LB175 p32-39

32 Legal Business June 2007

There is no agreement on what itmeans, where it came from, or evenwho is in it. But, at the top of theEnglish legal market, the Magic Circlecontinues to reign supreme. The termis used as shorthand by generalcounsel, investment bankers, recruitsand out-of-town lawyers as if it were aguarantee of excellence.

Being a member of the MagicCircle delivers almost unlimitedkudos and credibility. The currentmembership has little interest inexpanding its number, and wouldoften rather refer work to fellow mem-bers than strengthen the practice of anoutsider. And those in the so-calledchasing pack may seek elevation forthemselves, but are reluctant to seeothers move up or down.

Working out the origin of the termis impossible – academic papers havebeen written on the subject, but havefailed to provide a definitive answer.What is certain is that it emerged inits earliest guises from the ‘gang ofnine’ top law firms that shared a no-poaching agreement and information

on salaries in the early 1990s.Antitrust concerns put an end to thatcartel, but whether the ‘Magic Circle’was then coined by a FreshfieldsBruckhaus Deringer marketeer, aLinklaters branding expert, a manage-ment consultant or a journalist – all theories put forward by today’smanaging partners – is a secret nowconfined to history.

What matters today is the power ofthe brand, which remains incrediblystrong despite incessant talk of itsdemise among both its members andits rivals. David Morley, managingpartner of Allen & Overy, says: ‘Overthe next ten years, I wouldn’t predictthe death of the Magic Circle, but Iwould predict it becoming of lessimportance. What will become moreimportant is a global elite of somekind, which will be a combination ofUS- and UK-originated firms that willstart to set themselves apart fromeveryone else.’

Linklaters managing partner TonyAngel adds: ‘The really striking thingis the way the market is becoming so

It’s five years since LB declared Herbert Smith’s membershipof the Magic Circle, and more than 15 years since the groupwas formed. Today, the Magic Circle brand is as strong asever. But to retain its cachet, it needs to be defined CLAIRE SMITH

Credit card illustration DAVID NEWTON

LB175 p32-39 magic circle.qxp 23/5/07 15:44 Page 32

June 2007 Legal Business 33



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■ house a breadth and depth of top legal talent; and

■ generate revenues and profitability commen-surate with working on the top legal matters.

What emerges is a clear top six, a MagicCircle that remains where it always has been, atthe top of the UK legal profession. The firmsvary in their strengths of course: Slaughter andMay and Herbert Smith are nowhere to be seenwhen it comes to debt capital markets, andSlaughters is also absent from IPO work onbehalf of investment managers. Clifford Chanceis not in the top six for either FTSE-100 relation-ships or, more surprisingly, for advice to non-European bidders buying UK companies.

much more sophisticated andmore complicated. Firms are focus-ing on their core strengths, so it isbecoming much harder to point toone group that is the same.’

Nevertheless, despite theremarkable onset of competitionfrom US law firms since the Magic Circle term was conceived,and the ever-increasing stratifica-tion of the London legal scene, theterm has endured and is used asmuch today as it ever was. As TedBurke, the American chief execu-tive of Freshfields, sums up: ‘If theMagic Circle term means some-thing to law students, and itmeans something to clients, then it means something.’

The question is, what exactlydoes it mean? Here, for the firsttime, Legal Business sets out the criteria for membership.

SQUARING THE CIRCLEUntil now, defining the MagicCircle has been a woolly exercisebased on intangibles, and that hasmade for a self-perpetuating, non-dynamic grouping. The decisiontaken by this magazine in 2002 toelevate Herbert Smith to the Circlewas controversial to say the least,precisely because, for a decade, noone had tested whether the topfive really were still the top five.

So here are the criteria, andover the following pages the datais set out to test them.

