The latest financial year has not been a vintage period for those wishing the legal industry would fall into concise patterns. Glancing at the LB100, separating the winners and losers by breed is more difficult than at any time over the last 20 years.

But murky as the picture is, some broad outlines can still be discerned. The 2017/18 season was one of the best 12 months of trading since the banking crisis a decade ago reset the legal market.

Despite a backdrop of an increasingly fractious Brexit process, concerns over the UK economic outlook and the future of the City, trading was more robust than expected.

Consolidation flatters the figures, pushing the group’s revenue up 10% to £24.2bn, but even stripping that out, it was a respectable showing, with revenue per lawyer up 4% to £355,000. Profit per partner across the LB100 cranked up 9% to hit £805,000, aided by a marginal tightening of equity ranks. Consolidation and foreign expansion has continued to tilt revenue towards the top quartile. The top 25 UK law firms now generate £19bn of revenue, or 80% of the group’s income. A decade ago that share was 73%.

And yet it has been another indifferent year for larger outfits. This pattern has now been sustained for a decade and its implications for institutional legal services are as profound as they are commonly ignored. As our Global 100 coverage in July made clear, Magic Circle firms continue to grind along with insufficient momentum to fulfil their own global ambitions. And this pattern extends across the top ten.

Few in this hostile environment comfortably coast along – they move forward or fall back.

The strongest strata is less distinct than in previous years but is still largely defined by quality mid-market operators like Osborne Clarke, Fieldfisher, Macfarlanes and Travers Smith. The quartile comparisons mislead as it is firms ranked ten to 35 by revenue typically excelling. Above, the market is largely soft. Below, it sharply divides into operators aggressively hunting in a lower mid-market jungle and those failing to keep up. Few in this hostile environment comfortably coast along – they either emphatically move forward or fall back. When you see insurance law specialists like Hill Dickinson sell out of its core specialism you know it is tough out there for any firm not well adapted to its ecosystem.

Of the surprise performances to note, a second year of above-trend running from Simmons & Simmons stands out. Another year of this and the industry may wonder if its long-term malaise has been conquered. And the results from Travers and Macfarlanes are flat-out remarkable and deserve more consideration. If two firms with once-derided models can so comprehensively outpace the wider industry, not only this year, but on a five-year basis, then even more of the profession’s battered received wisdom should be sceptically revisited.

Much of the rest of the industry has considerably less cause for confidence. With some corporate work being funnelled ahead of the business-end of the Brexit process next year, and policy making in this nation becoming ever more dysfunctional, there are as many ominous trends and variables lurking as the modern legal profession has witnessed. That, if not much else, is clear.

alex.novarese@legalease.co.uk

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The post The LB100 Comment: Smoke, turmoil and a tonne of cash appeared first on Legal Business.

The latest financial year has not been a vintage period for those wishing the legal industry would fall into concise patterns. Glancing at the LB100, separating the winners and losers by breed is more difficult than at any time over the last 20 years.

But murky as the picture is, some broad outlines can still be discerned. The 2017/18 season was one of the best 12 months of trading since the banking crisis a decade ago reset the legal market.

Despite a backdrop of an increasingly fractious Brexit process, concerns over the UK economic outlook and the future of the City, trading was more robust than expected.

Consolidation flatters the figures, pushing the group’s revenue up 10% to £24.2bn, but even stripping that out, it was a respectable showing, with revenue per lawyer up 4% to £355,000. Profit per partner across the LB100 cranked up 9% to hit £805,000, aided by a marginal tightening of equity ranks. Consolidation and foreign expansion has continued to tilt revenue towards the top quartile. The top 25 UK law firms now generate £19bn of revenue, or 80% of the group’s income. A decade ago that share was 73%.

And yet it has been another indifferent year for larger outfits. This pattern has now been sustained for a decade and its implications for institutional legal services are as profound as they are commonly ignored. As our Global 100 coverage in July made clear, Magic Circle firms continue to grind along with insufficient momentum to fulfil their own global ambitions. And this pattern extends across the top ten.

Few in this hostile environment comfortably coast along – they move forward or fall back.

The strongest strata is less distinct than in previous years but is still largely defined by quality mid-market operators like Osborne Clarke, Fieldfisher, Macfarlanes and Travers Smith. The quartile comparisons mislead as it is firms ranked ten to 35 by revenue typically excelling. Above, the market is largely soft. Below, it sharply divides into operators aggressively hunting in a lower mid-market jungle and those failing to keep up. Few in this hostile environment comfortably coast along – they either emphatically move forward or fall back. When you see insurance law specialists like Hill Dickinson sell out of its core specialism you know it is tough out there for any firm not well adapted to its ecosystem.

Of the surprise performances to note, a second year of above-trend running from Simmons & Simmons stands out. Another year of this and the industry may wonder if its long-term malaise has been conquered. And the results from Travers and Macfarlanes are flat-out remarkable and deserve more consideration. If two firms with once-derided models can so comprehensively outpace the wider industry, not only this year, but on a five-year basis, then even more of the profession’s battered received wisdom should be sceptically revisited.

Much of the rest of the industry has considerably less cause for confidence. With some corporate work being funnelled ahead of the business-end of the Brexit process next year, and policy making in this nation becoming ever more dysfunctional, there are as many ominous trends and variables lurking as the modern legal profession has witnessed. That, if not much else, is clear.

alex.novarese@legalease.co.uk

Click to go to the Legal Business 100 menu

The post LB100: Smoke, turmoil and a tonne of cash appeared first on Legal Business.

Average revenue £242.3m

Average revenue growth 10%

Revenue per lawyer £355,000

Profit per lawyer £112,000

Profit per equity partner £805,000

Ten fastest-growing firms by revenue

Ten fastest-shrinking firms by revenue

Ten fastest-growing firms by PEP

Ten fastest-shrinking firms by PEP

Firms 1-25

Average revenue per lawyer £409,000 (+6%)

Average profit per lawyer £136,000 (+5%)

Average profit per equity partner £950,000 (+9%)

AVERAGE REVENUE £764.9m (+11%)

Firms 26-50

Average revenue per lawyer £267,000 (-2%)

Average profit per lawyer £65,000 (-3%)

Average profit per equity partner £501,000 (+3%)

AVERAGE REVENUE £122.6m (+5%)

Firms 51-100

Average revenue per lawyer £206,000 (-3%)

Average profit per lawyer £50,000 (-2%)

Average profit per equity partner £380,000 (10%)

AVERAGE REVENUE £40.9m (+3%)

Click to return to the Legal Business 100 menu

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Through much of 2018 the talk has been that major City firms have been extraordinarily busy. GDPR, a rebound in transactional activity as deals put on hold by Brexit are pushed through, a robust showing from the global economy…

And this has translated into… not that much. London’s Big Four Magic Circle firms have packed in closely this year, with revenues up between 4% and 6%. True, in contrast to 2016/17, when currency movements flattered subdued underlying results, this year they have performed modestly better than the headline numbers suggest. But for those whose memories stretch to the 1990s through to 2008, when ‘really busy’ meant routinely sticking 10% to 15% like-for-like on the top line, this remains a very different environment.

