Double-digit PEP rise, revenue flat: a year in the life of your average US firm
Early indications are that cost controls are having the desired effect.
Bill Perlstein
The financial reporting season for US firms is still in its early stages, but already some trends appear to be emerging.
In particular, the cost-slashing efforts that most US firms have embraced enthusiastically look to be reflected in the double-digit increases in average profit per equity partner (PEP).
Last week Morrison & Foerster (MoFo) became the latest US firm to post its year-end financial results. The West Coast firm’s figures reveal a marginal increase in total revenue coupled with a significant hike in PEP.
MoFo chair Keith Wetmore said his firm had “benefited from a strong demand for our services across all our markets, reflecting the legal needs of financial services, life sciences and technology companies, who together represent more than 70 per cent of our revenues”.
Gross revenue at MoFo grew by 5 per cent last year to $930.6m (£586.45m), while PEP was up by 14 per cent to $1.29m, a figure slightly above MoFo’s 2007 level of $1.27m.
Pillsbury Winthrop Shaw Pittman, one of the first US firms to report this year, also posted a double-digit PEP increase off the back of marginal revenue growth (indeed at Pillsbury it was all but flat). Pillsbury’s 10 per cent PEP hike saw it break through the million-dollar mark for the first time, reaching $1.05m.
The latest US firm to join the trend also reported last week, with WilmerHale posting a 17 per cent increase in PEP and a 2.2 per cent rise in total revenue.
Wilmer’s PEP rose from $1.13m to $1.33m, while fee income was up from $941m to $962m. Revenue per lawyer broke through the million-dollar mark with a 10 per cent, from $978,000 to $1.08m.
Co-managing partner at Wilmer Bill Perlstein admitted that the improvement in PEP was partly down to a reduction in headcount along with the firm’s continuing push to make economies, notably through the increasing use of its business services centre in Dayton, Ohio.
“We reduced headcount at all levels, but we’re now hiring associates,” added Perlstein. “We’ve also hired a large team of document review attorneys for our Dayton office.”
Perlstein said Wilmer had hired another 20 document review attorneys to add to the 20 already based in Dayton. The back-office administrative facility, Perlstein added, which opened in September last year, has been instrumental in helping Wilmer to reduce its overall costs.
In terms of core legal work, Perlstein said there had been a “strong demand” for several of Wilmer’s core areas, including its controversies practice, government regulation and investigations and IP litigation.
“There was also a good flow of M&A and corporate work, with four IPOs and 20 follow-on offerings,” Perlstein revealed.
It is still too early in the season to say whether the pattern for a big profit jump and flattish revenue will be replicated across the market more widely. Indeed, the 2010 results will naturally depend heavily on a firm’s practice mix and client base.
“The results won’t be uniform,” said one US partner. “Those firms with good litigation practices are likely to have had a good year, but the transactions-driven firms are likely to have done less well.”
So far the clearest example of this has been provided by litigation heavyweight Quinn Emanuel Urquhart & Sullivan, which posted figures that revealed a 62 per cent profit margin and a PEP of $3.6m, the latter an increase of 9 per cent.
Bucking the early trend, Quinn Emanuel’s total fee income grew by 31 per cent during 2010 to reach $550.5m.
Name partner Bill Urquhart said his firm’s margin had always been historically higher than is typical for top-end US firms because of the contingency arrangements on which it works and because Quinn Emanuel is a single practice law firm focused solely on commercial disputes.
“We don’t need the infrastructure of a more traditional firm,” Urquhart added.
