Profit of top US law firms in London have dropped below £1bn amid M&A slowdown
Profit at the top US law firms in London have fallen below £1bn as the downturn in the mergers and acquisitions (M&A) market is starting to have its effects.
New research by accountancy firm Hazlewoods shared exclusively with City A.M, revealed that profits of the top 15 US law firms in the City dropped to £985m in 2022/23, a 3 per cent drop on £1.01bn in 2021/22.
Despite this, the top 15 UK firms profits over the same period had a small increase of 1 per cent to £5.27bn over 2022/23.
US firms have dominated the London market over the last number of years, as they tend to specialise in the most profitable, private equity, M&A and capital markets space.
However, the number of UK M&A fell to their lowest in March since 2020 data released earlier this week showed there were 426 transactions in the first quarter of the year, 18 fewer than the previous quarter.
The main cause of the decline was foreign companies acquiring UK companies, with deal volume dropping from £10bn in the fourth quarter of 2023 to just £6bn.
Ian Johnson, Partner at Hazlewoods, says: “The profits of US law firms in London took a knock in the last 18 months with the big slowdown in M&A.”
“Whilst there are exceptions, the strategy of most US law firms based in the UK has been to concentrate on the most profitable work [such as] M&A and capital markets.”
“This exposes them to a slowdown in transactional work, resulting in large profits when the economy is performing strongly but theoretically exposing them to steeper falls in income if deals dry up,” he added.
However, Johnson did note that “looking ahead, there are positive signs for US firms”.
He highlighted that as US firm’s in the City offer higher salaries for newly qualified (NQ) lawyers, the firms “continue to draw in the best young talent.”
The NQ salary war has come back to the headlines over the last number of weeks as the magic circle firms were each running towards £150,000. While US firm Quinn Emanuel Urquhart & Sullivan hiked its London NQ salary to £180,000.