Without much to choose between them, of the quartet, Clifford Chance posted the best numbers in relative terms, with partner profits up sharply to £1.6m. Building on a solid showing last year, there is at least some indication now that the supposed rising morale and clearer focus under Matthew Layton is finally showing up in the numbers. But we’re grading on a curve here and CC will have to do a lot more to show it has got near shaking off the institutional inertia that has progressively settled in over the last 15 years.

Allen & Overy is more subdued after a standout performance last year but has the benefit of the best post-Lehman form of its peer group. In a period in which Linklaters and Freshfields Bruckhaus Deringer were prevalent on a string of big-ticket deals, their results look respectable rather than anything to excite. The rebound in profitability will be particularly welcome at Freshfields as it ushers in its overhauled equity structure this year, though we are in the strange position of seeing vulnerability at an institution that should be cementing its world-beating status right now. Still, a 12-month period for one of the City’s best law firms to regroup was needed and had better not be wasted.

Another firm with very relative cause for cheer is Ashurst, which at least managed to give its continually-lagging ‘share price’ a boost as average partner profits hit £743,000. Herbert Smith Freehills? With indications that its contentious practice remains on fine form, the question increasingly is whether its transactional half can keep up in a manner commensurate with its global ambitions.

So there we have it. Deal markets can boom, regulatory and contentious work bustle, but large City firms are unable to perform at anything like the level they did during 1986 to 2008. This only reinforces the sense that, while one section of their practice captures high-margin, strategic work that pushes them skywards, the remaining three quarters is increasingly tethered to the ground. Via increasingly rigorous panels, major markets not prepared to support the margins these firms target and the loss of lucrative work to US rivals, major City firms look like what critics dubbed the banking industry after the credit crunch: utilities attached to casinos.

Growth and margin is being driven by a small proportion of work – perhaps 5% to 15% of their matters – and by New Law operations cannibalising their mainstream revenues. That leaves the thorny issue for the City’s full-service juggernauts of what to do with that drifting two-thirds-plus of their business.

alex.novarese@legalease.co.uk

‘For more analysis of leading firm results see ‘Comment: A new Global 100 elite emerges as the old ones decline’

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After last year’s double-digit revenue growth for three of the big four Magic Circle firms, 2017/18 financials for the same group have failed to make as much of a splash this time around.

But while failing to match last year’s 11% uptick in revenue and profit per equity partner, Clifford Chance (CC) nevertheless leads the pack this year, in more ways than one.

CC was the first Magic Circle player to unveil its figures and also posted the highest revenue of its peer group, posting a 5% income hike from £1.54bn in 2016/17 to £1.623bn this year. The firm’s overall profit pool was up just over 13% to £626m and, factoring in a decrease in the number of equity partners from 403 to 392, PEP surged nearly 16% from £1.375m to £1.596m.

These results – and the fact that CC’s peers are not lagging very far behind – speak to a confidence among major law firms that the market has been unexpectedly buoyant as dealmakers push on in spite of the economic and political uncertainty posed by Brexit and the Trump administration.

As last year’s City big four laggard in revenue terms, Freshfields Bruckhaus Deringer’s 5% increase from £1.33bn to £1.403bn for 2017/18 will be welcome considering that last year the firm failed to hike fee income at all.

The rebound is underlined by a 12% PEP increase to £1.734m – a particularly welcome development given many London leaders are seeing their star partners whisked away by aggressive US rivals.

Freshfields managing partner Stephan Eilers (pictured) pointed to private equity transactions in areas such as fintech, TMT and infrastructure, as well as an uplift in the US business as the most significant drivers of growth. Corporate partner Natasha Good cited a mandate advising US cable giant Comcast on its £22bn bid for Sky against a rival bid from Rupert Murdoch’s 21st Century Fox and another acting for the target in Vodafone’s €18.4bn buyout of Liberty Global European assets as the trend for consolidation continues.

Looking ahead, Eilers is sanguine: ‘We are very optimistic for the future. We see the clients sticking with us. In the US we will try as we have been doing, to build antitrust, leveraged finance and M&A.’

‘We are very optimistic for the future. In the US we will try as we have been doing, to build antitrust, leveraged finance and M&A.’ Stephan Eilers, Freshfields

Linklaters’ financials were something of a mixed bag this year. On the plus side, the firm outstripped its peers in revenue growth, posting a solid 6% uptick to £1.52bn and adding £85m to its top line. The downside saw profits fail to keep pace with that growth, while PEP increased by a sluggish 2% to £1.54m from last year’s £1.51m. The result means Linklaters has the lowest PEP of all its Magic Circle peers.

Managing partner Gideon Moore is upbeat, pointing to the effect significant investments have had on the profitability of the firm, including the joint operations agreement with Shanghai firm Zhao Sheng. On the work front, Linklaters boasted a number of headline-grabbing mandates, including the £6bn sale of Unilever’s spreads business to KKR, the £3bn Sainsbury’s-Asda merger and Bain Capital’s $18bn acquisition of Toshiba Memory.

Allen & Overy was last year’s standout performer with the firm posting a 16% revenue hike to £1.51bn. But this year that blistering pace was not to be emulated as the London leader declared a 4% uptick, bringing turnover up £54m to £1.57bn.

The result was matched by a 4% increase in PEP to £1.64m, while pre-tax profits were up 3% to £690m. The performance leaves A&O as the second-largest Magic Circle firm in revenue terms, after CC.

Growth was driven by its practices in Western Europe and the CEE region, as well as its ‘advanced delivery businesses’, which cover its large Belfast legal services centre and its New Law operations, including Peerpoint and aosphere. Capital markets and tax were also highlighted for strong growth.

However, 2017/18 did not benefit from last year’s flattering movements in exchange rates, indicating a modest upturn in underlying growth.

nathalie.tidman@legalease.co.uk
To see our Global 100 coverage, please click here

2017/18 results – London’s big four

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They said rapid growth is hard if you are already big. Last year it hiked revenue 19% from $2.65bn. They said profitability is about focusing on quality over growth. As it became the highest grossing law firm in the world, fee-earner headcount surged 13.5% to over 2,000 and profit per equity partner (PEP) was up nearly 15% to $4.7m. They said a sprawling international footprint is essential if you want to secure high-end mandates. It has just 14 offices – only five outside the US – and generated $3.165bn in 2017. They said global law firms need bank clients. It is famously dismissive of banks and their onerous panels.

Perhaps the most intriguing aspect of Kirkland & Ellis’ meteoric rise over the last decade is how it turned BigLaw’s playbook on its head. The Chicago-bred giant has not only outperformed the profession’s elites in London and New York but challenged the very assumptions underpinning the legal industry’s decades-spanning pecking order.

Whichever metric you pick, Kirkland has delivered. Entering markets successfully. Check. Attracting top talent. Check. Securing high-end mandates for top clients. Check. The 900-partner outfit has more than doubled income over the last ten years, the second best performance in the Global 100.

Few topics crop up as frequently in the Square Mile as last year’s $10m hire of private equity (PE) playmaker David Higgins from Freshfields Bruckhaus Deringer or that of transactional veteran Eric Schiele and litigator Sandra Goldstein from Cravath, Swaine & Moore. Moves that would have been unthinkable a few years ago are now regularly making news.

‘Kirkland are as hungry as a law firm that hasn’t achieved such a strong market leading position – their appetite for success is insatiable.’

