Leading law firms across Europe have increased their profitability by 15%.

(London) leading law firms across Europe have increased their profitability by 15% following a continued surge in M&A activity, according to the annual survey carried out by LexisNexis Martindale-Hubbell, the European Lawyer magazine and BDO Stoy Hayward. The research analyses the financial performance and organisational structure of Europe’s leading law firms across fifteen European countries.

The increase in profits was also accompanied by a greater tendency for firms to use a more-leveraged business model (i.e., a higher ratio of staff to equity partners), with the proportion of fee-earning associates and assistants rising. Italy and Spain have taken the lead in terms of higher leverage: in Italy there are now more than nine fee earners to every equity partner.

Highlights of the research include:

■ A leap in the profit-per-partner figures for Germany’s lawyers, with their result in the upper quartile rising from €506,900 (£345,700) in 2005 to €1,052,900 (£718,000) in 2006;

■ German firms have replaced the UK as the jurisdiction with the highest fees per fee earner, with averages of €328,000 (£223,700) for Germany compared to €300,000 (£204,600) in the UK, the second-highest jurisdiction in Europe;

■ Persisting cultural differences on the critical issue of how quickly bills are issued and money collected, with Italy the least efficient jurisdiction in this respect with an average of 117 days’ work in progress;

■ London’s legal secretaries get some of the best pay in Europe — €53,600 (£36,600) in the upper quartile — but not as much as their Italian (€65,900 [£44,900]) and Belgian (€60,200 [£41,100]) counterparts;

■ Company, commercial and M&A work accounted for nearly 28% of firms’ gross fee income;

■ Male partners continue to dominate the firms, increasing to 88% as compared to 84% in 2005.

most profitable firms in terms of fee income and net profit per partner are those in Italy and the UK. This reflects the high level of leverage for firms in these countries. In Italy a focus on higher margin corporate, banking and M&A work also drives profitability in this region and in the UK a mix of corporate and M&A plus banking, civil litigation and property work exists.

survey found that Spanish firms have invested heavily in marketing expenditure relative to the previous year with 4.5% of total income in 2006 compared to 2.2% in 2005. This may be indicative of increasing levels of competition in this market, which is forcing them to increase their market visibility.

t participants’ practices appear to have a strong domestic focus. This is demonstrated by only 37% of respondents having offices outside of their home country (2005: 52%). Finland and Sweden have increased their international presence, whilst other jurisdictions all show a reduction. It is not clear whether this apparent reduction in overseas offices is a result of different respondents this year from last or if it is indeed due to a desire amongst leading firms to focus on the lucrative opportunities currently within the European market.

Last updated -23 January 08

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