The Magic Circle means the firms that:

■ are the leading UK practices formergers and acquisitions;

■ have the best investment bank-ing and FTSE 100 relationships;

■ win the largest capital markets,bank lending and litigationmandates;

■ are best known overseas;

■ handle the most inbound workfor international clients;

When it comes to bank lending, the top sixare joined by Lovells, Ashurst and DLA Piper,but these firms do not appear with anythinglike the same frequency across the board. Ofthem all, it is Ashurst that can make the great-est claim to membership of a seven-strongMagic Circle, appearing in eight of our 12tables. But its relatively lacklustre showing inthe profitability and revenue stakes is its down-fall for now. Lovells appears in seven tables, butits absence in equity capital markets and its sig-nificantly smaller M&A practice holds it back.

INVESTMENT GRADEThere are intangibles of course, principalamongst them being the all-important invest-ment banking relationships. It is hard to

‘Having the confidence of the banks isabsolutely fundamental. We want to be a go-to firm.’ Richard Fleck, Herbert Smith

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THE LEADING UK M&A FIRMS

DEALS VALUED AT MORE THAN £500M, FOR A UK TARGET OR ACQUIRER, IN THE PAST YEAR*RANK** FIRM VALUE NUMBER OF DEALS1 Allen & Overy £253.86bn 512 Clifford Chance £234.03bn 644 Freshfields Bruckhaus Deringer £210.79bn 696 Linklaters £119.38bn 597 Herbert Smith, Gleiss Lutz, Stibbe £89.68bn 209 Slaughter and May £83.72bn 3316 Ashurst £53.59bn 3225 CMS £36.24bn 938 Lovells £21.62bn 1749 Berwin Leighton Paisner £19.53bn 4

Source: mergermarket

DEALS VALUED AT MORE THAN £500M, FOR A UK TARGET OR ACQUIRER, IN THE PAST FIVE YEARS***RANK** FIRM VALUE NO. DEALS AVERAGE DEAL SIZE1 Clifford Chance £714.54bn 264 £2.71bn2 Linklaters £620.41bn 262 £2.37bn3 Freshfields Bruckhaus Deringer £586.21bn 244 £2.40bn5 Allen & Overy £495.48bn 199 £2.49bn8 Herbert Smith, Gleiss Lutz, Stibbe £306.09bn 100 £3.06bn10 Slaughter and May £251.13bn 119 £2.11bn20 Ashurst £141.74bn 95 £1.49bn26 Lovells £111.80bn 77 £1.45bn39 CMS £84.11bn 38 £2.21bn49 Simmons & Simmons £52.20bn 24 £2.18bn

Source: mergermarket. *March 2006-March 2007. **Non-UK firms not shown. *** March 2002-March 2007.



Harris: Magic Circle concept outdated

underestimate the significance of such linkswhen it comes to working on the cutting-edgecorporate finance work in the City, and equallydifficult to gauge the firms that truly get thenod more frequently than others.

Mark Dawkins, managing partner ofSimmons & Simmons, says: ‘What the Magic Circle has done very well is connecttheir names with the powerful financial insti-tutions that are often behind the companiesthat are doing things, and that’s a great competitive advantage.

‘Buyers of legal services believe, wrongly inmy view, that the Magic Circle is somethingthat signifies quality and safety, and the invest-ment banks like to have the best and don’tmind paying for it.’

Peter Martyr, chief executive of Norton Rose,concurs: ‘Once you get to a certain size, youestablish a certain elitism, and once you havegot that brand recognition you will get a signif-icant amount of buyer-following in any event. I believe the bulge-bracket investment bankstend to be impressed and comfortable with that approach.’

Both firms have worked hard to navigate adifferent path to the banks’ doors, withSimmons now counting five financial institu-tions among its top-ten clients, thanks to aneffort in debt capital markets and structuredfinance work. At Norton Rose, a focus on finan-cial institutions means the firm now has,according to Martyr, ‘a crop of banking clientsas good as anybody else’s’.

Relationships with the investment banksessentially come in three guises: work for thelegal department and general counsel on thebank’s own dealings; the debt work; and theequity and M&A work, where it is often lessimportant to work for the bank itself, and more

important to be the firm that abanker directs their client to.

Broadly speaking, the own-account work goes to CliffordChance and Freshfields most fre-quently, with Herbert Smith mak-ing significant inroads through aregulatory and risk managementapproach. Debt work flows toClifford Chance, Allen & Overyand Linklaters, and the M&A rela-tionships are held by Linklaters,Freshfields and Slaughter and Maypredominantly, though the latterhas focused less on the bankers asmiddle-men, and more on the corporates themselves.

