Big Law's merger boom is creating opportunities for specialist spin-outs
As firms race to build global platforms, advisers say that is creating opportunities for specialist spin-outs.
Contents
The current wave of transatlantic mergers has created larger firms with broader geographic reach, deeper benches and increasingly ambitious growth targets. While much of the discussion has centred on the strategic benefits of the scale mergers can bring, there is another dynamic at play.
According to legal consultancy Kindleworth, which advises partners on launching independent law firms, mergers are prompting a growing number of partners to question whether they still belong inside those larger organisations.
Chief executive and co-founder James Hacking said: ”The pipeline has never been busier,” describing a steady flow of conversations with partners exploring whether they should strike out on their own.
Although not every conversation results in the launch of an independent law firm, Hacking said the firm's role often begins by helping partners determine whether an idea first considered "whilst they were sitting by the pool on holiday" could become a viable business.
The merger effect
As firms become larger, they inevitably become more selective about where they deploy investment. Practice groups that once sat comfortably within a full-service partnership can suddenly find themselves outside the firm's strategic priorities following a merger.
Sometimes mergers introduce new issues, including client conflicts created by combining client rosters, which can prevent lawyers from acting on mandates they would previously have accepted.
"At the moment, particularly in mega-merger territory, some of these themes are becoming more strenuous or getting to the point they're becoming less tenable," Hacking said.
Increasingly, the pressures are also commercial, as firms pursue higher rates and concentrate investment around a narrower group of strategic priorities.
Hacking said some practice areas are struggling to keep pace with the billing rates and profitability targets demanded by the largest international firms, despite remaining successful businesses in their own right.
US firms are driving rates to some extraordinary positions...alienating a number of practice groups.
"US firms are driving rates to some extraordinary positions," he said. "That really is alienating a number of practice groups who just have very different P&Ls.”
Those teams could remain highly profitable outside their existing firms, Hacking argued, because their economics do not necessarily depend upon belonging to the largest possible platform.
Litigation boutique Pallas Partners, launched with Kindleworth's support, and disputes boutique Three Points, founded by former Mishcon de Reya lawyers, are among a new generation of specialist firms launched by lawyers leaving larger platforms.
When the maths changes
Kindleworth says many of the teams it advises are not underperforming, but rather are profitable businesses operating inside platforms whose priorities and cost structures have shifted.
Hacking said that tension has become increasingly common among teams that continue generating significant revenue but receive only a relatively small proportion of what they contribute.
Kindleworth partner Michael Estill points to a current US mandate where a non-core partner group is struggling to meet the firm’s rate targets and collectively retains roughly a quarter of the revenue it generates.
Kindleworth's modelling suggests a specialist platform could potentially double that take-home share.
"Either they can do the same amount of revenue and earn twice the amount of money, or half the amount of revenue and earn the same," Estill said.
That calculation becomes even more compelling when practice groups no longer believe they benefit proportionately from the infrastructure they help fund, including international expansion, business development and investment in practice areas outside their own.
"Their mothership is on a growth journey," Estill said. "It's got a number of key pillars for growth that the firm is investing in, and their practice is not one of those key pillars for growth.”
“They are getting almost nothing back from the platform despite putting a load of money in," he said. "They start thinking, ‘What's the point? What's the point of us being on this platform?’”
Stay ahead of the City law market with our free email briefing - essential industry news and analysis, in your inbox three times a week.
Beyond full service
Hacking and Estill believe mergers are also accelerating a broader shift in how firms think about specialisation. Large firms have long competed on offering clients every legal service under one roof, but more recently, many have differentiated themselves through sector expertise.
"Once upon a time, your differentiator was being full service," Hacking said. "One-stop shop, come to us, we'll do everything.”
Then came the sector-focus strategy. “We’ll do everything for you and we understand your business because we are technology specialists,” he said.