‘They are as hungry as a law firm that hasn’t achieved such a strong market-leading position – their appetite for success is insatiable,’ reflects Scott Zemser, head of leveraged finance and co-head of lending at Mayer Brown. ‘Regardless of their incredible success to date, they are continuing this march.’

‘Anybody who is [saying Kirkland] isn’t a great firm is just wrong,’ concedes Latham & Watkins’ banking co-chair Christopher Kandel. ‘Kirkland has grown impressively on the borrower side over the last five years. It’s not like the market has hugely expanded. What they have grown is at the expense of certain other firms.’

End of the story? Of course not. The reason Kirkland excites such debate from Wall Street to the Square Mile goes to the heart of its iconoclastic business model and what critics dub an aggressive, macho culture. ‘Kirkland is genuinely one firm that people don’t like,’ says one partner at a rival. ‘Whenever you try to hire someone, Kirkland is out there with the appallingly vulgar cheque book.’

But rivals should take a closer look at what lies behind the results. The burning question remains: where is all this going to end? Where some see a juggernaut picking up speed, many talk anxiously of short-termism, greed and an unsustainable institution.

Finance playmaker Neel Sachdev pushed for high-impact City recruits.

With this in mind, Legal Business interviewed dozens of current partners and peers on both sides of the Atlantic to probe behind the phenomenon. Can anything stop Kirkland & Ellis?

Taking Manhattan

As recently as the early 2000s, Kirkland would have figured on no-one’s radar for global elite status despite a knack for outclassing peers on profitability. The firm launched in Chicago in 1909 and established itself as one of the Windy City’s major law firms by the 1970s, even if it was more scrappy and dispute-driven than patrician peers like Sidley Austin and Mayer Brown & Platt. Recalls one veteran: ‘PE started out as venture capital – ugly little work other people didn’t want. Kirkland’s PE team became its biggest business. Very aggressive.’

While Sidley and Mayer Brown expanded with institutional clients into New York and London, Kirkland was fielding just six offices. The firm launched its English law practice in 2001 with the hire of DLA corporate partner Nigel Dunmore to little notice. One of the first English law recruits recalls the response of his then Magic Circle employer: ‘Never heard of them.’ A subsequent Google search left the bemused partner none the wiser, asking: ‘Why would you join a greengrocers?!’

Yet the firm benefited from a ground-floor position in the US leveraged buyout market thanks to clients like Bain Capital and Madison Dearborn Partners, a sector already driving its growth ahead of peers focused on plc clients. The firm was expanding revenues at a clip during the 1990s and 2000s.

By this stage much growth was driven outside its Chicago heartland. Launching in 1990, its New York arm focused heavily on sponsor clients, providing a clear niche, and only Simpson Thacher & Bartlett and Weil, Gotshal & Manges of the major local players to contend with as competition.

Yet it was in the post-banking crisis malaise that Kirkland attracted the notice of Manhattan’s bemused leaders, with the 2009 hire of corporate specialist David Fox, one of Skadden, Arps, Slate, Meagher & Flom’s highest billing (and earning) partners, and fellow partner Daniel Wolf, another strong performer. Fox rapidly established himself as one of Kirkland’s most influential operators and a major force in building out its New York arm. By the time Kirkland in 2012 hired Cravath’s hotly-tipped young corporate partner Sarkis Jebejian to fill out its public M&A team, a sense of unease among Manhattan’s clubby elite had set in.

Another notable PE hire was Simpson Thacher partner Peter Martelli in 2016, proving even Wall Street’s top buyout firm was not impregnable and delivering another productive transfer. The aggressive recruitment in New York has, if anything, intensified over the last 18 months. Others shipped in include funds rainmaker Erica Berthou from Debevoise & Plimpton and former co-chair of Latham’s PE practice Jennifer Perkins, a rare loss for the upwardly mobile Los Angeles-bred firm. Cravath’s Goldstein came in on a reputed $11m deal, making her perhaps the US’s top-paid female partner. Such moves helped Kirkland build a 550-lawyer Manhattan arm generating more than $700m, approaching 25% of the firm’s global revenue last year.

‘Kirkland’s leader Jeffrey Hammes comes into a room and high-fives. He does not take no for an answer. Leads from the front and his decision is the only one that matters.’

Not that there can be much doubt where the growth came from. The firm is unusually concentrated for a business of its size, focusing on just four core areas: transactions (essentially private equity, corporate and debt finance, all with a heavy sponsor tilt); litigation; intellectual property (IP); and restructuring.

Viewed from the City, it is often forgotten how central disputes are to Kirkland’s heritage. Take two of the highest-profile mandates of the last decade: the long-running litigation following the BP Deepwater Horizon oil spill in 2010 and the 2015 Volkswagen emissions scandal. Kirkland is on both of them. Over 500 lawyers focus on litigation. Another 230 cover IP, primarily disputes, a marquee practice that calls on clients such as Cisco, Intel, Samsung and Sony.

In restructuring, Kirkland has featured on some of the largest bankruptcy filings of recent years, among them Toys R Us, GenOn Energy and Seadrill. Though the group is its smallest with 130 lawyers, the practice is famously productive and a core part of the brand. Certainly the firm remains well hedged.

Meanwhile, its largest group, the transactions practice, has been perfectly positioned to ride the 30-year boom in the global private equity market, having put such clients central in a manner no other firm of its scale has yet attempted, while avoiding the plc panels that have subdued the growth of many leading firms.

Notes one Kirkland rainmaker: ‘We only have one goal: having a role in most of the main deals in our markets. That’s it. This place gives you freedom. They’ll give you an office, they’ll give you support. No-one gets in your way or says no.’

High impact, low profile

‘Short, hairy chest, medallion boxer-type. When he comes into a room he high-fives. He does not take no for an answer. Leads from the front and his decision is the only one that matters.’ This is how a former partner describes the man leading the world’s top-billing law firm for the last eight years: Jeffrey C Hammes.

L-R: Stephen Lucas and Neel Sachdev, Kirkland & Ellis

The hire of Stephen Lucas was certain to unsettle London’s elder-statesmen just as marquee hires in New York triggered similar creative destruction. ‘Hammes had to have Lucas at any cost.’

The picture is echoed in more flattering terms by his admirers. Not that Hammes has amassed much industry profile given Kirkland’s rise. In contrast to the reputation of figures like Bob Dell (Latham) and Brad Karp (Paul, Weiss, Rifkind, Wharton & Garrison), the press-shy Hammes’ role in the Kirkland saga is frequently missed by outsiders, particularly in Europe. (So media-phobic is US leadership that current partners interviewed for this article asked to talk on a background basis to avoid antagonising the US.) But no-one internally doubts Hammes’ role in super-charging an already driven institution.

The corporate lawyer joined Kirkland’s Chicago office in 1985, making partner in 1991, and quickly made his name with key client Bain and for fronting Kirkland’s expansion through California. Hammes led the San Francisco branch after its 2003 launch and opened the Palo Alto base in 2008.

Hammes was positioned to formally take over from veteran litigator Thomas Yannucci in 2010 as early as 2006, serving as vice chair for several years. ‘There is no election,’ recalls one former partner. ‘People “emerge”, it is very rarely a surprise. Everybody knows what is going to happen before it happens.’

