reDESPITE THEIR reputation for thriving in a crisis, the city’s lawyers were going through an uncomfortable time in early 2020. At the start of the pandemic, mergers and acquisitions (M&A), the engine of much of the financial sector’s legal activity, seemed set to stop. UK law firms have frozen wages and deferred bonuses; meanwhile, their US counterparts have slashed paychecks by up to 25% across the world. With the exception of departments that expected to benefit from corporate bankruptcies, hiring ceased.
But far from a disaster, the pandemic has proven to be a boon for lawyers. Kirkland & Ellis, the world’s most profitable law firm since 2017, achieved a record $ 4.8 billion (£ 3.5 billion) in 2020. Several large US firms offer newly qualified partners in their London offices paid 140,000 pounds sterling ($ 194,000). Other businesses in the city have announced exceptional year-end bonuses for junior staff, in addition to fall payments intended to compensate for a frantic period of work brought on by the pandemic. Why were the predictions so wrong?
One of the reasons was that the lockdowns prompted central banks to cut interest rates and increase quantitative easing (creating money to buy financial assets), thus supporting markets. Offers that appeared to be discarded were quickly reinstated. At the end of 2020, acquisitions had fallen by only 5% compared to the previous year; in the first half of 2021, they reached a record level. One type of acquirer has proven to be a particular boon to legal advisers. “The law firms that have approached the biggest private equity funds and their lenders have an absolutely amazing volume of work,” says a partner at a large US law firm.
The city’s law firms have also benefited from a long-term trend towards more complex transactions. Private equity transactions, in particular, often involve tight deadlines and complex corporate structures and tax arrangements. Having a legal advisor who is already familiar with how a particular fund works can make the difference between completing an acquisition or not. The record $ 1.9 billion in unspent capital that private equity investors sit on translates into enviable pricing power for their lawyers.
More generally, the regulatory thicket surrounding transactions has become even more impenetrable. Rules on taxation, competition and corporate governance always generate more paperwork. The change in political climate from globalization to protectionism has made foreign direct investment more complicated, and governments have given themselves greater veto powers over agreements. All this means more work for cross-border lawyers M&A– and customers willing to pay whatever it takes to make business happen.
While large American companies fill the mouths of their associates with gold, their British competitors are lagging behind. The most generous offers the relatively stingy newly qualified attorneys £ 100,000 a year. This pay gap has been around for a long time, as UK companies have always attracted new associates with promises of (slightly) less exhausting working hours and greater intellectual cachet. If it were to expand further, however, the City’s junior lawyers could close new deals soon. ■
This article appeared in the Great Britain section of the print edition under the headline “Dressing”