Legal update: Profits of US law firms in London fall below £1bn in 2022/23

Profits fall amid slowdown in M&A deals

  • UK law firms profits protected from broader focus on sectors compared to US firms
  • US firms continue to generate higher profits per partner than the UK

The total pre-tax profit of the top 15 US law firms in London have seen their profits fall below £1bn. This is down 3% from £1.01bn 2021/22, to £985m in 2022/23, shows our new research.

Whilst profits of US law firms fell, profits of the top 15 UK law firms increased by 1% over the same period. This grew from £5.22 bn in 2021/22, to £5.27bn in 2022/23.

US law firms with their offices based in London have become an increasingly important part of the UK legal market. These firms have tended to outsource less profitable work such as employment law and conveyancing to specialise in corporate finance work.

The drop in US law firm profits may be partly driven by a slowdown in corporate finance activity in the past year. This has resulted in less demand for US law firms who have a much higher margin in in M&A, private equity, corporate finance, and banking work than UK firms.

Data from S&P Global shows that global M&A activity decreased in 2023. This would have impacted the profits of US law firms based in the UK. The total value of aggregate deals fell 23% to $2tn, compared to $2.7tn in 2022.**

Ian Johnson, Partner in our Legal team, says: “The profits of US law firms in London have taken a hit in the past year with the harsh slowdown in M&A activity.”

“Whilst there are exceptions, the strategy of US law firms based in the UK has been to concentrate on what they see as the most profitable work.

This exposes them to changeable market conditions, resulting in huge gains when the economy is performing strongly, but much less certainty when the market is slowing.”

“Looking ahead, there are positive signs for US firms. The M&A market for example has seen a strong recovery in the first quarter in 2024, which will result in much for demand for their services in the coming year.

“US firms can also boast much higher salaries to newly qualified solicitors than UK firms. This means they continue to draw in the best talent.”

The average profit per equity partner at the top 15 US law firms remains higher than the UK, reaching £1.3m in 2022/23, compared to £1.05m from the top 15 UK law firms.

Adds Ian Jonson: “Despite an initial dip, we should see a strong recovery in the profits pf US law firms based in London in 2024. A huge driver of this will be a pickup in corporate finance activity.”

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