The impact of lean management and the huge autonomy granted senior leadership is hard to overstate in the Kirkland saga. Hammes is its only partner in full-time management, running the firm alongside its influential 15-member global management executive committee. This group has huge discretion on key decisions. Observes one former partner: ‘There are a lot of people saying: this is not a partnership, this is a business enterprise.’ Membership of the executive is a recognition of internal clout and financial contribution. It includes Fox, the increasingly influential head of investment funds John O’Neil and Chicago restructuring heavyweight James Sprayregen (see box below).

If the transition from Yannucci to Hammes was orderly, the shift in style was striking. While ‘paternal’, ‘eloquent’ and ‘diplomatic’ are characteristics attributed to Yannucci, Hammes is regarded as tough and driven. One particularly colourful description goes: ‘The guy is untouchable: no-one is going to say anything, partly because profits are so high – and partly because he will grab you by the neck.’ The corporate lawyer also shifted Kirkland’s disputes-heavy centre of gravity in favour of deal work.

The press-shy Hammes’ role in the Kirkland saga is often missed by outsiders. But no-one internally doubts its leader’s role in super-charging an already driven institution.

Yet while attracting some criticism for his style, he remains a hugely respected figure. The word ‘visionary’ is bandied around on several occasions inside and out of the firm. ‘His ability to make big calls is unlike any other law firm leader,’ asserts one Kirkland partner.

Many ideas are initially pitched from partners to Hammes – as with David Eich’s push to launch Chinese branches. If Hammes is convinced – it happens quickly. Kirkland’s 2014 Texas launch is held up as emblematic of Hammes’ audacity. In what one former partner dubbed a ‘stroke of Jeff’s genius’, Kirkland hired a local Simpson Thacher M&A partner in his mid-30s, Andrew Calder, and gave him a blank cheque to build out the Houston arm. Calder handled substantial amounts of energy-related work for leading US sponsor Blackstone, as well as being a regular for KKR.

According to firm legend, Calder asked Hammes his budget only to be told: ‘If I knew your budget I wouldn’t have hired you.’ Eighteen months later Kirkland had 80 lawyers in Houston, based on gut instinct and a bet on a partner. Four years on there are 130 lawyers locally and this month it recruited a team of six lawyers to launch a second Texas branch in Dallas. Calder now sits on the firm’s executive committee.

One former partner recalls: ‘The energy market exploded, and they rode that wave hugely in Houston.’ Reflects a current London partner: ‘Jeff’s willingness to back young people, give them a role and get everyone else out of the way was right.’

Hammes is also noted for shifting Kirkland’s remuneration model to encourage team performance over individual accreditation, in what insiders see as a significant shift in driving a team-first approach.

And he doubled down on Kirkland’s willingness to make top-dollar investments to bring in significant numbers of star partners. This was obvious in New York, but also impacted on Kirkland’s foreign offices. While the opening of a branch in Beijing in 2013 was the only foreign launch under his term so far, Hammes backed a fundamental repositioning of Kirkland’s London arm from high-quality service operation to a core part of its playbook.

False dawns

There are only two non-US based partners on the firm committee: London finance partner Stephen Lucas and private equity veteran Higgins, appointed in 2015 and 2018 respectively. Lucas’ move from Weil Gotshal in 2014 on an $8m package was a step change for Kirkland’s London arm, signalling its determination to broaden its business beyond the needs of its US clients in Europe. The hire of the former Clifford Chance (CC) and Linklaters star would be the first in a long series of headline-grabbing laterals.

Behind the move had been Hammes’ surprise when several high-billing London partners complained of lack of ambition in Europe. The hire of Lucas was directly aimed at rebooting the practice and widening its franchise. Change would not be painless. Lucas’ recruitment was certain to unsettle London’s elder-statesmen just as hiring the demanding Fox in New York has triggered similar creative destruction. ‘[Hammes] had to have Lucas at any cost,’ recalls one former partner. ‘He doubled what he was on. He arrived on such a big package and with an extremely strong mandate.’

Despite never taking the title of London head (such a position does not exist at Kirkland), Lucas is credited with bringing structured management to an office some felt had acted like a barristers set. The firm’s previous City head Jim Learner had quit in 2012 to join private equity house HGGC, and while the then Bain relationship partner had a strong reputation as a revenue generator he was tied to US-centric strategy. (Learner returned to Kirkland in 2015, though his position in the pecking order was diminished).

A former partner says that with Lucas ‘there was more management at a departmental level: what deals have been done, who is doing what. Very obvious for other firms, but for Kirkland it was unheard of’.

Pictured: David Higgins, Kirkland & Ellis

Despite doubts Higgins can persuade key client Cinven to shift, the hire sent a signal Kirkland is determined to build a broader M&A practice to rival its muscular debt team.

Lucas is described as an ‘energizer bunny’: ‘If you are in a meeting with him, he has so much nervous energy that by the end of the meeting, his wheelie chair would be at the other side of the room.’ Another description goes: ‘He is always sparking on with new ideas. Always interrupting people.’

The expected clash with the old guard was immediate. De facto office head Graham White, London funds practice founder Mark Mifsud and finance veteran Stephen Gillespie left between the second half of 2014 and the first half of 2015: the first two to Fried, Frank, Harris, Shriver & Jacobson; the other to Gibson, Dunn & Crutcher. All three had been recruited under Yannucci’s regime and chaffed at Hammes’ style and Lucas’ intensity. According to one account: ‘Gillespie could not last ten minutes in a room with [Lucas]. He would start speaking and Lucas would just jump in and interrupt him.’

White and Gillespie were felt by some to have dragged their feet over bringing in talent needed to drive growth. Notes one City partner: ‘At Kirkland, A Players hire A Players. If you are a blocker to hiring someone equal or better than you, your time at Kirkland is limited. We have seen people leaving the firm as a consequence of blocking someone getting ahead.’

High-yield guru Ward McKimm left for Freshfields in 2015, while Dechert recruited a private equity and finance team, including European debt finance team founder John Markland, between 2016 and 2017. McKimm’s loss stung but a bigger hit came when Sidley Austin recruited six partners from the London office and seven from the Munich office in the space of a year, including several productive equity partners. The London team that quit in February 2016 included two Kirkland veterans, partners Erik Dahl and Christian Iwasko, and managed to bring across substantial client TowerBrook, a rare reversal in Kirkland’s private equity heartland.

The exits came amid complaints that management was too focused on ‘shiny new toys’ hired on massive packages, which some younger partners saw as a hindrance to their development. Some criticised Hammes’ increasing insistence on directing work to new hires to help with initial integration. Says one former partner: ‘[The new hires] have to be successful, because if they are not the guy who hired them looks stupid. So if anything comes from the network it goes to them.’ There were also continued tensions over Kirkland’s Munich branch (see box below).

Matt and more

Kirkland’s bullish reaction to the acrimonious Sidley losses was in part because its new hires included some of the most successful laterals ever for a US firm in Europe. Moreover, Kirkland’s focus – which meant favouring sponsors over banking clients – was increasingly potent as traditional lenders lost clout in Europe’s credit markets post-banking crisis.

In 2015 Lucas convinced a young private equity partner to join from Linklaters. Matthew Elliott’s story is emblematic of Kirkland’s approach to laterals from the London elite. Elliott is regarded as being mishandled by the Magic Circle firm, which promoted him on the longer real estate lockstep rather its mainstream corporate ladder. In contrast, Kirkland gave the rising star huge space to develop his practice. His clients include Oaktree Capital Management, GIC and Brookfield, reinforcing Kirkland in one of the hottest niches in the City.

