It is often said that US law firms are winning the war for London, while UK firms are failing in the US. As with most narratives of this kind, there is some truth and quite a bit of fiction to this story.

It is true that a handful of US firms have done well in London. American firms at the higher end of the market, for example, appear to have gained an upper hand against their UK counterparts in terms of profitability and their capacity to attract and retain top talent. It is also true that UK firms have generally struggled to penetrate the US market.

That said, generalising these stories and applying them to the entire market is wrongheaded. This two-part series, using data on law firm performance, paints a more nuanced picture of success and failure on both sides of the Atlantic. It also reveals some important truths about the globalisation of the legal market and how firms should think about expansion.

The US invasion

The expansion of US firms into London has been one of the most visible trends in the legal market during the past decade and a half. Since 2000, 47 American firms have entered the London market. In that period, the number of London-based lawyers among US firms has increased by 227%, from just over 2,000 lawyers at the turn of the century to nearly 7,000 today.

The expansion of American firms into the London market has not only been limited to office openings and lawyer growth. US firms have also successfully penetrated many key practice areas. The most notable success of US firms, and perhaps the most important, is in the market for high value M&A work.

24% of the London offices opened by US firms between 2000 and 2017 have since closed

High-value London M&A has traditionally been dominated by the magic circle and other corporate-focused City firms, but as illustrated by recent data from Mergermarket, a handful of elite US firms have made significant inroads in this area. Last year, White & Case and Cravath Swaine & Moore were ranked second and third respectively in terms of the combined value of European deals they advised on. Moreover, seven of the top 10 ranked firms in this area were US-based. Figures from the first half of this year show similar trends, with US firms holding eight of the top 10 rankings.

Nuance to the numbers                                

There is a tendency to conflate these two trends – to link M&A success of firms like Cravath and White & Case with the broader trend of American firms' expansion into London. This tendency, fuelled by near constant news of lateral partner moves from UK to American firms, has caused many to conclude that American firms have been broadly successful in the UK. An analysis of the data, however, suggests that conclusion is unfounded, and that real success is limited to a small number of firms.

Of the 5,000 lawyers added by Am Law firms in London between 2000 and 2017, more than half were from 10 major mergers. The Norton Rose-Fulbright & Jaworski merger alone added 700 London-based lawyers to the Am Law ranks. What's more, another 28% of the growth originated from 10 highly successful firms, adding more than 1,300 lawyers in London since 2000. The next 10 firms account for an additional 12% of the growth.

The remainder of the growth of US firms in London – accounting for 6% of the total – originated from 47 US firms. Those 47 law firms added only 570 London-based lawyers during the past 17 years, a rate of less than one additional lawyer per year for each firm.

The truth is that a significant number of US firms have failed in London. Consider the following:

• Twenty-four percent of the London offices opened by Am Law firms between 2000 and 2017 have since closed – a shocking figure given the costs associated with opening foreign offices.
• Twenty-seven percent of the Am Law offices opened in London since 2000 remain very small, housing less than 10 lawyers.
• Only 9% of the Am Law firms that have entered the London market since 2000 have grown to more than 100 lawyers and only one of those has done so without a major merger.

The US firms that have done well in London fit a specific profile. They are highly profitable, have been active in London for decades, and focus on high value transactions work. There are exceptions, of course. Baker McKenzie is among the top ten fastest growing firms in London. It has added nearly 100 lawyers there since 2000, and is the 5th largest US firm in the market. Bakers, however, is not highly profitable. In that sense, it breaks the mould of other US firms that have done well in London. Bakers does, on the other hand, fit the remaining criteria. The firm has been active in the London market for decades and it focuses on transactions work, though not the highest value areas.

Lessons on international expansion

The successes and failures of US firms in London reveal two important truths about global expansion. The most important is that opening offices abroad is difficult and often ends in failure. Law firm leaders should keep this in mind when considering the idea of opening a new office.

The reasons in favour of expanding into new territories are often attractive. The idea of new revenue and new clients is obviously alluring. It is easy to forget that the market the firm is considering has existing competitors and the clients the firm intends to attract have existing providers. Rents must be covered, international flights must be paid for and new management staff, often, need to be added. All of this typically gets lost, or minimised, in the discussion – helping explain why nearly one third of office openings fail.

The second lesson is that the firms that succeed abroad often benefit from institutional advantages. Highly profitable US-based transactions firms, for example, have done well in London for three reasons.

First, their above average profitably allows them to attract and retain top talent – an important advantage when competing in high value markets.

Second, elite US firms have used their strength in the US market to provide a service UK firms have difficulty matching – a link between the world's two most important financial centres.

Last, the most successful US firms in London have been there for decades. They have invested time and significant capital to learn how to compete and win in the London market.

This analysis suggests that aspiring firms looking at London, or other international markets, should approach the question of expansion sceptically. They should ask themselves what competitive advantage they have that others do not. They should also consider if they are capable of putting in years of work to develop a sustainable market position. Above all, firms looking to expand should closely examine the true track record of their peers to determine why they would fare differently.