Macfarlanes

UK 200 RESULTS 2010

Two consecutive double-digit drops in average profit per equity partner (PEP) would hurt any firm, but with Macfarlanes very much dependent on a still depressed corporate sector, partners could be forgiven for panicking about seeing profit on the wane.

Although PEP dropped to a hardly breadline £710,000, this was 16 per cent down on last year’s £846,000 and well below the £1.1m the firm managed in 2007-08. This year’s figures are the first to use fully GAAP-compliant (Generally Accepted Accounting Principles) accounting procedures. If these had been used in 2008-09 the fall in PEP would have been just 4.5 per cent.

Revenue fell from £99m to £92.4m, although again last year’s GAAP-compliant total would have been £94.3m, making the revenue drop just 2 per cent.

With the redundancies of last year behind it, Macfarlanes’ performance actually represents a solid year. There are also signs that it is diversifying from its private equity base and into other areas such as restructuring and financial services litigation.

As a result much of the firm’s work in 2009-10 went under the radar. While many of Macfarlanes’ better-known private equity clients, such as Terra Firma, 3i and Darwin Private Equity, had a quiet year, other work filled the void. The ongoing £15bn debt restructuring for the Four Seasons care home business, for example, continued to boost income and keep lawyers busy.

An indicator that this most traditional of firms has sought to broaden its horizons is that it made two lateral hires over the year. Restructuring specialist Francis Bridgeman and litigator Barry Donnelly arrived in 2009 from Allen & Overy and Jones Day respectively, following on from Dresdner Kleinwort regulatory specialist David Berman’s arrival in March 2009.

At the other end of the equation, M&A rainmaker Tim Lewis left the firm for Clifford Chance during the year.

Overall, partnership numbers remained steady. Partners join the salaried ranks for three years before moving onto a modified lockstep that runs from eight to 20 points. The top of equity spread dropped slightly, with top earners now taking home just shy of £1m.

UK 200 RESULTS 2009

As a firm heavily weighted towards M&A and private equity, Macfarlanes was always going to feel the pinch in 2008-09. Considering this, the firm’s partners can feel relatively satisfied with their year’s work.

They might have dropped out of the million-pound profit per equity partner (PEP) club, but the 31 per cent fall in PEP could have been a lot worse, while turnover was only slightly down on last year’s record high of £110m.

Despite the general lack of M&A, some key instructions helped prop up the firm’s bottom line.

The firm advised Mitsubishi Rayon on its £1bn acquisition of UK chemicals company Lucite, and was also drafted in on a £1.5bn debt restructuring for the Four Seasons care home chain.

Macfarlanes has had to be relatively ruthless to maintain its position as one of the City’s most profitable firms.

Two rounds of redundancies and tougher management of associate numbers during the 2008-09 year is reflected in the reduction in total lawyer headcount, which now stands at 290, down from 311 last year.

But thanks to promotions both the partnership and the equity partnership grew. Newly promoted partners enter a salaried rung for three years before they have the chance to join the equity. Once there they join a modified lockstep running from eight to 20 points. Plateau partners have not been affected by the general fall in profitability. The top of equity figure of £1.2m remains unchanged from last year.

Cost management will continue to be the main concern for Macfarlanes this year, especially given the opening of new client meeting offices last year and the continuing redevelopment of its headquarters at Norwich Street in the City.