THE LONDON LAWYER: UK Law Firm Financials

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May 22, 2008 11:45 AM

THE LONDON LAWYER: UK Law Firm Financials

Posted by Richard Lloyd

It's financial reporting season in the United Kingdom--most firms' fiscal years run from May 1 to April 30--and this year The Am Law Daily will publish regular updates on the latest figures from London's elite law firms.

Beyond the U.K. numbers, we'll compare the performance of some law firms to their U.S. rivals. In the process, we will answer pressing questions facing the world's elite: By just how much will Clifford Chance's and Linklaters's revenues outstrip Skadden's and Latham's? Will a restructured equity partnership at Freshfields Bruckhaus Deringer make it into the global profits top ten?

A note about the numbers: All figures, reported by the firms in British pounds, have been converted to dollars at the Federal Reserve's average rate for 2007 of $2.002 to the pound.

Below reports on: Herbert Smith, Ashurst, Norton Rose, CMS Cameron McKenna

Herbert Smith's Rebound - Posted May 22, 2008 at 12:33 p.m.

So the first London-based firms to report their numbers for the last financial year have confirmed what the market has long suspected. Despite the credit crunch that hit last August, the first half of the year in the City was so good that English firms had enough in the tank to report strong growth in turnover and profits for the full 12-month period. Throw in the fact that most of those to report have strong international networks with offices in the likes of Eastern Europe and Asia--regions that so far seem unaffected by the crunch--and the increases don't look so out of place.

First up is Hebert Smith, home to one of London's premier litigation practices and a corporate practice that enjoys close referral links to Cravath, Swaine & Moore and Simpson Thacher & Bartlett in the U.S. In mid-May the firm reported that turnover--in British pounds--had increased by 25 percent to £417.5 million (up from £334 million last year) and profits per partner (PPP) have also jumped by the same amount, to hit £1.02 million.

Convert those figures into dollars, and the growth is even more impressive, thanks to the weakening dollar: revenues up from $615.5 million to $836 million, and profits per partner going from $1.51 million to $2.04 million. In a U.S. context, think Dechert (it had revenues of $836 million and ranked twenty-fifth in this year's Am Law 100) for the top line, and a bottom line just below Weil, Gotshal & Manges and Cleary Gottlieb Steen & Hamilton (both reported profits per partner of about $2.1 million).

Herbert Smith's exposure to contentious work--accounting for just under 40 percent of the practice--makes its business model the closest of all the English firms to the traditional profile of a U.S. practice. And that premier litigation brand certainly helps. Legal Week, The American Lawyer’s London-based sibling publication, reported recently that Herbert Smith will be sharing in an expected $100 million fees windfall from a dispute concerning the ownership of an aluminum business in Tajikistan, in central Asia. Only two other court cases in London--one over the collapse of London bank BCCI and another over life insurer Equitable Life--claim to have been worth more.

Herbert Smith needed these results, badly. Last year, while the five firms in the Magic Circle all saw their profits soar--all reported PPP in excess of $2 million--Herbies stalled with partners’ average take-home pay dipping by 2.5 percent to £821,000, or $1.5 million. Despite the occasional KKR and Blackstone deal thrown its way by Simpson Thacher, Herbert Smith has never hit the buyout heights, so didn’t benefit from the LBO boom like some of its closest rivals such as Ashurst. Now a significant uptick from the firm’s emerging markets offices, in the Middle East and Moscow specifically, and a bit tighter financial management (i.e., controlling costs and getting those fees in on time) have paid off. And then there’s the litigation practice, which is always handy in a downturn.

Ashurst Knows How to Profit From Independence - Posted May 22, 2008 at 2:48 p.m.

For a U.S. audience, Ashurst may still be best remembered as the U.K. firm that went through merger talks with Latham & Watkins and Fried Frank Harris Shriver & Jacobson in the early part of this decade but turned its back at the last minute. For the slightly more curious, it's a kind of Magic Circle lite firm--it does not have quite the scale, nor the international network, nor the exposure to the highest-quality corporate and finance mandates of London competitors, but it's a quality City outfit nonetheless.

The firm's profits are yet to be announced (the news is a week or two away) but Ashurst was one of the first major London players to reveal its revenue, announcing May 9 a 17 percent rise to £323 million, up from £275 million. At around $647 million, that means it's rubbing shoulders with the likes of Paul Weiss, Fulbright & Jaworski, and Milbank on this year's Am Law 100.

Stay posted for details of the firm's profits per partner. Last year they leapt 36.4 percent to £956,000, so expect them to go past the magic £1 million ($2 million) mark.

Norton Rose's and Lovells' Foreign Affairs - Posted May 22, 2008 at 3:11 p.m.

It may seem glaringly obvious, but when you invest in and expand your business, you need to see a return on your investment. It doesn't take an MBA to tell a managing partner this, but the truth is that for many U.K. firms, their international investments over the past decade have been spectacularly dilutive. However, it's now becoming apparent that all those offices in continental Europe and the Far East might just be paying off. Take London-headquartered firms Norton Rose and Lovells.

Norton Rose has announced growth in revenues of 27 percent, taking it to £297 million, or $595 million (£233 million or $429.5 million last year), and places due credit for the growth at the door of its international offices, spread across Europe, the Middle East, and Asia.

A City stalwart a few steps removed from the Magic Circle (think Dewey Ballantine pre-LeBoeuf merger: respected brand, decent client base but losing market share to rivals), Norton Rose has spent the last ten years investing overseas and asked its partners to carry the considerable pain. By way of example, consider its profits per partner in 2001, £522,000, and compare the figure to last year's £515,000, which was a 16 percent rise on the year before. The firm hasn't yet announced its 2007-08 PPP; for those equity partners that have shouldered the cost of foreign expansion, a little payback is due.

While we wait for news of Norton Rose's profitability, Lovells has announced double-digit growth in both its top and bottom lines. Revenue is up 13 percent, to £479 million or $959 million, while partner profits have grown by 12 percent to stand at £662,000 ($1.325 million).

Where's the management love going? You guessed it, the firm's international offices. Managing partner David Harris told The American Lawyer’s sibling publication, Legal Week, that he was "delighted" with the way that the Dubai office had performed in particular. A lagging London office, not underperforming foreign outposts, is now at the top of the management agenda.

Cameron McKenna's Growth on the Horizon - Posted May 23, 2008 at 1:03 p.m.

The financial results from U.K. firm CMS Cameron McKenna announced yesterday are a bit of a double-edged sword for new managing partner Duncan Weston. He took over the leadership reins from Dick Tyler on May 1 and has inherited a business in robust shape. In the last financial year, revenues increased to £235 million ($470.5 million), up from £197.4 million ($364 million). In British pounds, that’s a 19 percent hike--almost 30 percent in dollars. Profits per partner have also leapt to £655,000 ($1.3 million), up from £502,000 ($925,000), a 29 percent jump in pounds.

Of course, the tricky bit is masterminding a repeat performance for the fiscal year just started. Weston, the former head of the firm’s buoyant Central and Eastern European practice, comes across as being more at home at business school than law school, so he knows that if a business isn’t growing by at least 8 percent a year, it’s standing still.

But stasis isn’t really Weston’s style anyway. In 2006 Dick Tyler told his partners that he wanted revenues to grow to £250 million ($500.5 million) by 2009. With just £15 million or around $30 million to go in the next 12 months, that would seem a fairly modest target. His successor may want to set the bar a little higher.

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