‘Kirkland people truly believe they are working for the best law firm in the world. The people doing those hours, if they have not left already it means they absolutely love it. You never hear people say: “I hate this job.”’

Elliott’s immediate success also paved the way for a series of Linklaters corporate partners to transfer, including David Holdsworth and Stuart Boyd. Elliott aside, the key hire was Linklaters’ well regarded Nordic PE specialist Roger Johnson, believed to have joined on a $5m package after turning down an offer from White & Case. Several finance partners hired from Freshfields had also hit the ground running. Elliott is now one of the top earners in the firm’s London office alongside Lucas and Higgins and widely tipped as one of the most productive young partners in the City in any transactional field, overseeing a client book well in excess of $20m a year.

The other figure in the group of top earners is one of the longest-serving UK partners, the flamboyant but driven debt star Neel Sachdev. Credited with pushing to hire Lucas and boasting a strong relationship with Bain, Sachdev is arguably Kirkland’s most influential European partner not on the executive committee. According to one account, Hammes would leave meetings of the executive team to answer Sachdev’s calls. A former colleague recalls: ‘I remember being at a global partner meeting – 600 partners in a room – and Neel was singled out by Jeff in front of all those people.’

As the City office boomed through the last two years, it followed up the Higgins hire with Allen & Overy’s global head of IP Nicola Dagg in May this year, its first substantive attempt to translate its top-tier IP business to Europe.

The swift hiring is helped by the fact that few in the firm are aware of the details of the process until it is concluded. Only a handful knew about the Higgins move until a few days before it was made public: the firm announced it internally on the Friday (15 December) and publicly the following Monday (18 December). Higgins was known to be increasingly disenchanted with Freshfields after tensions with its banking team, though many thought Latham would secure his services.

Kirkland had a clear rationale to bring in more muscle in mainstream deals – the Ashurst M&A duo Gavin Gordon and David Arnold, hired under the previous City regime, were felt to have not achieved the required breakthrough. Hammes took a direct hand in recruiting Higgins, encouraged strongly by Elliott and Sachdev.

There has been much debate over how the chalk-and-cheese pairing of the clubbable Higgins and the wired Lucas will work, with some claiming the finance veteran was side-lined in the recruitment thanks to Hammes’ irritation over the Sidley exits. But there is little indication that Lucas’ lustre has faded internally.

That Kirkland could recruit such a prominent partner from the Magic Circle – and the $10m price tag, the same deal Lucas is currently on – sent shockwaves through the City and much grumbling about industry excess. Yet much the same was said about Lucas’ recruitment and Kirkland has a long track record of making such marquee hires aimed at long-term practice building pay off.

Despite doubts that Higgins can persuade key client Cinven to shift to Kirkland, the hire has sent a signal that the firm is determined to build a broader corporate practice to rival its muscular debt team. Critics also have little response to its startling expansion in recent years – Kirkland’s 237-lawyer London arm generated well over $300m in 2017, its UK headcount growing by 86% since 2012.

Youth, money and culture

Kirkland’s ‘vulgar cheque book’ has certainly played a major part in its advance. But ominously for rivals its ability to attract and retain talent rests on more than the mighty dollar. Most potent is its knack for engaging young lawyers, a quality demonstrated by its unusual approach to partnership. Operating a fast track, associates can make salaried partner six years after qualification – bucking the wider trend of pushing back promotions. While other firms talk of partner alternatives and fret over how to talk to Millennials, Kirkland explicitly positions all lawyers in the partnership race from the start. Says one former partner: ‘Even as a newly-qualified, what you are assessed on is not how you are doing compared to your peers – that causes associates to fight. You are assessed on how you are proceeding towards becoming a partner.’ Consider the numbers: Kirkland made up 268 partners over the last three years, massively outstripping any comparable firm. This year it promoted more partners than the entire Magic Circle – 97 compared to 89.

Basic salary increases each year along the line of the associate lockstep, with a junior partner starting on around $320,000 compared to $305,000 for associates on year six. But salaried partners have access to a much bigger pool of discretionary bonuses, ranging from 25% to 40% of salary. According to one internal account, a fourth-year salaried partner earns around $450,000 before bonus.

The ‘up or out’ system expects salaried partners to make equity within four to six years or move on. Equity is tightly held, at 388 partners, against 512 salaried. And rewards are rich. With a core ladder spanning 40 to 280 points and each point worth around $45,000, the handful of top earners takes home over $12m. (The firm several years back compressed its compensation ladder from eight to one to seven to one.)

Though no-one denies remuneration is intended to be robustly commercial and meritocratic, equity awards are far less focused on origination or individual billings than rivals suppose. While the system is typically derided by peers for palming off senior associates as ‘partners’, and it is conceded that younger partners are often a little less polished than peers making partner three or even four years later, the model is widely credited as a major part of its success.

From a business perspective, the case for having a large group of salaried partners is clear: lawyers don’t get much of a pay rise while allowing the firm to charge higher rates. But the system also sends a clear signal about the value placed on the new generation and the separate ‘tournament’ for equity partnership generally ensures only strong performers make the final cut.

‘This takes very good, relatively young folks and gives them the opportunity to build a book of business. If you turn up to a client meeting and say you are a senior associate, clients will say: “I don’t want to talk with you.” If you are a partner, they are literally instructing you.’

One former salaried partner notes: ‘If you drill into their financials you will find the most profitable rank is the salaried partner rank: they work extremely hard, they are not going anywhere because being a partner is hugely valuable. The firm has given people what they desperately desire, it has locked them in because no-one else would promote them so early.’

This approach speaks to a strength the firm’s old money rivals using lockstepped partnerships struggle to acknowledge: Kirkland has flourished by encouraging an entrepreneurial culture that takes little notice of seniority or hierarchy. The ominous issue for City and New York rivals is not that they lose partners to Kirkland for the money, it is that some of their most productive young lawyers hitting prime actively want to drink the Kirkland Kool-Aid.

Culture is for some the Achilles’ heel and there is no doubt a group of Kirkland partners in a room brings an individualistic energy very different to what you find in the offices of Linklaters. Attending Legal Business’ 2018 awards ceremony a sizeable group of Kirkland partners appeared to have wound each other up, only to instantly make up several times over in the same night in a churn of egos, banter and letting off steam. But partners also frequently bring charisma to proceedings, the kind of chemistry that can seal client relationships for decades.

One former salaried partner observes: ‘Kirkland people truly believe they are working for the best law firm in the world. That’s the feeling for every single lawyer. Yes, the environment is aggressive, but the flipside is you are the best, and paid better than anyone else. The people doing those hours, if they have not left already it means they absolutely love it. You never hear people say: “I hate this job.”’

Several former partners also describe the firm’s ‘play hard mentality’ and a fondness for bling as making Kirkland vulnerable to laddish behaviour: ‘Some of the partners have a very macho and partying approach. With that comes the potential for things getting out of control.’

One City partner did not last long after driving his car wildly over a hotel lawn at a work reception several years back. More recently, the firm attracted a few headlines for a 2016 private equity ski conference when a party at the Grand Hotel Zermatterhorf achieved ‘Wolf of Wall Street-style levels of excess’ (if spraying a lot of champagne around qualifies). Partners gave the annual event a miss this year.

