UK Magic Circle need ‘another yard of pace’ to compete with US rivals, ex-senior partner warns

Former Slaughter and May leader joins debate over future of London’s elite law firms

A former Slaughter and May senior partner has entered the long-running debate over the future of the UK’s Magic Circle law firms by arguing they may be at an ‘inflexion point’ as they face ever-stiffer competition from their US rivals.

Chris Saul, who served as senior partner at Slaughters from 2008-2016, has posted an article on LinkedIn in which he asks how the four global Magic Circle firms — Allen & Overy, Clifford Chance, Freshfields Bruckhaus Deringer and Linklaters — can ‘avoid being a training service for the leading US firms, gradually surrendering “brand charisma” in the process?’

Saul’s post highlights a quirk in the global legal market which has seen the UK Magic Circle, which also includes the independent firm Slaughters, maintain a claim to be among the global elite through the quality of their mandates, if not their profitability levels compared to the top US firms, which operate in the world's most lucrative legal market.

He points to the gulf in profitability between the UK’s global quartet and US rivals like Latham & Watkins and Kirkland & Ellis, which have stormed the London market off the back of a sustained private equity boom. 

This year, Freshfields recorded the highest profit per equity partner figure among the global quarter of £2.07m; at today’s exchange rate that converts to $3.10m, well under half Kirkland’s PEP for the 2021 calendar year of $7.38m. 

‘Are we facing a re-run, in Big Law land, of the late 1990s and early 2000s when Bank of America, Citi, Goldman Sachs, JP Morgan and Morgan Stanley reshaped investment banking in London?’ Saul writes.

Saul notes the recent drive by the four global UK firms to grow their US practices, which has yielded some eye-catching US laterals, including Freshfields’ hires of M&A heavyweights Ethan Klingsberg from Cleary Gottlieb Steen & Hamilton in 2019 and Damien Zoubek from Cravath Swaine & Moore in September 2021.

However, Clifford Chance reported this year that its US revenue, despite rising by 67% since 2015 still only accounted for 13% of its global revenue.

Saul warns that non-US partners might ‘lose patience with monetary and emotional deference to the US’ if the US build takes time. 

In terms of solutions to this quandy Saul rules out US mergers — due to the gulf in profitability between the Magic Circle and comparable US firms — and public listings, given the risks associated with abandoning the partnership model.

Instead, he encourages the UK elite to continue pursuing strategies they have already been deploying to varying degrees; namely focusing their US push in discrete practice areas where they have global strength such as ‘complex asset based and derivative-led financing’ and spinning out less profitable practices and offices across their international networks to raise their overall profitability.

He concludes that these ‘terrific businesses’ — and especially the global quartet — need ‘another yard of pace’ in their tussle with their US rivals.

‘It may be that there is no realistic alternative to going large in building US capacity but that is not without risk, and the Sterling/Dollar exchange rate will be a drag anchor. So, whilst it is clearly a firm-specific question, are there spinoff, practice focus or other approaches that can be deployed additionally or alternatively to help add pace and maintain that magic?’

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