Boom in Mergers and Acquisitions Boosts Profits of Magic Circle Law Firms

A resurgence in mergers and acquisitions has filled the coffers of the UK's "Magic Circle" law firms: The combined profits of the three largest groups reached £2.8 billion last year. This positive development is attributed to both an increase in M&A activities and substantial US investments, allowing partners at Clifford Chance, Linklaters, and Allen & Overy to pocket an average of approximately £2 million each. The total profit of the three firms rose by 12 percent compared to the previous year, in which £2.5 billion was achieved. Jeremy Black, a Partner at Deloitte, emphasized the strong performance of large law firms last year with an average growth of around 8 percent. Despite quiet IPO markets, law firms demonstrated resilience through activities in litigation, restructuring, and transactions. Linklaters achieved record profits through work on the failed £39 billion merger of Anglo American and BHP, as well as a £2.5 billion deal between Barratt and Redrow. Clifford Chance and Allen & Overy, now A&O Shearman, benefited from mandates such as Nationwide's £2.9 billion acquisition of Virgin Money. Clifford Chance also maintained its position through high-profile litigation cases, including the successful defense of former Autonomy CEO Mike Lynch. The Magic Circle law firms recorded significant improvements compared to the previous 12 months, when profits had stagnated. A more positive economic environment and a revival of the capital markets have intensified the competition for legal talent in the City. This led to salary increases for new associates at all three firms and their competitor Freshfields Bruckhaus Deringer to £150,000. UK law firms are fighting to maintain their market shares in London against a wave of US firms like Paul, Weiss, Rifkind, Wharton & Garrison, which have heavily invested in the British capital. Latham & Watkins is also expanding into more traditional corporate areas, increasingly displacing the "Magic Circle" firms. The ranking by specialist magazine The Lawyer placed Kirkland & Ellis and Latham & Watkins at the top for revenue from UK corporate work. However, the Magic Circle firms are pushing back: Clifford Chance and Linklaters each reported record revenue growth in their US offices of 28 and 24 percent, respectively. Allen & Overy benefited from the sale of a Legal-Tech unit for £200 million, boosting profits. Other UK firms, such as Herbert Smith Freehills and Macfarlanes, also recorded strong earnings. Freshfields, on the other hand, refrains from a summer publication of its financial figures, referencing globally achieved mandates. Slaughter and May, due to their limited international reach and non-LLP structure, are not required to disclose financial results. An expected increase in IPO activities in London could offer further opportunities for UK law firms, according to Jeremy Black of Deloitte. However, he also warned of risks due to geopolitical uncertainties and rising personnel costs, although performance improvements above the general economic level remain possible.