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This was the year when disputes came to the rescue, while the UK's finest need a corporate comeback. By Steve Hoare
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The slowdown in corporate M&A hit the very biggest firms this year. While West Coast US firms recovered slowly from the technology crash, with one notable exception being the now-defunct Brobeck Phleger & Harrison, New York and London suffered from a lack of big deals. Among the Global 100 rank and file, turnover changes of more than plus or minus 5 per cent were rare. For most firms performing better or worse than that, their fortunes rested on Washington DC.
Those that performed best were either based there or earned their fortunes through regulatory or antitrust work spinning out of the US capital. Ultimately, those that suffered worst did so as the result of government investigations. Just about every firm that does not have a base in DC claims that it will soon. This year it was not just Bush v Kerry attracting lawyers' attentions.
A few firms were bold enough to boost turnover through expansion by merger, but when it came to profit, this year's best performers prospered through one route alone - big litigation.
DC-based Dickstein Shapiro Morin & Oshinsky led the way. Profit per equity partner (PEP) shot up 45.8 per cent to £1.2m and turnover was up 24.7 per cent to £185.1m. The firm's stellar performance can be attributed to one case. It put £30.6m at risk with its antitrust litigation on behalf of corporate clients opting out of class actions against the manufacturers of vitamins. Between 5 and 10 per cent of the firm's time was spent on contingency work, but it has paid off.
| BIGGEST PEP GROWTH |
| FIRM |
PEP 2004
(£K) |
CHANGE 2003-4(%) |
 |
| Dickenstein Shapiro Morin & Orshinsky |
1,184 |
+45.8 |
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| Cadwalader Wicersham & Taft |
985 |
+18.4 |
|
| Howrey Simon Arnold & White |
667 |
+43.2 |
|
| Bryan Cave |
370 |
+24.9 |
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Settlements from companies such as BASF, Degussa, Eisai, Hoffmann-La Roche and Rhone-Poulenc have made for two years of bumper profits. Following the settlements, Dickstein managing partner Michael Nannes has predicted that PEP will fall by up to £600,000 - back to pre-vitamins levels.
The firm has been careful to reinvest this unexpected windfall. Dickstein does not have a single dollar of debt. It has invested in lateral partners for two growth areas: IP and employment. Its lease is up soon at its DC headquarters and money has been kept aside for a move to larger offices. Dickstein has offices in New York and DC, but is planning on opening in California, with a view to boosting its energy practice. "To be more national in scope would help us," said Nannes.
Following Dickstein are two other firms that have benefited from big court cases. Howrey Simon Arnold & White smashed through the $1m (£600,000) per partner barrier, with PEP up 43.2 per cent, from £428,400 in 2003 to £667,000 in 2004. Like Dickstein, Howrey's figures were boosted by a price-fixing suit, this time brought against cigarette manufacturers on behalf of a group of tobacco farmers. The work was taken on a contingency basis and the judge awarded Howrey and one other firm nearly £45.9m in fees.
Howrey's antitrust department has also been busy, with the US Department of Justice interfering in Oracle's bid for PeopleSoft and Bertelsmann's sale of its academic division. Turnover rose 14.6 per cent to £236.5m.
St Louis-based Bryan Cave has had a phenomenal year, with PEP rocketing 25 per cent, from £272,000 to £370,000. A large chunk of this rise can be attributed to the success fee the firm received from Biomedical Systems after it won a contract dispute against GE Medical Systems. That alone accounted for around £61,000 per partner, a total of approximately £19m.
Turnover also grew by an impressive 10.4 per cent to £234.7m. The firm began to collect the fruits of its July 2002 merger with 180-lawyer New York firm Robinson Silverman Pearce Aronsohn & Berman.
In a year when big-scale transactional work was hard to come by, one of the few methods of expansion available for those with ambitious growth plans was merger. In 2003 Reed Smith was the biggest beneficiary of merger-related income growth.
Turnover at Pittsburgh-based Reed Smith rose 29.3 per cent to £270.2m on the back of its acquisition of California firm Crosby Heafey Roach & May, which completed in January 2003. Reed Smith managing partner Greg Jordan claims the merger has brought in £30m of new business that neither firm would have won otherwise. With the growth in turnover outstripping the 19.9 per cent rise in the number of lawyers at the firm, and almost doubling the 15.8 per cent growth in the equity partnership, Jordan's claims ring true.
Jordan has seen the benefits of several successful mergers. The Californian tie-up followed a 1999 UK merger with Warner Cranston and the firm added 25 lawyers through small firms in New York and DC. A bullish Jordan is predicting further growth through bolt-ons in the London office and new offices in France and Germany.
