Competition from U.S. Law Firms
While the "Magic Circle" of large London law firms may be returning to form after a rough patch during the economic slowdown of the first years of the century, they now view their competition in Europe as the U.S. firms that have built significant presences here -- firms like Latham & Watkins, White & Case, Shearman & Sterling and Skadden. Historically, a second tier of major UK firms would have challenged the Magic Circle for big deals, but those practices -- Norton Rose, Lovells, Simmons & Simmons, Denton Wilde Sapte and Ashurst -- are finding it ever harder to compete.
It is that second tier of UK law firms that has been hardest hit by the arrival of American law firms. They have lost some of their best-performing partners and, in many cases, have been unable to compete like their Magic Circle colleagues. This group of firms is also squeezed from below by the national UK law firms, which can compete by offering more competitive billing rates to clients, and are frequently more entrepreneurial and aggressive in addition to being tightly managed. The likes of DLA -- which merged in 2005 to form DLA Piper Rudnick Gray Cary, the third largest law firm in the world -- Eversheds, Addleshaw Goddard and Pinsent Masons, now give the London firms a run for their money.
National goes international
DLA is an interesting case in point. The firm began in Sheffield, and as recently as five years ago was regarded as a regional law firm with ambitions to make its mark on London. That is precisely what DLA achieved -- the firm's business model is based on hiring a few high quality partners, paying them a lot of money, and getting the work done by more junior people often operating out of less costly regional business centres.
Such leveraging, as it is called, may concentrate the power in the hands of the few, but it satisfies the clients, who get a cheaper and more commercial service. DLA's combination with two U.S. law firms in 2005 takes the model one step further. While it may not compete with firms like Clifford Chance and Skadden Arps for M&A work, it will pick up global mandates from clients looking to use one firm worldwide for all sectors.
But size isn't everything, and the firms at the polar opposite from DLA have done well by staying small and focusing on filling a niche. This group in London includes Macfarlanes, SJ Berwin and Travers Smith, three corporate firms that continue to attract some of the biggest domestic work around, and Berwin Leighton Paisner, which is arguably the top law firm in the UK for real estate work and has now added a strong corporate and finance business on the back of that brand.
These firms do not have the costly international networks of their larger rivals, but instead work in collaboration with independent firms in other jurisdictions when they must. This strategy, dubbed a 'best friends' model and demonstrated on a larger scale by the strategy of Slaughter and May (the only Magic Circle law firm without an overseas network), is attractive to certain clients. Macfarlanes, for example, last year advised its longstanding French client Pernod Ricard on a ??7.6bn takeover of UK rival Allied Domecq.
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