June 27, 2016 – Brexit fallout is making winners and losers among Chicago’s professional service firms, with lawyers chasing new work and recruiter Heidrick & Struggles International trading at its lowest price in a year.
The executive search firm, which brought in $531.1 million in revenue last year, closed at $16.96 a share on Friday. Shares were trading at $16.28 early Monday afternoon, following last week’s decision by British voters to withdraw from the European Union. The news delivered a beating to a number of Illinois stocks.
Demand from Europe improved Heidrick’s performance in the last two quarters, with about 10 percent of the company’s revenue from the United Kingdom, said Tim McHugh, an analyst at William Blair. There are 2.1 million people who work in financial or professional services in the United Kingdom, making it an important center for recruiters in those fields. Heidrick employs 52 recruiters in London, more than Chicago rival Spencer Stuart, which has 36. Spencer Stuart had $699.3 million in revenue in 2015.
Yet in May and June, companies grew reluctant to hire, cutting into search firm fees, said Scott Scanlon, CEO of recruiting industry news source Hunt Scanlon Media in Greenwich, Conn. The financial services sector alone is expected to have 70,000 to 100,000 fewer jobs in four years because of the vote, according to a report commissioned by the CityUK, an industry group. Now the tumult touched off by Brexit will bring hiring to “a standstill.”
“This is a disaster in the making for global professional services firms,” Scanlon said. “They all have massive exposure to London, and business in London is moving out.”
Representatives from Heidrick and Spencer Stuart declined to comment.
Not all professional service firms are hurting, though. There’s likely to be little effect on the trio of accounting firms based in Chicago: RSM, Grant Thornton and BDO USA. While all three belong to networks that share a common brand worldwide, the organizations headquartered here do not share profits or legal liability with members overseas. If any of the firms’ U.K. affiliates suffers, the network can replace it with a different British accounting firm.
Lawyers, though, are the real winners, at least the ones with trade, regulatory or financial services practices, said Christopher Ryan, a managing director in the Chicago office of HBR Consulting. Trade deals will need to be renegotiated, and businesses will be thrust into a new regulatory framework. Yet lawyers who handle corporate transactions may find themselves idle as dealmaking slows.
Kirkland & Ellis and Sidley Austin both house more than 100 lawyers at their London offices; Baker & McKenzie and Mayer Brown each count more than 250. Financial services represents one of Mayer Brown’s largest practices, with the firm claiming clients like Citigroup and HSBC. Tom Delaney, a financial services partner in Mayer Brown’s Washington, D.C., office, said Brexit would “definitely” lead to an increase in work.
The firm is marketing its services through a Brexit-dedicated website section and a series of webinars. (The first one, on June 24, drew not only clients but journalists from the BBC and the Guardian.) The push, Delaney said, is “to make it clear to clients we’ve seen this coming. You expect us to be able to advise you on global issues, and we’re prepared to do that.”
Baker & McKenzie is pursuing a similar strategy. The firm has tweeted on the issue and launched a new blog the day after the vote.
“It’s going to be a pig’s breakfast for the lawyers,” said Jim Peterson, a former in-house attorney in Europe for accounting firm Arthur Andersen. “Something large, and sloppy and not necessarily very appealing, but the pig gets thoroughly nourished.”
Still, lawyer and recruiter alike face the prospect of slumping revenue if they have a significant number of clients that pay in sterling. Since June 23 the currency’s value has fallen to $1.32.
Crain’s Chicago Business, by Claire Bushey