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James Lavan

Executive Director, Buchanan Law

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Today, as the legal sector reacts to the buoyancy in transactional work, we are starting to see vacancies return and filter through in top firms

M&A surge leads to legal hiring boom

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M&A surge leads to legal hiring boom

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James Lavan explores the surge in legal sector hiring, driven by increasing mergers and acquisitions activity and a stronger economic outlook

London-based law firms are pressing hard on the accelerator pedal when it comes to hiring in transactional sectors.

Recent optimism within law firms, driven by a stronger economic outlook and increased business activity, has led to a surge in legal recruitment in the competition, employment and corporate tax departments.

Anticipated interest rate cuts and market confidence in the new government have contributed to an improving macroeconomic picture, which has given a tangible boost to recruitment.

This provides a strong pointer towards an increase in mergers and acquisitions activity over the next twelve months.

One recent report by Thomson Reuters found around 40 percent of UK corporations are predicting an increase for their legal spend over the current financial year. Across the board, the reason for this significant growth is higher demand for legal advice on mergers and acquisitions (M&A) transactions.

The most significant growth is in M&A advice, with a net 21 percent of corporate expecting to increase spending, up from a net 2 percent planning cuts three months earlier. This is an extremely significant about-turn, and one which really highlights the changed mood in the sector.

Banking and finance legal advice also saw improvement, according to the same research, with a net 10 percent planning increased spend versus a net 6 percent previously planning cuts.

But it is the surge in M&A spending which is expected to lead to the most notable uptick in legal sector recruitment. This rapid growth in transactional work is expected to lead to a hiring spree.

Firms want to be in a strong position to meet the demand for M&A.

It is no secret that if one looks at where the revenue in those businesses tends to originate from, it is usually led by the transactional side, either through M&A or, more recently, through private equity deals and venture capitalist work.

For those of us in recruitment for firms in areas such as M&A, equity, capital markets, debt, and leveraged finance, the last 18 months would be best described as fairly stagnant or stale.

Today, as the legal sector reacts to the buoyancy in transactional work, we are starting to see vacancies return and filter through in top firms

I do not believe that the industry is at the peak of this stage of the cycle right now, but firms are starting to see the positive green shoots of growth again.

This phenomenon is also reflected in the latest revenue figures for the 2023-24 financial year, mostly announced earlier in the summer.

Three Magic Circle firms, Clifford Chance, Allen & Overy (before its merger with Shearman) and Linklaters surpassed £2bn. Others reported double-digit growth year on year, including Macfarlanes, which achieved a remarkable 24 percent increase in profit per equity partner.

With many of these major firms, M&A activity levels are increasing again for the first time in quite some while. Within the industry, we are being told that this is in anticipation of what is expected to come towards the back end of this year, and then very much into next year.

I expect that an increase in M&A activity over the next twelve months will foster concurrent increased activity in recruitment.

Within elite Magic Circle, Silver Circle, and US firms, growth in these areas has a cascading effect, as initial M&A or private equity work leads to increased demand across associated departments.

The overall knock-on impact is an increase in workload in corporate tax, employment and competition law within the same firm. This is definitely what one would expect to see during this financial year.

There is much more lending taking place now compared to 18 months ago because of the change to interest rates. Firms are lending again, the debt burden is starting to ease, so debt transactions have become easier, which they are able to leverage a lot more. The wheels are definitely moving in terms of the volume of transactions.

It is definitely the case too that the change of government has created a sense of optimism in terms of deals taking place within a less strained and uncertain political environment.

Recruitment in the legal sector typically operates as either a buyer's market or a seller's market. During the pandemic, it was, ironically, a good time to be a candidate, but over the last 18 months that has not been the case. In fact, it has been extremely difficult for all but those in the very highest echelons of the profession to secure a new job.

It would be fair to say that it was very much a client-driven market in which the number of opportunities was way less than the people who could do it.

In 2023, the conversation would often be led by the employer telling candidates that unfortunately they could not facilitate a space for them even though they are highly suitable, now is a great time to be a candidate again.

Now, we are seeing that swing back the other way. Candidates are now in a much stronger position, so much so that they can impose conditions and be far more demanding.

What is also interesting is recruitment for firms is not particularly seasonal, in that it is responsive to the demands of their clients and the overall workload.

I would say, however, it is a rarity to notice so much growth at this time of year. If one considers the lifecycle of a partner and the bonus structure, everyone is aware they leave something on the table should they leave their post halfway through the year.

Newly qualified lawyers would be the only exception to that rule; almost 90 percent of people qualify in September, so it is obviously artificially busy then.

The fact there is so much movement is indicative of the reality that people are hungry to move on and are taking advantage of the shifting market.

This is particularly apparent in the European legal market, with 18 percent of partner vacancies for EU competition law coming at an unconventional time of year for hiring. By leaving during the summer, many departees will have foregone bonuses.

In many ways, the EU competition market acts as bellwether in legal recruitment, due to Brussels’ role in shaping global competition law with its regulatory influence and recent flexing of muscles, with record fines and blocked deals.

Many of the huge mergers and acquisitions that reach completion flow through the EU courts, even the competition frameworks that are not beholden to European laws.

When we see increased activity in that world, we can deduce that this is an area in which work is going to pick up in a similar vein.

We have also seen a rise in corporate employment vacancies within US law firms based in London, indicating that they are gearing up for the anticipated increase in workload and hiring.

Meanwhile, the message coming from firms is they are looking for people who can exercise autonomy, who can work with significant responsibility, and who do not have to be hand-held on large projects.

They are looking for senior hires who can take the initiative on business development, because firms are realising that is an important tool with which to increase market share.

Without doubt, this is an exceptional time to be making a move between London-based firms for candidates in the transactional sector.

Nothing illustrates this more clearly than the incredible increase in salaries for newly qualified lawyers, with pay packets soaring by up to 20 percent at some firms.