That said, the caricature of self-serving individualists is largely rejected by insiders and former Kirkland veterans. Kirkland partners are certainly hunters but they increasingly hunt in a pack. One high biller, who joined recently after having been first pursued more than a decade back, reflects: ‘The way Kirkland would act on transactions with their counterparts [in the 2000s] was aggressive. Not my style. At my first interview, I had the impression most people were at Kirkland because of the money. That has dramatically changed. Everybody is ambitious, but people work very well together.’

Concedes one veteran partner at Ropes & Gray who has worked frequently across the table: ‘The truth about Kirkland is closer to what they say about themselves than what others say about them.’

The $6bn question

Fast decision-making, driven growth, an uncommonly tight focus on lucrative product lines, the resources to recruit A-listers and a flexible system to nurture talent – all are ingredients in Kirkland’s rise. Which leaves the core question: how far will this take them?

An interesting challenge concerns leadership. Hammes struck a deal with the executive committee to extend his third three-year term to 2020 but will not stay beyond: in accordance with the partnership agreement he will leave the equity at 60. Succession is in place, with Chicago corporate partner Jon Ballis widely tipped to take over. Yet another Bain relationship partner, Ballis started his career at Sidley before joining Kirkland 20 years ago. Still, considering how much Hammes’ personal style has meant for the firm, the handover will test what has been achieved during a transformative decade.

If lean management gives Kirkland a competitive edge, neither is the firm big on checks and balances. The system delivers if strategic bets pay off (as seen in New York, Houston and London) but could backfire if leadership miscalculates or a partnership used to robust leadership gives way to a much softer hand. Certainly, Kirkland is a firm filled with big egos and remains prone to personality clashes – the ‘warlord system’, as one former partner calls it, is not easily tamed.

Ballis is expected to front a more consensual style than Hammes, signalling Kirkland’s ascent from challenger to dominant player, a shift reflected in the recruitment of polished boardroom technicians like Cravath’s Schiele and mainstream deal hands like Higgins.

Still, growth and profitability easily mask internal problems but eventually Kirkland must see some slowing of growth unless it branches into new territories or markets. Some maintain progress in Europe has been limited by having just one small office on the continent. One former partner says the firm has debated for years what to do with Paris without resolution, a strange omission given brisk activity levels in French buyout work.

Kirkland’s well-earned reputation for high fees – linked to Hammes’ intense focus on targeting marquee clients in core sectors – is cited as a limiting factor by some, though there is little sign of its core sponsor clients running out of steam anytime soon (some attribute high fee levels to Bain using other firms in Europe in recent years on large mandates).

Yet rivals hoping that closer inspection of Kirkland reveals Dewey & LeBoeuf-style fault lines set to tear it apart are either living in denial or such weaknesses are incredibly well hidden. There is no obvious reason to believe Kirkland’s ascent has peaked. Says one London rainmaker: ‘The number of clients we have a material share of is still quite low. We do a little bit of work for a tonne of clients in London. We are still at the beginning of the journey.’

Kirkland has risen to the position once held by disruptors of previous years Skadden and CC, either adapting global law’s playbook, applying it more effectively than peers or just discarding it outright. Barring an unlikely calamity or dramatic reversal over the next three years, Kirkland looks certain to have an even more profound impact on the profession than those institutions in their day.

And to be clear, that lofty status and upward trajectory is exactly what Legal Business is predicting. Current trends are ominous for Kirkland’s rivals. Another three years like this and the legal elites of New York and London will be well past the stage of talking down Kirkland. They will be desperately trying to copy it… and hoping it is not too late. LB

marco.cillario@legalease.co.uk

nathalie.tidman@legalease.co.uk

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The post Global 100: Wrecking ball – Inside Kirkland & Ellis’ creative destruction appeared first on Legal Business.

It has been a dramatic year for the world’s top 100 law firms in three respects. Our prediction that the group would break the $100bn barrier by the end of 2016 did not quite happen in last year’s report, but that barrier has been smashed a year later with total revenue for these firms rising 6% to reach $104.42bn. The indomitable US disruptors Kirkland & Ellis and Latham & Watkins ramped up growth substantially to make this the year of the $3bn law firm. Lastly, Kirkland hiked revenue by more than $500m to surpass Latham with a 19% surge to $3.165bn.

Two years on from events that threatened to destabilise the global economy – the UK’s shock vote for Brexit and Trump’s election as the leader of the free world – the harbingers of doom appear to have been wrong. While no self-respecting lawyer would admit to a lull in activity, the figures speak to a market that has not only withstood turbulence but flourished. Overall, it was one of the stronger underlying performances in the elite group since the banking crisis thanks to active deal markets and a robust global economy.

Brad Karp, chair of Paul, Weiss, Rifkind, Wharton & Garrison, speaks for many Global 100 (G100) firms, particularly the leading US pack: ‘The US economy has been strong. There has been a record amount of M&A activity over the past year, and our private equity clients have been doing a significant amount of buying and selling. Our transactional practice has never been busier.’

The big picture

In last year’s report, revenues grew 3% to $98.82bn and this year’s 6% hike builds on the favourable outlook. The stats are not confined to top-line growth: gross profit rose 6% to $40.31bn, while average profit per equity partner (PEP) also increased 4% to $1.76m. The number of equity partners moved up less than 2% to 24,637, suggesting the increase in PEP was not caused by a large reduction in equity partners across the board.

‘If you take a two-year view, we have grown by roughly the size of a mid-tier firm. We have the scale to differentiate ourselves.’
Andrew Ballheimer, Allen & Overy

Total lawyer numbers rose to 131,624, a 5% increase attributable in part to consolidation in the mergers of CMS Cameron McKenna Nabarro Olswang, Arnold & Porter Kaye Scholer and Eversheds Sutherland – three deals that took effect in the first half of 2017. Lawyer numbers have seen the biggest increase since 2016 when there was a 6% boost. Average revenue per lawyer (RPL) is $793,000, barely up on last year’s $790,000, which was itself a recovery on the back of a 2% drop in 2016. The most reliable indicator of profitability, profit per lawyer, shows a 2% uplift on average to $335,000 on last year’s $329,000.

The prevalence of US players also boosted the number of firms with revenues over $2bn from eight in 2017 to 11 this year. Of these, only five are not essentially US-driven operations – Baker McKenzie ($2.67bn), DLA Piper ($2.634bn), Clifford Chance (CC) ($2.092bn), Allen & Overy (A&O) ($2.024bn) and Hogan Lovells ($2.037bn). Joining Kirkland and Latham in the top tier of firms with revenue higher than $2bn are also Skadden, Arps, Slate, Meagher & Flom ($2.582bn), Dentons ($2.360bn), Sidley Austin ($2.036bn) and, by a hair’s breadth, Morgan, Lewis & Bockius ($2.001bn).

Adding firms with turnover higher than $1bn extends the group from 34 in 2017 to 39 this year, with Jones Day, White & Case, Gibson, Dunn & Crutcher, Ropes & Gray, Greenberg Traurig, Sullivan & Cromwell, Weil, Gotshal & Manges, Simpson Thacher & Bartlett and Mayer Brown among those featuring in the upper echelons of global law.