Hacking believes the next stage could involve firms defining themselves through a more concentrated group of specialist practices. Some firms may eventually pursue global scale while becoming more selective about the practice areas they retain within that platform.
Once upon a time, your differentiator was being full service.
"It will be really interesting to see if firms that have hitherto pushed to full service are, on the one hand, going global and doubling down on that agenda," Hacking said. "They may start to think about some of those practice areas that could live elsewhere."
However, neither expects specialist spin-outs to replace the global firm model across the wider legal market.
"There is a lot of sense behind some of the big mergers," Estill said. "When you are acting on big global mandates, serving big global clients and handling global deals, that makes perfect sense."
He points to Kirkland as the benchmark that many global law firms aspire to.
Everyone is trying to be Kirkland.
“Everyone is trying to be Kirkland,” Estill said. “But Kirkland has made very deliberate decisions about where it’s going to be and where it’s not going to be.
“They have not entered every geography or every practice area. Yet, they still have the main advisory relationship. There will still be specialist firms around them,” he said.
A spot for specialists
Hacking said many of the firms Kindleworth has helped launch are finding institutional and international clients increasingly willing to instruct specialist boutiques alongside their existing panel firms.
"The people that we have helped launch firms have had clients that are either institutional or international, who are very used to panels and have typically driven the full-service agenda," Hacking said.
"But they started to realise that actually going to the specialist for particular issues is the better solution for them.”
He said the relationship can also work alongside larger firms, which can refer matters to boutiques offering services they have chosen not to provide themselves.
“A number of our clients build referral relationships with firms that don’t have a particular skill set or depth of that skill set. It’s a symbiotic relationship that can work very well,” Hacking said.
The divest option
Kindleworth believes the next stage could also involve law firms taking a more proactive approach towards practices that no longer fit their strategies.
Rather than waiting for frustrated partners to resign, firms could support teams in establishing separate businesses, potentially retaining an ownership interest or an ongoing referral relationship.
"There are certain firms that strategically should consider spinning teams out," Hacking said. "In many other industries, it's perfectly normal to have an entity they might still own in some way, which is branded separately and organised separately. Corporates divest assets all the time.”
You get a good resolution for the mothership and a good resolution for the partner.
Estill said firms are already becoming more deliberate about which practices deserve further investment and which sit outside their core ambitions.
"It’s firms saying: ‘These are the areas we're going to focus on. These are what we're going to be famous for. There are some peripheral areas around this that we're not going to invest in at the moment.’”
Although firms are not yet routinely making proactive decisions to spin out those practices, Estill sees little reason why that approach should remain uncommon.
"You get a good resolution for the mothership and a good resolution for the partners," he said.
"They can actually spin out and create really exciting practice areas where they are the focus, and they can build something for their clients."
Listen to The Non-Billable Podcast episode to hear more about Kindleworth’s model.
