amlaw100If the latest snapshot of financial performance across the largest US law firms in 2015 is any indication of what we should expect to see from UK firms this year, then the omens are not looking great.

The Am Law 100 financial rankings, exclusively compiled by Legal Week's US sister title, The American Lawyer, reveal a mixed performance across the group despite a buoyant local M&A market.

Economic instability and the impact of exchange rate fluctuations on some firms means that growth across the 100 largest law firms by revenue was the slowest it has been since the financial crisis. And this is allowing for consolidation, including Locke Lord's merger with Edwards Wildman Palmer and Morgan Lewis' acquisition of more than 750 lawyers from the now defunct Bingham.

Though the numbers represent a sixth consecutive year of growth, with a total revenue increase of 2.7% to $83.1bn (£57.8bn), it is the slowest growth in seven years and, leaving aside the crisis years of 2008 and 2009, the slowest collective top and bottom line growth since 1993.

Transatlantic gap remains
But even with this waning performance in the world's largest legal market, the rankings are a stark reminder of the huge disparity in size and profitability between the bulk of the UK firms currently speeding towards their own financial year-ends and their counterparts across the pond.

Even allowing for a comparison between two different financial years and using a spot exchange rate the differences are stark.

More than 70 US firms within the top 100 posted average PEP of at least $1m 

The smallest firm in the Am Law 100 posted revenue of $332m (£230.6m) – a figure which makes it nearly four times larger than Browne Jacobson, the firm at the bottom of the UK top 50 last year with turnover of £58.7m. Indeed, only 18 of the largest law firms in the UK would make it into this year's AmLaw 100 at all based on their performance in 2014-15. Regardless of reputation or efforts to bulk up domestically or internationally, no firm below Taylor Wessing (revenue of £239.8m in 2014-15) would make the grade.

More than a quarter of the US group (27) posted revenue of at least $1bn (£692m) in 2015. In contrast, only seven UK firms announced revenue of at least £1bn in 2014-15, climbing by just two when looking at the US benchmark of $1bn. Bearing in mind three of these firms – DLA Piper, Norton Rose Fulbright and Hogan Lovells – also appear in the US rankings as a result of the transatlantic mergers that created them, you can see at a glance the size of the mountain UK firms have to climb in order to make a significant impact in the US and therefore, by default, the global legal market.

Take two of the UK firms most frequently mentioned as potential transatlantic merger partners. Ashurst – which placed 10th in the UK top 50 last year with revenue of £561m – would feature at around 40th in the Am Law rankings (roughly the same size as Winston & Strawn or Milbank); while Simmons & Simmons – number 15 in the UK with revenue of £290.1m – would end up at around 70th. That puts it in the region of a Duane Morris or Kilpatrick Townsend.

Poor profitability performance
The profitability rankings are more damning still. It would be unrealistic to expect any practice, UK or US, to match the performance of Wachtell Lipton Rosen & Katz, which grew profit per equity partner (PEP) by $1.1m (more than the total average PEP of all bar 11 UK firms last year) to $6.6m in 2015. But there is still a sizeable gap between the US and UK firms below this.

More than 70 US firms within the top 100 posted average PEP of at least $1m (£692k), nearly a third (29) posted PEP of at least $2m (£1.4m) and a full 13 reported PEP of at least $3m (£2.08m).

In contrast, only six UK firms had PEP of £1m-plus last year and only 14 posted PEP of more than £700,000 – roughly equivalent to $1m. Slaughter and May was the only UK firm to clear the $3m figure, with Linklaters, Macfarlanes and Freshfields Bruckhaus Deringer hovering around the $2m mark.

With most UK firms' efforts to crack the American legal market still looking closer to a dream than reality, the scale of the disparity highlighted by these rankings will only intensify pressure on UK firms to overhaul their remuneration systems and boost profitability to try to close the gap.