‘In 2018 our billable input, collections, operating profit and share value are all up significantly over last year.’
Brad Karp, Paul Weiss

Yet the number of firms with PEP higher than $5m has dropped from two to one, with Los Angeles-bred litigation leader Quinn Emanuel Urquhart & Sullivan no longer joining Wall Street heavyweight Wachtell, Lipton, Rosen & Katz in that category. The number of firms with PEP of more than $4m remained the same at six, while the number with PEP in excess of $3m has dropped by one to 15 this year.

A dozen firms saw falls in revenue this year, including sharp drops at K&L Gates, Locke Lord and Baker Botts (the latter impacted by a contingency fee flattering its 2016 results).

Yet it ultimately proved an indifferent year for top Wall Street firms, with Cravath, Swaine & Moore, Skadden, Sullivan & Cromwell, Shearman & Sterling, and Cleary Gottlieb Steen & Hamilton all posting either subdued or downright poor results.

Overall, the slow loss of national and cross-border dominance of New York leaders continues. While Shearman’s long-term decline is well documented, the last five years have been weak for Cravath and Cleary – and both saw revenue dips in 2017.

The primary winners in the Global 100 continue to be nationally-expansive US law firms with targeted international coverage, often underwritten by strong representation in leveraged finance and litigation. Moreover, private equity strength appeared to drive many of the strongest performances seen from Wall Street thoroughbreds in 2017.

In the last year, Kirkland’s influence has been more keenly felt by lockstep firms on both sides of the Atlantic. The Magic Circle seemed most vulnerable to being targeted but that threat has turned to the Wall Street elite.

The domestic losers remain US firms without rock solid market positions geographically or in desirable practices. Nevertheless, it was – in contrast to recent years – a subdued 12 months for dispute specialists, with Quinn Emanuel seeing a notable slowdown in growth and Boies Schiller Flexner one of two firms to slip out of the table (alongside Cadwalader, Wickersham & Taft, a firm in long-term decline).

Brightest stars

Collective growth has been robust, but it has been a year of standout performances among the US firms, led by Chicago-bred giant Kirkland in another stellar year of growth (for more, see our cover feature).

Even its staunchest rivals must concede that Kirkland’s success, underpinned by booming private equity and leveraged finance markets, as well as a relentless hiring strategy, has been remarkable, with revenue growing by 63% over the last five years. Surging growth in 2017 saw it overtake Latham to secure the top of the table.

Even in the last year, the firm’s influence, or ‘Kirklandization’, as one partner at a US rival calls it, has been even more keenly felt by lockstep firms on both sides of the Atlantic. Where it had been the Magic Circle that seemed most vulnerable, that threat has turned to the Wall Street elite. Cravath, which fell ten places in the G100 this year amid a 4% revenue dip to $706.7m, lost two high-profile partners since the start of this year alone to Kirkland.

The joint holders of the biggest jump in revenue year-on-year both herald from Chicago and have standout disputes practices. Alongside Kirkland, Winston & Strawn hiked its revenue and PEP by 19% to $978.5m and $2.164m respectively following a run that has seen the firm increase turnover by 30% over five years.

Sixteen firms recorded double-digit revenue growth this year, including from the top quartile White & Case (11%) and Weil (10%). Weil continues its rebound over the past two years to hit $1.39bn revenue and score an 18% PEP uptick to more than $3.6m.

In the 26-50 group, buoyant activity in the tech space sees Palo Alto-headquartered Cooley maintain its momentum with a 10% uptick in growth in the context of an impressive 75% increase over the last five years, while Morrison & Foerster (12%), Goodwin Procter (13%) and Covington & Burling (13%) are among the most thrusting firms in the group with double-digit growth.

‘Getting ahead of the activism is a feature of doing M&A these days and advisers have to be attuned to it.’
Claire Wills, Freshfields

Outside the top 50, Debevoise & Plimpton, (12%), Willkie Farr & Gallagher (12%) and Fried, Frank, Harris, Shriver & Jacobson (14%) have been the leading performers for year-on-year revenue growth.

With 7% growth this year, Paul Weiss’s five-year performance is more striking. Now in its ninth straight year of revenue growth, the New York player has seen turnover rise by 48% in the last five years and double over the last decade to reach $1.3bn while PEP hit $4.49m.

Says Karp: ‘We’ve had a terrific year. Standout recent mandates include advising Qualcomm in defeating the $117bn hostile takeover bid by its rivals Singapore-based Broadcom.’

He describes advising Citigroup on a money-laundering matter arising out of a Department of Justice investigation as ‘an extraordinarily favourable result’ for the client and cites the firm’s disciplined focus on litigation, white collar, regulatory defence, private equity, restructuring and public M&A – as well as the avoidance of commoditised work – as the engine of its success. Its ability, unlike a pure lockstep firm, to pay top dollar to attract heavyweights like Cravath’s head of M&A Scott Barshay – a prestigious partner who has had a material effect on its M&A practice – is also an advantage.

Karp is even more confident in the outlook for the year ahead as a result of investments. ‘2018 is set to be another record-breaking year. Our billable input, collections, operating profit and share value are all up significantly over last year’s levels and I’m hoping that these positive trends continue.’

Richard Hall, Cravath’s head of M&A, is upbeat about the outlook, but conscious of myriad threats to business posed by geopolitical volatility and an increasingly protectionist environment.

‘The market has seen a shift towards international and cross-border deals, reflecting trends in European M&A. There has been a relative outperformance by non-US, cross-border M&A compared to US M&A. Economic fundamentals in North America and Europe are favourable to general continuation of M&A levels and there has been a reversal of 2017’s trend for fewer mega deals. Dollar volume in Q1 2018 is up on Q1 2017, clearly attributable to the increase of mega deals.’

Many note that while Trump’s tax reform has stimulated investment, the threat of a global trade war, and the growing drive towards economic protectionism in the US and Western Europe targeted at Chinese buyers, make it difficult to predict the year ahead.

Andy Ryde, Slaughter and May’s corporate head, points to a resurgence of activity towards the tail-end of last year after a subdued summer, citing a string of high-profile mandates, including advising target company Shire on a £46bn pharma takeover bid by Japan’s Takeda Pharmaceutical Company.

‘Bigger deals kicked off from December. Businesses gained confidence as they realised it might not be a Brexit cliff-edge.’
Andy Ryde, Slaughter and May

‘Bigger deals kicked off from December, partly due to market confidence recovering as details emerged of the apparent Brexit deal on financial settlement and transitional period. Businesses gained confidence as they realised it might not be a Brexit cliff-edge. There was pent-up demand for deal making and a lot of cash available to private equity buyers. US tax cuts also encouraged activity. These things combined to kick off the market again. We have had a really purple patch.’

Last year, UK firm rankings were hit by a currency effect that left them with the worst year-on-year performance in dollar terms, in spite of a buoyant performance in sterling.

Now, despite a frothy deal market – surprisingly unaffected by the impact of Brexit – the Magic Circle firms have either stagnated or fallen in the rankings, albeit with modest increases of 4% or 5% in their home currency (see box, ‘The currency effect’, below). A&O, CC and Freshfields have all posted comparable revenue increases in the mid-single-digit range and PEP around the £1.6m-£1.7m mark.

