Linklaters

UK 200 RESULTS 2010

After only a year at the top of the revenue pops, Linklaters has relinquished its number one position to Clifford Chance. But despite an uncomfortable drop-off in both turnover and profitability, the ‘year of consolidation’ cliché applies in this instance, as the firm continues to remould its partnership.

Turnover was down by 8.8 per cent to £1.2bn, while average profit per equity partner (PEP) fell by a shade under 7 per cent to £1.21m.

Managing partner Simon Davies says the firm’s focus is more on overall profit than revenue, but ­nevertheless a dip edging towards double digits is not likely to be tolerated two years in succession.

However, PEP was pegged back by the Davies-led move towards an all-equity partnership. While overall partner numbers fell on a full-time equivalent basis as the effects of 2008-09’s job cuts continued to be felt, the equity partnership actually grew over the year. Some 93 per cent of the global partnership is now part of the equity, up from 83.5 per cent in 2008-09.

While such a move will inevitably deflate the ­headline PEP figure in the short term, Davies says it will ­ultimately lead to “greater cohesion”. It also brings ­Linklaters more into line with Freshfields Bruckhaus Deringer, which is increasingly seen as its greatest rival.

In terms of legal work, the chief drivers behind the falling turnover at Silk Street are the continuing lack of activity in the mainstream M&A markets and the firm’s focus on its corporate and commercial arms.

However, diversity is creeping into the practice mix. Litigation enjoyed a second successive solid year after its turnover leapt by almost 20 per cent in 2008-09. In 2009-10 the practice took in just shy of £130m, upping its share of firmwide fees to 11 per cent and giving a revenue per partner figure of £3.24m.

On the transactional side mainstream activity was replaced to an extent with a healthy flow of ­restructuring and capital market mandates. Incoming corporate head Jeremy Parr, who took over from David Barnes at the end of the financial year, ­celebrated his last few months as a full-time ­dealmaker with the record-breaking £13.5bn rights issue by Lloyds Banking Group, which remains as one of Linklaters’ core clients.

UK revenue accounted for 43 per cent of the firm’s total turnover during the year – representing a second ­consecutive year-on-year fall. A slow but steady international ­programme has seen Linklaters continuing to push into Brazil, where it set up a projects practice last year, and a renewed focus on Asia, albeit with the hiccup of seeing former Asia head Zilli Shao move to JPMorgan less than a year into the job.

The US practice continues to be something of an enigma. It houses more than 170 lawyers, but still does not have the profile in New York that some in the firm would like. Despite this, its financial ­performance is improving, helped by it picking up some juicy mandates – not least a role on Sanofi-Aventis’s $4bn (£2.56bn) acquisition of 50 per cent of its animal health joint venture Merial from Merck.

The firm operates a classic lockstep, with partners joining on 10 points and adding 2.5 points a year until reaching a plateau at 25 points.

Strengths
Linklaters’ true strength can be summed up in a single word – corporate. Despite a diminishing market and less international reach than at some of its competitors, the firm managed to extend its lead at the top of the dealmaking table. With turnover in the department dipping by only 1 per cent, it continues to be a licence to print money for its partners.

Weaknesses
The perception is that there is still not enough revenue being generated by the global network, despite moves to counter this. There is also a feeling in the City that a move towards corporate culture needs to be mirrored by fat profit increases, or some partners might begin to look elsewhere.

UK 200 RESULTS 2009

For the first time in many years, there is a new firm at the top of The Lawyer UK 200 table. Linklaters, which saw its turnover rise slightly to £1.29bn, surplanted Clifford Chance and maintained a gap between itself and magic circle rival Freshfields Bruckhaus Deringer, becoming the largest firm in the UK.

It was an impressive achievement, especially given what was happening behind the scenes at Silk Street.

Linklaters not only came first on total revenue. It also topped the table for job losses. With up to 50 partners being shown the door, along with some 400 lawyers and support staff, the firm made more people redundant in 2008-09 than virtually any other firm.

The ‘New World’ restructure, as it was known internally, also took its toll on profitability. It cost Linklaters up to £50m in payoffs to shrink the partnership and more still for the departing junior lawyers and support staff. Three-year qualified associates would have received more than £60,000, for example.

So while profit per equity partner fell by 9.6 per cent (crucially below that of Freshfields), managing partner Simon Davies made clear his desire to take the hit entirely in 2008-09 and reap the rewards in the current financial year.

Despite all this, the Linklaters brand has only been enhanced during 2008-09. The firm won one of the mandates of the decade when it was called in to advise the administrators of investment bank Lehman Brothers. At one point it was reportedly billing £1m a week.

The firm’s work for Lloyds TSB has also been an important source of revenue. Meanwhile, the disputes practice saw turnover rise from £110m to £130m in what litigation chief Michael Bennett said was the busiest year for some time.

Continuing the trend of recent years, the portion of revenue coming from overseas increased from 53.7 per cent to 55.5 per cent, no doubt helped by the strength of the dollar and the euro against the pound.

Linklaters operates a fairly traditional majority equity partnership: some 85 per cent of partners are given a profit share. The lockstep runs from 10 to 25 points, rising by 1.5 points a year for 10 years.

The number of salaried partners has been falling steadily for years. Linklaters’ partnership is weighted towards more senior members: the average partner has around 20 points, which are worth £64,000 each.