Law Firm | Trainee First Year | Trainee Second Year | Newly Qualified (NQ) |
|---|---|---|---|
| Addleshaw Goddard | £52,000 | £56,000 | £100,000 |
| Akin | £60,000 | £65,000 | £174,418 |
| A&O Shearman | £56,000 | £61,000 | £150,000 |
| Ashurst | £57,000 | £62,000 | £140,000 |
| Baker McKenzie | £56,000 | £61,000 | £150,000 |
| Bird & Bird | £48,500 | £53,500 | £102,000 |
| Bristows | £48,000 | £52,000 | £95,000 |
| Bryan Cave Leighton Paisner | £53,000 | £58,000 | £125,000 |
| Burges Salmon | £49,500 | £51,500 | £76,000 |
| Charles Russell Speechlys | £52,000 | £55,000 | £93,000 |
| Cleary Gottlieb | £62,500 | £67,500 | £164,500 |
| Clifford Chance | £56,000 | £61,000 | £150,000 |
| Clyde & Co | £48,500 | £51,000 | £85,000 |
| CMS | £50,000 | £55,000 | £120,000 |
| Cooley | £55,000 | £60,000 | £157,000 |
| Davis Polk | £65,000 | £70,000 | £180,000 |
| Debevoise | £55,000 | £60,000 | £173,000 |
| Dechert | £55,000 | £61,000 | £165,000 |
| Dentons | £52,000 | £56,000 | £104,000 |
| DLA Piper | £55,000 | £60,000 | £140,000 |
| Eversheds Sutherland | £50,000 | £55,000 | £110,000 |
| Farrer & Co | £48,500 | £51,000 | £89,000 |
| Fieldfisher | £48,500 | £52,000 | £100,000 |
| Freshfields | £56,000 | £61,000 | £150,000 |
| Fried Frank | £55,000 | £60,000 | £175,000 |
| Gibson Dunn | £60,000 | £65,000 | £180,000 |
| Goodwin Procter | £55,000 | £60,000 | £175,000 |
| Gowling WLG | £48,500 | £53,500 | £105,000 |
| Herbert Smith Freehills Kramer | £56,000 | £61,000 | £145,000 |
| HFW | £52,000 | £56,000 | £103,500 |
| Hill Dickinson | £44,000 | £45,000 | £80,000 |
| Hogan Lovells | £56,000 | £61,000 | £145,000 |
| Irwin Mitchell | £43,500 | £45,500 | £78,000 |
| Jones Day | £60,000 | £68,000 | £165,000 |
| K&L Gates | £50,000 | £55,000 | £115,000 |
| Kennedys | £43,000 | £46,000 | £85,000 |
| King & Spalding | £62,000 | £67,000 | £175,000 |
| Kirkland & Ellis | £60,000 | £65,000 | £174,418 |
| Latham & Watkins | £60,000 | £65,000 | £174,418 |
| Linklaters | £56,000 | £61,000 | £150,000 |
| Macfarlanes | £60,000 | £65,000 | £150,000 |
| Mayer Brown | £55,000 | £60,000 | £150,000 |
| McDermott Will & Schulte | £65,000 | £70,000 | £174,418 |
| Milbank | £65,000 | £70,000 | £174,418 |
| Mills & Reeve | £46,800 | £47,000 | £84,000 |
| Mishcon de Reya | £52,500 | £57,500 | £110,000 |
| Norton Rose Fulbright | £56,000 | £61,000 | £140,000 |
| Orrick | £60,000 | £65,000 | £160,000 |
| Osborne Clarke | £55,500 | £57,500 | £97,000 |
| Paul Hastings | £60,000 | £68,000 | £173,000 |
| Paul Weiss | £60,000 | £65,000 | £180,000 |
| Penningtons Manches Cooper | £48,000 | £50,000 | £83,000 |
| Pinsent Masons | £52,000 | £57,000 | £105,000 |
