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Numerous sources within the magic circle firm have confirmed that the revolution, which started in the second quarter of financial year 2005-06, will claim 100 out of the equity partnership.
Chief executive Ted Burke said: “It’s been a challenging year for us internally, but we feel we’ve got through the difficult issues. I think there now exists a strong feeling that the wind is behind us.”
The overall restructuring is projected to cost the firm approximately £40m this financial year. The costs of restructuring the firm’s support functions is included in this calculation.
At its peak Freshfields had 530 equity partners during the last financial year. At the start of the next financial year this figure is expected to be less than 440, including new partners.
Not all of the 100 have quit the firm. In July 2006 30 partners left the partnership, of whom some 25 are still working at the firm as principal consultants with partner status.
The restructuring is slated to finish at the end of the current financial year. The firm is expecting to show a revenue increase of 15 per cent, while revenue per partner is expected to jump by 25 per cent.
But the £40m cost of the restructuring, which will be absorbed in the current financial year, is expected to depress the final average profit per equity partner (PEP) figure.
Internal sources are privately predicting that, if the firm maintains its revenue hike during 2007-08, then its PEP figure will rise from £830,000 to £1.2m. The scale of the restructure coincides with explicit confirmation from several sources within Freshfields that the firm is targeting the finance department, despite a 2004 report from McKinsey recommending investment in that practice area.
One Freshfields partner said: “McKinsey has gone into the bin – it wasn’t an economic analysis anyway.”
Third-quarter revenue for the finance practice has increased by 10 per cent on the same period last year, while corporate has skyrocketed by 25 per cent. It is understood that the asset finance and project finance teams will be radically slimmed down, with the emphasis on sponsor-led acquisition finance, restructuring and certain types of structured finance.