With a solid year but unable to match last year’s impressive 16% revenue increase, A&O’s global managing partner Andrew Ballheimer is still upbeat about the firm’s focus.

‘If you take a two-year view, we have grown by roughly the size of a mid-tier firm and this has occurred across all our main practice areas. Our advanced delivery business, including the legal services centre in Belfast, the consultant lawyer platform Peerpoint and online services business aosphere, have been growing strongly. Clients focus on efficiency and value – that’s part of the challenge of the current era – but we see this as a real opportunity. We’ve invested in the space and will continue to do so. We have the scale to differentiate ourselves.’

But while A&O can take more cheer from its post-banking-crisis form than most City rivals, the hard reality remains that many key US outfits continue to outperform the London elite on headline financial metrics while making threatening inroads into Europe.

Positive spin

Just as Trump’s disruptive influence can generate legal work, so too can other factors, including Brexit, technology and shareholder activism. Claire Wills, co-head of Freshfields’ financial institutions group, says: ‘Activism is making companies plan better and think more. They are asking: “Are we vulnerable? Are we doing everything we should be doing?” Getting ahead of the activism is a feature of doing M&A these days and advisers have to be attuned to it. People have been living in such uncertain times for so long now it’s not stopping deals from being done. In fact, uncertainty and disruption are prompting people to transform their business models. Every business now is a potential tech business – one recent stat showed 70% of tech deals have been done by non-tech companies.’

But as Kirkland shows no sign of slowing its rise within the Global 100, the lagging firms on both sides of the Atlantic will have a struggle ahead if they are to turn that challenge into positive change. The past few years have been dominated by a straight fight between Latham and Kirkland and the battle between this pair looks set to dictate the narrative for some time.

The overall direction of travel is clear: US firms are making more progress and have so far proved remarkably sanguine about the Brexit shadow looming over London. The upbeat assessment by US law firms may well be linked to the fact that areas and clients currently driving their growth – white collar, funds, arbitration, leveraged finance – are less impacted by Brexit. The G100 is dominated by red, white and blue – and will be for the foreseeable future – but tellingly, those colours are littered with stars. LB

nathalie.tidman@legalease.co.uk

marco.cillario@legalease.co.uk

Legal Business would like to thank SSQ for its sponsorship of the Global 100.

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Global 100 averages

The ins and outs

Best and worst Global 100 growth 2013-18

Revenue

Best

Worst

* For legacy Bryan Cave only. See methodology

Profit per equity partner

Best

Worst

Revenue per lawyer

Best

Worst

Global 100 headcounts

The currency effect

The dominance of the US dollar against sterling has once more affected the ranking of Global 100 firms that report in sterling, despite the majority recording positive revenue growth – allbeit at a slower rate than last year. In the 2017 report, the exchange rate was £1=$1.3555. This year, the exchange rate used was £1=$1.2890, again meaning firms had to comfortably post double-digit growth in sterling just to stand still in dollar terms. Few did. Therefore the table below shows the actual year-on-year growth in home currency for these firms.

NOTE: As per the methodology, the financial data in this table for UK firms is from unaudited or estimated figures. Please see the Legal Business 100 report in the September issue for the full results.

* See methodology

Global 100 total gross profits and revenues

The post Global 100 Overview: They might be giants appeared first on Legal Business.

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Part 1: Overview

They might be giants

As the Global 100 this year breaks $100bn, Legal Business assesses the conquerors in the age of the $3bn law firm

Global 100 Main table

Part 2: Kirkland & Ellis

Wrecking ball – Inside Kirkland & Ellis’ creative destruction

The thrusting challenger from Illinois has become the world’s highest billing law firm. Legal Business assesses the unheralded rise of Kirkland & Ellis. Can anything stop the juggernaut?

Global 100 – the ten-year review

Global 100 – the stories of the year

Global 100: Core stats

Part 3: Asia focus

Long-term greedy

The once-fêted Asia region has disappointed Global 100 hopes of easy profits. But many players see opportunity for the diligent and agile

Methodology and endnotes

The post Global 100 Contents – 2018 appeared first on Legal Business.

Through much of 2018 the talk has been that major City firms have been extraordinarily busy. GDPR, a rebound in transactional activity as deals put on hold by Brexit are pushed through, a robust showing from the global economy…

And this has translated into… not that much. London’s Big Four Magic Circle firms have packed in closely this year, with revenues up between 4% and 6%. True, in contrast to 2016/17, when currency movements flattered subdued underlying results, this year they have performed modestly better than the headline numbers suggest. But for those whose memories stretch to the 1990s through to 2008, when ‘really busy’ meant routinely sticking 10% to 15% like-for-like on the top line, this remains a very different environment.

Without much to choose between them, of the quartet, Clifford Chance posted the best numbers in relative terms, with partner profits up sharply to £1.6m. Building on a solid showing last year, there is at least some indication now that the supposed rising morale and clearer focus under Matthew Layton is finally showing up in the numbers. But we’re grading on a curve here and CC will have to do a lot more to show it has got near shaking off the institutional inertia that has progressively settled in over the last 15 years.

Clifford Chance posted the best numbers in relative terms, but we’re grading on a curve here.

Allen & Overy is more subdued after a standout performance last year but has the benefit of the best post-Lehman form of its peer group. In a period in which Linklaters and Freshfields Bruckhaus Deringer were prevalent on a string of big-ticket deals, their results look respectable rather than anything to excite. The rebound in profitability will be particularly welcome at Freshfields as it ushers in its overhauled equity structure this year, though we are in the strange position of seeing vulnerability at an institution that should be cementing its world-beating status right now. Still, a 12-month period for one of the City’s best law firms to regroup was needed and had better not be wasted.

Another firm with very relative cause for cheer is Ashurst, which at least managed to give its continually-lagging ‘share price’ a boost as average partner profits hit £743,000. Herbert Smith Freehills? With indications that its contentious practice remains on fine form, the question increasingly is whether its transactional half can keep up in a manner commensurate with its global ambitions.

So there we have it. Deal markets can boom, regulatory and contentious work bustle, but large City firms are unable to perform at anything like the level they did during 1986 to 2008. This only reinforces the sense that, while one section of their practice captures high-margin, strategic work that pushes them skywards, the remaining three quarters is increasingly tethered to the ground. Via increasingly rigorous panels, major markets not prepared to support the margins these firms target and the loss of lucrative work to US rivals, major City firms look like what critics dubbed the banking industry after the credit crunch: utilities attached to casinos.

Growth and margin is being driven by a small proportion of work – perhaps 5% to 15% of their matters – and by New Law operations cannibalising their mainstream revenues. That leaves the thorny issue for the City’s full-service juggernauts of what to do with that drifting two-thirds-plus of their business.

alex.novarese@legalease.co.uk

The post The new outlook for City leaders – Casinos hitched with a utility appeared first on Legal Business.

Ten fastest growing firms by revenue

Ten fastest shrinking firms by revenue

Global 100 revenue averages:

Average revenue: $1.044bn

Average revenue growth: 6%

Ten fastest growing firms by profit per equity partner

Ten fastest shrinking firms by profit per equity partner

* Legacy Bryan Cave only

Global 100 average earnings:

Average PEP $1.76m (+4%)

Average RPL $793k (0%)

Average PPL $335k (+2%)

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The post Global 100: Core stats appeared first on Legal Business.