Much of Herbert Smith’s success in M&A and capital markets over the past five yearshas followed a successful drive to infiltrate the corridors of the

bulge-bracket banks. RichardFleck, the firm’s global relation-ship partner, says: ‘Having the con-fidence of the banks is absolutelyfundamental. We want to be look-ing after the investment banks,not only when they are involvedin transactions, but also whenthey get into difficulties – we want to be a go-to firm for aninvestment bank.’

On the corporate side, M&Apartner James Palmer says: ‘Fiveyears ago, we were very focused onthe investment banks, and that’sbrought us a lot of internationalclients and sustained our credibili-ty. But what we realised is that weneeded also to extend our directrelationships with major corpo-rates, where the influence of thebanks is diminishing as in-houselegal teams expand.’

THINK GLOBALAnother great intangible is inter-national reach. Much is made ofthe Magic Circle’s global footprint,where the obvious exception isSlaughter and May, with its best-friends approach in place of a network of offices.

Many of the firms outside the top group point to those networks as the factor that sets the Magic Circle apart. DavidHarris, managing partner atLovells, says: ‘The Magic Circleconcept is, in my view, rather out-dated and does not reflect develop-ments in the international legalmarket. Of more relevance is theemergence of a group of four inter-national firms – the ‘global quar-tet’ – that have significant geo-graphic reach and depth ofresources and client base.’ He adds:‘International reach and quality ofcoverage are key requirements tocompete effectively with the leading firms in the world.’

Martyr comments: ‘Where wehave been behind the Magic Circleis in the speed at which we couldget our international network offthe ground. We happened to startto build ours in the middle of a �

THE UK FIRMS WITH THE BEST FTSE-100 RELATIONSHIPS

RANK FIRM NUMBER OF CLIENTS1 Slaughter and May 272 Linklaters 223 Allen & Overy 204 Freshfields Bruckhaus Deringer 185 Herbert Smith 156 Ashurst 77 Lovells 68 Addleshaw Goddard 59 Clifford Chance 510 Eversheds 5

Source: Hemscott



recession, and that put a lot ofpressure on us.’

But networks alone do notmake a Magic Circle firm, eventhough an international outlook is vital. Slaughter and May seniorpartner Tim Clark says: ‘There’s an international aspect to theMagic Circle, in that you have to have the capability to do thework you want to do outside the UK. It’s international in thesense that you wouldn’t get allthese deals if you didn’t have international reach.’

Legal Business spoke to 20 toppartners on Wall Street to seewhich UK firms they consider the best for corporate finance and

litigation. The top six firms were mentioned by far the most frequently – and the Magic Circleterm was used universally – withonly Ashurst and Macfarlanes alsodemonstrating a profile in theAmerican legal world. One M&Apartner said: ‘I think for overallquality and consistency, the topUK firms are Slaughters, HerbertSmith, Freshfields and Allen &Overy.’ A senior partner added:‘We consider the Magic Circle tobe the top firms, but also a placelike Macfarlanes. It’s about theindividuals, and at Macfarlanes we can work with people we know and think very highly of.’Ashurst was praised for its private

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equity capabilities, while Herbert Smith wasdescribed as a firm that ‘has clearly moved upthe food chain’.

STAYING IN THE ROUNDIt is arguably in the recruitment market that the Magic Circle term takes on most relevance, and that is both in terms of supplyand demand. Trainees and lawyers looking tomove will invariably consider the Magic Circlefirms as something of an elite, whilst hiring a

lawyer with one of the premium firms on theirCV adds a certain prestige.

Colin Potter, a headhunter with Global LegalSearch and a former Clifford Chance partner,says: ‘There’s still an enormous kudos inrecruiting a Magic Circle partner, unless there’san issue about whether that person has beenunderperforming or is coming to the very endof his or her career.