Reed Smith can be seen as the US equivalent of the expansionist DLA, which saw its own revenues rise 18.4 per cent to £275.4m. Reed Smith sits just five spots behind DLA, but it will need to pull off something special to keep up if the UK firm completes its tie-up with the £307.2m-turnover Piper Rudnick - a merger that would catapult the combined firm into the global top 10.
For those moving in the opposite direction, contentious issues have been a concern rather than a cause for celebration. Jenkens & Gilchrist recorded a 15.5 per cent drop in revenues, from £197m last year to £166.5m this year. The Dallas-based firm has been the subject of an Internal Revenue Service (IRS) investigation into its role in advising clients on abusive tax shelter schemes.
Jenkens was forced to settle two class action suits brought by former clients to the tune of nearly £46m. This decline in revenue has been accompanied by a whole host of lawyers leaving or being asked to leave following the cases. Lawyer numbers dropped 15.5 per cent, from 547 to 462, while the equity partnership shrank by 9.1 per cent to just 154. The lawyer losses will undoubtedly make the revenues harder to recover.
Another Texas firm suffering from the attentions of the authorities, albeit indirectly, is Vinson & Elkins. The fallout from the Enron scandal continues to dog the firm no matter how often it claims otherwise. Enron was the firm's largest client before it collapsed. While Vinson has avoided the wholesale meltdown suffered by Enron's auditors Andersen Legal, and the subsequent investigations have not tainted its reputation, the firm nevertheless continues to suffer. Turnover is down 11.4 per cent to £269.3m and the firm has lost 88 lawyers and 15 partners in the last year.
West Coast technology giants Cooley Godward and Wilson Sonsini Goodrich & Rosati have also recorded significant losses. Cooley's turnover is down 11.7 per cent to £176.9m, while revenues at Wilson Sonsini slumped 9.2 per cent to £233.8m. The figures, though, are deceptive. Both Cooley and Wilson Sonsini have been licking their wounds since the crash in their key technology market, and both emerge smaller but stronger.
| STABILISING ON THE WEST COAST |
| FIRM |
RPL 2004
(£K) |
CHANGE 2003-4(%) |
|
| Heller Ehrman White |
462 |
+13.4 |
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| Orrick Herrington & Sutcliffe |
428 |
+2.5 |
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| Wilson Sonsini |
410 |
+6.7 |
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| Pilsbury Winthrop |
386 |
-5.1 |
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| Cooley Godward |
382 |
+5.5 |
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| Morrison & Foerster |
376 |
+4.2 |
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Cooley lost 16.2 per cent of its lawyers last year. It now has 464 compared with more than 700 in its dotcom heyday. The cull has caused a 5.45 per cent rise in revenue per lawyer (RPL) to £382,000. The firm is more solid as a result and is in the early stages of moving beyond its West Coast base. Plans are in motion to open in New York and DC, and the firm's management has even suggested that Europe is a possibility. Lessons have been learnt over the past few years and expansion will be aggressive but measured.
Quietly, Wilson Sonsini has pursued a similar strategy. The firm is down to 570 lawyers, which is a 14.9 per cent drop from last year's lawyer count of 100, but RPL is up even more dramatically than its West Coast rival, with a rise of 6.7 per cent to £410,000.
The most surprising sight in the losers' league is New York's corporate powerhouse Wachtell Lipton Rosen & Katz. Turnover dropped 10.9 per cent to £189.7m and PEP was down 18.9 per cent to £1.58m. It is unlikely that Marty Lipton will be too worried, though: despite the slump, the firm's partners still take home an average of £309,000 more than their nearest rivals at Cravath Swaine & Moore. It may be heartening to know that Wachtell has suffered from the corporate slowdown, but with clients such as AT&T Wireless, Bank One and Disney involved in big M&A, it looks like the firm is bouncing right back this year.
The UK's most profitable firm, Slaughter and May, might draw comfort from Wachtell's figures. The UK firm saw its PEP slump 12 per cent to £819,000, which is also comfortably ahead of its nearest UK rival. Ashurst, Clifford Chance and Linklaters all recorded similarly depressing profit dips, and all will be hoping for a corporate revival.
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| A GOOD YEAR FOR AUSTRALIA |
| FIRM |
TURNOVER
(£M) |
CHANGE 2003-4(%) |
|
| Minter Ellison |
169.5 |
+12.6 |
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| Orrick Herrington & Sutcliffe |
164.6 |
+12.2 |
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| Wilson Sonsini |
171.7 |
+9.2 |
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