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February 2, 2012 1:09 PM

The Am Law 100, the Early Numbers: McDermott Stems the Tide as Revenues, Profits Rise

Posted by Chris Johnson

After two consecutive years of financial decline, McDermott, Will & Emery made what is no doubt a welcome return to topline growth in 2011, according to The American Lawyer's reporting.

Having seen its gross annual revenue drop by a combined total of $100 million in 2009 and 2010, McDermott reversed that trend by recording a 4.7 percent increase in gross revenue last year, to $825.5 million (a sum that is still 10 percent below what the firm collected in gross revenue in 2008).

At the same time the firm's revenue per lawyer climbed 3 percent to $840,000, while profits per equity partner inched up 2.7 percent to $1.5 million—just $20,000 below the record figures the firm achieved in 2007 and 2008. The firm's profit margin remained static at 34 percent.

"Last year was a very good one for the firm," says New York–based firm cochair Peter Sacripanti. "We hit all our objectives and saw growth in all the major indices of law firm performance. We improved revenue, profit, and productivity."

Firm leaders were so pleased with McDermott's performance, Sacripanti says, that in addition to the annual merit bonuses paid each December, the firm also awarded a special bonus to all staff members in January—only the second time in McDermott history that such a discretionary bonus has been offered.

Sacripanti's fellow cochair, Chicago-based partner Jeffrey Stone, says 2011 was a particularly good year for IP, litigation, health care, energy, and private client work. The latter practice got a boost last April with the arrival of a seven-lawyer team from Weil, Gotshal & Manges, while the IP team added 25 new hires in 2011.

Stone says McDermott's corporate department also exceeded budget targets thanks to such significant assignments as advising sportswear manufacturer Fila Korea Ltd. and Korean investment firm Mirae Asset Private Equity on the $1.23 billion acquisition of the Acushnet golf business from Fortune Brands, Inc.

Last year was a busy one for the firm in terms of office moves, as it shuffled spaces in Miami, Orange County, London, Brussels, and Milan. McDermott—which also opened a new five-partner office in Paris last May after hiring former Herbert Smith corporate head Jacques Buhart—is also due to relocate to new space in Washington, D.C., later this year.

McDermott continues to follow a strict policy of not assuming any debt for capital or other expenditures—something Sacripanti says has been "the major tenet of the fiscal philosophy of this firm for many years." Each office move therefore represented a direct hit to the firm's cash flow. Nonetheless, Stone says overall real estate costs remained largely unchanged.

McDermott faltered amid the recession, and the firm's financial decline was compounded by a stream of partner exits. The Am Law Daily reported in November that as many as 38 partners left the firm in 2011, including several practice group leaders. (The firm ranked third in terms of total partner defections, behind only K&L Gates and Howrey, which dissolved in March last year, according to The American Lawyer's latest Lateral Report.)

Former partners, legal recruiters, and consultants told The Am Law Daily that one reason for McDermott's revolving-door atmosphere is the large number of income partners the firm has always had relative to the size of its equity partnership.

It is interesting to note, therefore, that while equity partner numbers at the firm increased slightly during 2011, its nonequity ranks fell by 10 percent.

Sacripanti insists the decline does not reflect a conscious rebalancing of the firm's partnership—"There are no plans at all to do that," he says—but was merely the result of partners leaving either voluntarily or due to performance management.

McDermott's total lawyer head count actually grew slightly last year, to 984. Despite the promotion of 29 new partners, the partnership ranks continued to contract, shrinking by 6 percent to 515—the smallest it has been in more than a decade.

Stone says there is still "a great demand and desire to grow this partnership," particularly in Asia, where the firm hopes to bolster its presence during 2012. (McDermott is "carefully assessing" opportunities in Seoul, he adds, and expects to make an announcement about a potential new office there within the next month.)

The continued uncertainty plaguing the global economy notwithstanding, Sacripanti remains relatively bullish about McDermott's near-term prospects and says the firm is budgeting for additional revenue and profit growth this year.

"We can't predict what the consequences will be in relation to the euro crisis, and if we could we wouldn't be running a law firm—we'd be getting paid a lot of money doing something else," he says. "But taking into account those macro uncertainties, and barring any other extraordinary events, we're cautiously optimistic that 2012 will be even better than last year. We feel we're on a significant upswing."

This report is part of The Am Law Daily's ongoing Web coverage of 2011 financial results of The Am Law 100/200. Results are preliminary. Final rankings and full results for The Am Law 100 will be published in The American Lawyer's May 2012 issue and on AmericanLawyer.com. The Am Law Second Hundred will be published in the June issue.

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