‘There are some excellent lawyers at firmsoutside the Magic Circle, especially at the niche

Clark: international reach is vital

THE UK FIRMS HANDLING THE MOST CAPITAL MARKETS WORK

EMEA EQUITY IPO: ISSUER ADVISERS (2006)RANK* FIRM VALUE** NUMBER OF DEALS2 Freshfields Bruckhaus Deringer £4.75bn 194 Linklaters £1.78bn 105 Herbert Smith, Gleiss Lutz, Stibbe £1.71bn 48 Slaughter and May £1.01bn 310 Clifford Chance £0.85bn 1013 Allen & Overy £0.68bn 619 Norton Rose £0.42bn 7

Source: Bloomberg

EMEA EQUITY IPO: MANAGER ADVISERS (2006)RANK* FIRM VALUE** NUMBER OF DEALS1 Linklaters £11.27bn 272 Freshfields Bruckhaus Deringer £3.83bn 163 Herbert Smith, Gleiss Lutz, Stibbe £3.13bn 74 Allen & Overy £2.66bn 137 Clifford Chance £1.78bn 99 Ashurst £1.32bn 315 Denton Wilde Sapte £0.59bn 120 Norton Rose £0.27bn 6

Source: Bloomberg

INTERNATIONAL DEBT: ISSUER ADVISERS – UK FIRMS IN TOP 30 (2006)RANK* FIRM VALUE** NUMBER OF DEALS2 Allen & Overy £77.78bn 1433 Clifford Chance £66.40bn 1535 Linklaters £46.82bn 17716 Freshfields Bruckhaus Deringer £15.68bn 3228 Lovells £10.20bn 11

Source: Thomson Financial

INTERNATIONAL DEBT: MANAGER ADVISERS – UK FIRMS IN TOP 30 (2006)RANK* FIRM VALUE** NUMBER OF DEALS1 Allen & Overy £203.19bn 7012 Clifford Chance £159.77bn 3613 Linklaters £151.19bn 55113 Freshfields Bruckhaus Deringer £21.72bn 2820 Ashurst £11.50bn 46

Source: Thomson Financial

*Non-UK firms not shown. **Based on 2006 exchange rate of $1.9 to £1.



players, but it’s fair to say you will find more ofthe perceived top-quality lawyers in the MagicCircle, because those firms tend to act for theclients who are consistently at the cutting edgeon transactions.’

Ashurst senior partner Geoffrey Green says:‘It does impact recruitment, where we have totry a bit harder and sell a different story. We arevery happy with the quality of trainee recruit-ment here, and we have also done fantasticallywell at plundering some good people out ofthose firms.’

Another firm that has had some success inattracting Magic Circle partners is BerwinLeighton Paisner, which has in the past fewyears hired real estate head Robert MacGregorand litigation partner Wendy Miller fromClifford Chance, Herbert Smith property part-ner Chris de Pury, Linklaters tax partner NealTodd, and Slaughter and May corporate partnerAntoine-Audoin Maggiar in Paris.

Managing partner Neville Eisenberg says: ‘Wecan offer opportunities here that aren’t alwaysavailable at the Magic Circle, for both junior andsenior lawyers. We can give partners the oppor-tunity to be involved in growing an area of ourbusiness that might be more mature at the firmthey’re at. Often people feel that the size of theMagic Circle firms has reached a point wherethey feel marginalised from being involved inthe strategy and direction of the firm, and wecan give people greater involvement.’

BRAND MAGICMembership of the Magic Circle is a badge ofhonour that affords great status with clients,intermediaries and lateral hires. But it shouldn’tbe a myth – by clearly defining the criteria formembership, there is room for new entrants,

and indeed demotions, over time.At the moment, six firms domi-

nate the London legal landscape,and it is a subject of much commentif a firm outside that group scores amandate to advise on a mammothtransaction. Simmons pulled off acoup with its work for Telefonica onthe £17.7bn takeover of O2 last year.The deal, one of the biggest in theUK in 2006, was brought in throughits Madrid head Luis FelipeCastresana, and has been followedup with more work for the client.Meanwhile, Macfarlanes scored aplum role working for long-termclient Pernod Ricard on its £9bntakeover, with Fortune Brands,of Allied Domecq. However, �

THE UK FIRMS HANDLING THE BIGGEST BANK LENDING MANDATES

ADVISER TO DEBT PROVIDER: DEALS WITH A UK TARGET OR ACQUIRER IN THE PAST FIVE YEARS*RANK** FIRM VALUE NUMBER OF DEALS1 Clifford Chance £55.98bn 362 Allen & Overy £26.82bn 313 Lovells £19.41bn 224 Linklaters £18.60bn 306 Herbert Smith, Gleiss Lutz, Stibbe £12.89bn 87 Ashurst £6.57bn 3011 DLA Piper £3.88bn 4014 Freshfields Bruckhaus Deringer £1.43bn 618 Eversheds £0.88bn 2619 SJ Berwin £0.85bn 3

Source: mergermarket. *March 2002-March 2007. **Non-UK firms not shown



such instructions remain theexceptions that prove the MagicCircle rule.

The members of the elite claimlittle influence in the perpetuationof the term. Clifford Chance seniorpartner Stuart Popham says: ‘In apitch document we would neverdescribe ourselves as a MagicCircle firm. We never use it to pro-mote ourselves, but we don’t mindpeople calling us it.’

The Magic Circle is here to stay,as a shorthand term to describe

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Green: Magic Circle term too simplistic

‘The three things that the term Magic Circle carries with itare geographic reach, resources and quality.’ David Morley, A&O

THE UK FIRMS HANDLING THE MOST INBOUND WORK FOR INTERNATIONAL CLIENTS

ADVISER TO BIDDER: DEALS WITH NON-EUROPEAN BIDDER AND UK TARGET IN THE PAST YEAR* RANK** FIRM VALUE NUMBER OF DEALS1 Allen & Overy £59.88bn 482 Freshfields Bruckhaus Deringer £51.96bn 443 Linklaters £31.91bn 534 Slaughter and May £31.89bn 385 Herbert Smith, Gleiss Lutz, Stibbe £26.12bn 237 Ashurst £24.42bn 338 Berwin Leighton Paisner £20.09bn 229 Clifford Chance £17.77bn 4910 CMS £16.31bn 3112 Dickson Minto £14.69bn 10

Source: mergermarket. *March 2006-March 2007. **Non-UK firms not shown.

THE UK FIRMS HANDLING THE MOST PROFITABLE WORK AND GENERATING THE HIGHEST REVENUES PER LAWYER

THE TOP UK FIRMS, RANKED BY TURNOVERRANK FIRM VALUE 1 Clifford Chance £1,030m2 Linklaters £935m3 Freshfields Bruckhaus Deringer £882m4 Allen & Overy £736m5 Lovells £396m6 DLA Piper £367m7 Eversheds £323m8 Slaughter and May £298m9 Herbert Smith £296m10 Simmons & Simmons £227m

Source: The Legal Business 100 2006

THE TOP UK FIRMS, RANKED BY PROFITS PER EQUITY PARTNER (PEP)RANK FIRM AVERAGE PEP 1 Slaughter and May £1,160,0002 Linklaters £1,060,0003 Macfarlanes £940,0004 Dickson Minto £860,0005 Herbert Smith £840,0006 Freshfields Bruckhaus Deringer £830,0007 Clifford Chance £810,0008 Allen & Overy £790,0009 Watson Burton £710,00010 SJ Berwin £710,000

Source: The Legal Business 100 2006



‘People always try to make sense of a complex world,’ Morley says.‘With both recruits and clients, the three things that the termMagic Circle carries with it aregeographic reach, resources andquality. It is shorthand for thosethree things.’

It is no myth that the top sixcurrently dominate the market, as the statistics show, but what is a myth is that the Circle can’texpand or contract. Slaughter andMay partner David Frank says: ‘Ifpeople start to lose client base andmarket share, or a competitorincreases those, the premierleague may change. But althoughthere are the odd changes at theedges, that is rarely the case interms of the ability to deliver the product.’