| Quinn Emanuel | n/a | n/a | £189,000 |
| Reed Smith | £55,000 | £60,000 | £135,000 |
| Ropes & Gray | £62,000 | £67,000 | £170,000 |
| RPC | £48,000 | £52,000 | £95,000 |
| Shoosmiths | £45,000 | £47,000 | £105,000 |
| Sidley Austin | £60,000 | £65,000 | £175,000 |
| Simmons & Simmons | £54,000 | £59,000 | £120,000 |
| Simpson Thacher | n/a | n/a | £178,000 |
| Skadden | £58,000 | £63,000 | £177,000 |
| Slaughter and May | £56,000 | £61,000 | £150,000 |
| Squire Patton Boggs | £50,000 | £55,000 | £110,000 |
| Stephenson Harwood | £50,000 | £55,000 | £105,000 |
| Sullivan & Cromwell | £65,000 | £70,000 | £177,000 |
| TLT | £44,000 | £47,500 | £85,000 |
| Travers Smith | £55,000 | £60,000 | £130,000 |
| Trowers & Hamlins | £47,000 | £51,000 | £85,000 |
| Vinson & Elkins | £60,000 | £65,000 | £173,077 |
| Watson Farley & Williams | £51,500 | £56,000 | £107,000 |
| Weightmans | £36,000 | £38,000 | £70,000 |
| Weil | £60,000 | £65,000 | £170,000 |
| White & Case | £62,000 | £67,000 | £175,000 |
| Willkie Farr & Gallagher | £60,000 | £65,000 | £180,000 |
| Winston Taylor | £52,000 | £57,000 | £115,000 |
| Withers | £47,000 | £52,000 | £95,000 |
| Womble Bond Dickinson | £43,000 | £45,000 | £83,000 |
Rank | Law Firm | Revenue | Profit per Equity Partner (PEP) |
|---|---|---|---|
| 1 | DLA Piper* | £3,130,000,000 | £2,500,000 |
| 2 | A&O Shearman | £2,900,000,000 | £2,000,000 |
| 3 | Clifford Chance | £2,400,000,000 | £2,100,000 |
| 4 | Hogan Lovells | £2,320,000,000 | £2,400,000 |
| 5 | Linklaters | £2,320,000,000 | £2,200,000 |
| 6 | Freshfields | £2,250,000,000 | Not disclosed |
| 7 | CMS** | £1,800,000,000 | Not disclosed |
| 8 | Norton Rose Fulbright* | £1,800,000,000 | Not disclosed |
| 9 | HSF Kramer | £1,360,000,000 | £1,400,000 |
| 10 | Ashurst | £1,030,000,000 | £1,390,000 |
| 11 | Clyde & Co | £854,000,000 | Not disclosed |
| 12 | Eversheds Sutherland | £769,000,000 | £1,400,000 |
| 13 | Pinsent Masons | £680,000,000 | £790,000 |
| 14 | Slaughter and May*** | £650,000,000 | Not disclosed |
| 15 | BCLP* | £640,000,000 | £790,000 |
| 16 | Simmons & Simmons | £615,000,000 | £1,120,000 |
| 17 | Bird & Bird** | £580,000,000 | £720,000 |
| 18 | Addleshaw Goddard | £550,000,000 | £1,000,000 |
| 19 | Taylor Wessing | £526,000,000 | £1,100,000 |
| 20 | Osborne Clarke** | £476,000,000 | £800,000 |
| 21 | DWF | £466,000,000 | Not disclosed |
| 22 | Womble Bond Dickinson | £450,000,000 | Not disclosed |
| 23 | Kennedys | £428,000,000 | Not disclosed |
| 24 | Fieldfisher | £385,000,000 | £1,000,000 |
| 25 | Macfarlanes | £371,000,000 | £3,100,000 |
What do City lawyers actually do each day?
