic market and UK Plc continues to do pretty well."

Activity was well distributed by both region and industry sectors: managing partners interviewed for this piece variously picked out corporate, banking, private wealth, retail, transport and automotive as sectors within their firms that had experienced particularly strong years. However, real estate was a sector almost unanimously identified as a key driver of growth in the last financial year.

Bond Dickinson's Jonathan Blair summarised the trend saying: "Real estate is strong and across the legal sector real estate is experiencing a bounce back which is good news for the UK economy."

Wragges chief executive David Fennell was similarly bullish about the health of the property market saying: "Coming out of the merger we put together two very strong real estate practices – we now have great teams across both the housing and commercial sectors – and this will continue to be a growth area for us over the next few years."

Law firm leaders argue it is this transactional growth in particular which boosted their practices, many of which struggled in the recession and its aftermath, losing partners, and seeing revenue and profitability plummet.

Firms with wider international office networks and those earning significant amounts in foreign currency, also tended to be hit by the fluctuations in the currency markets which impacted on their revenue. In contrast, firms earning most of their revenue in sterling and operating primarily in the domestic market benefitted from the positive economic conditions and were largely shielded from the turbulence experienced around the world.

bryan-hughes-eversheds-bigHowever, in a globalised world an economic downturn in Wuhan can impact on output in Warrington, as Morris points out: "UK plc is not insulated from global effects so over the next few months we are optimistic, but there are a lot of things going on outside our control and we don't know what their impact will be."

Eversheds chief executive Bryan Hughes (pictured, right) warns some within this group of firms need to internationalise more: "Those firms that chose to be UK centric, unless they have a particular niche, may have followed the wrong path strategically as clients have looked to globalise to find growth and law firms have created global networks to service the needs of existing and new clients."

However, the financial results recorded by firms with strong domestically focused practices show that for 2014-15 at least, making a bet on the UK was a good strategy. 

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