Ashurst managing partnerSimon Bromwich is not wrongwhen he says his firm and theMagic Circle ‘can generally holdtheir hands up as being the topseven who always appear on pitch-es’. But the value of Ashurst’sM&A deals over the past five yearsis half that of Slaughters, its near-est rival in the tables. The averagedeal size for the Magic Circle isnorth of £2bn; at Ashurst it is£1.5bn. The firm’s not there onturnover or, more importantly,profits per partner, and is still perceived to fall down on invest-ment banking relationships andglobal branding.

But, for now, the criteria forMagic Circle membership areclear. The group remains as strong as ever, a guarantee ofexcellence for the most powerfulclients, recruits and instructingforeign law firms. Its brand magicis self-perpetuating and definitelyself-serving. The chances of a seventh member being acceptedinto the fold – and Ashurst is theonly firm that could even comeclose at present – remains attain-able, but remote. The brand, after all, is only as strong as itsweakest member. LB

[email protected]

THE UK FIRMS HANDLING THE MOST COMPLEX LITIGATION

THE FIVE MOST HIGH-PROFILE CASES OF 2007 AND THE LAW FIRMS INVOLVEDCASE FIRMSBritish Sky Broadcasting v Electronic Data Systems DLA Piper; Herbert SmithCDC Ixis Capital Markets v WestLB AG and CIBC World Markets Herbert Smith; Simmons & Simmons; LovellsHSBC Bank plc v 5th Avenue Partners, Allen & Overy; Kendall Freeman; Goodman Derrick,Michael Robert Alexander Brown and others Ahmud & CoJPMorgan Chase Bank and others v Springwell Reed Smith Richards Butler; Clifford ChanceRabobank v National Westminster Bank Morgan Lewis; Travers Smith

Source: Legal Business

THE TEN MOST HIGH-PROFILE CASES OF 2005-2007 AND THE LAW FIRMS INVOLVEDCASE FIRMSApple Corps v Apple Computers Eversheds; Freshfields Bruckhaus DeringerAWG v Morrison and another Herbert Smith; Dechert; OlswangBP Amoco v Swiss Re, Axa Global, AIG, Ace, Aegis Clyde & Co; Herbert Smith; Norton Rose; Simmons & SimmonsCable & Wireless and Pender Insurance v Willis and others Barlow Lyde & Gilbert; Clifford Chance; LovellsEquitable Life v Ernst & Young Herbert Smith; Barlow Lyde & GilbertEquitable Life v Former executive and non-executive directors Herbert Smith; Allen & Overy; Simmons & Simmons;

Fishburns; Baker & McKenzie; Fox WilliamsHSH Nordbank v Barclays Capital Richards Butler; LinklatersLiquidators of BCCI v Bank of England Lovells; Freshfields Bruckhaus DeringerMAN v Freightliner Clifford Chance; Linklaters; Slaughter and MayTaylor Thomson v Christie’s Herbert Smith; Reynolds Porter Chamberlain

Source: Legal Business

the UK’s best law firms. But Green says it is over-simplistic: ‘Business has developed and the old term Magic Circle now hides evenmore complex situations than it used to.Personally, I think it’s done the market a realdisservice, because it over-simplifies for clientsthe choice that is really available. That makes it

harder for firms like us, and obscures the factthat there are a number of areas where we arejust better.’

If there were a Magic Circle of private equitylawyers, Ashurst would sit fairly and squarelyat its centre, as would BLP in any real estateMagic Circle. But brands don’t work like that.

UK FIRMS WITH HIGHEST NUMBER OF LEADING M&A PARTNERS

NUMBER OF PARTNERS AT UK FIRMS RANKED IN TOP 500 FOR INTERNATIONAL DEALS IN PAST 12 MONTHS*FIRM NUMBER OF PARTNERSAllen & Overy 45Linklaters 43Clifford Chance 35Freshfields Bruckhaus Deringer 32Slaughter and May 19Herbert Smith, Gleiss Lutz, Stibbe 13Ashurst 11Lovells 6Berwin Leighton Paisner 4Macfarlanes 4

Source: mergermarket. *March 2006-March 2007.


Documents

LB175 p32-39