For a closer look at the day-to-day of some of the most common types of lawyers working in corporate law firms, explore our lawyer job profiles:
| Firm | London office since | Known for in London |
|---|---|---|
| Akin | 1997 | Restructuring, funds |
| Baker McKenzie | 1961 | Finance, capital markets, TMT |
| Davis Polk | 1972 | Leveraged finance, corporate/M&A |
| Gibson Dunn | 1979 | Private equity, arbitration, energy, resources and infrastructure |
| Goodwin | 2008 | Private equity, funds, life sciences |
| Kirkland & Ellis | 1994 | Private equity, funds, restructuring |
| Latham & Watkins | 1990 | Finance, private equity, capital markets |
| McDermott Will & Schulte | 1998 | Finance, funds, healthcare |
| Milbank | 1979 | Finance, capital markets, energy, resources and infrastructure |
| Paul Hastings | 1997 | Leveraged finance, structured finance, infrastructure |
| Paul Weiss | 2001 | Private equity, leveraged finance |
| Quinn Emanuel | 2008 | Litigation |
| Sidley Austin | 1974 | Leveraged finance, capital markets, corporate/M&A |
| Simpson Thacher | 1978 | Leveraged finance, private equity, funds |
| Skadden | 1988 | Finance, corporate/M&A, arbitration |
| Sullivan & Cromwell | 1972 | Corporate/M&A, restructuring, capital markets |
| Weil | 1996 | Restructuring, private equity, leverage finance |
| White & Case | 1971 | Capital markets, arbitration, energy, resources and infrastructure |
| Law firm | Type | First-year salary |
|---|---|---|
| White & Case | US firm | £32,000 |
| Stephenson Harwood | International | £30,000 |
| A&O Shearman | Magic Circle | £28,000 |
| Charles Russell Speechlys | International | £28,000 |
| Freshfields | Magic Circle | £28,000 |
| Herbert Smith Freehills | Silver Circle | £28,000 |
| Hogan Lovells | International | £28,000 |
| Linklaters | Magic Circle | £28,000 |
| Mishcon de Reya | International | £28,000 |
| Norton Rose Fulbright | International | £28,000 |
Law Firm | Trainee First Year | Trainee Second Year | Newly Qualified (NQ) |
|---|---|---|---|
| A&O Shearman | £56,000 | £61,000 | £150,000 |
| Clifford Chance | £56,000 | £61,000 | £150,000 |
| Freshfields Bruckhaus Deringer | £56,000 | £61,000 | £150,000 |
| Linklaters | £56,000 | £61,000 | £150,000 |
| Slaughter and May | £56,000 | £61,000 | £150,000 |
Law Firm | Trainee First Year | Trainee Second Year | Newly Qualified (NQ) |
|---|---|---|---|
| A&O Shearman | £56,000 | £61,000 | £150,000 |
| Clifford Chance | £56,000 | £61,000 | £150,000 |
| Freshfields Bruckhaus Deringer | £56,000 | £61,000 | £150,000 |
| Linklaters | £56,000 | £61,000 | £150,000 |
| Slaughter and May | £56,000 | £61,000 | £150,000 |
Law Firm | Trainee First Year | Trainee Second Year | Newly Qualified (NQ) |
|---|---|---|---|
| Ashurst | £57,000 | £62,000 | £140,000 |
| Bryan Cave Leighton Paisner | £53,000 | £58,000 | £125,000 |
| Herbert Smith Freehills | £56,000 | £61,000 | £145,000 |
| Macfarlanes | £60,000 | £65,000 | £150,000 |
| Travers Smith | £55,000 | £60,000 | £130,000 |
| Firm | Merger year | Known for in London |
|---|---|---|
| BCLP | 2018 | Real estate, corporate/M&A, litigation |
| DLA Piper | 2005 | Corporate/M&A, real estate, energy, resources and infrastructure |
| Eversheds Sutherland | 2017 | Corporate/M&A, finance |
| Hogan Lovells | 2011 | Litigation, regulation, finance |
| Mayer Brown | 2002 | Finance, capital markets, real estate |
| Norton Rose Fulbright | 2013 | Energy, resources and infrastructure, insurance, finance |
| Reed Smith | 2007 | Shipping, finance, TMT |
| Squire Patton Boggs | 2011 | Corporate/M&A, pensions, TMT |
Law Firm | Trainee First Year | Trainee Second Year | Newly Qualified (NQ) |
|---|---|---|---|
| Ashurst | £57,000 | £62,000 | £140,000 |
| Bryan Cave Leighton Paisner | £53,000 | £58,000 | £125,000 |
| Herbert Smith Freehills Kramer | £56,000 | £61,000 | £145,000 |
| Macfarlanes | £60,000 | £65,000 | £150,000 |
| Travers Smith | £55,000 | £60,000 | £130,000 |
Know what's moving the market
Get the free email that keeps UK lawyers ahead on the stories that matter.
We send a short summary of the biggest legal industry and business stories you need to know about three times a week. Free to join. Unsubscribe at any time.
