Links all-equity push sees PEP drop as revenues stall

5 July 2010 | By Gavriel Hollander

Linklaters looks set to be toppled from its spot as the leading UK law firm by revenue as its financial results for 2009-10 revealed a dip in both turnover and average profit per equity partner (PEP).

The magic circle firm saw revenue decline by 8.8 per cent to £1.18bn, while PEP was down 6.88 per cent to £1.21m. The PEP fall comes despite the firm’s New World restructuring exercise, which saw it cut back its partnership drastically in a bid to improve profitability.

Over the last year, the firm has forged ahead with its plan to move towards an all-equity partnership, with its number of non-equity national partners dropping from 85 to 35.
Despite average partner headcount falling from last year’s figure of 513 to 477, there are 442 equity partners in the firm, up from 428, with national partners making up just 7 per cent of the global partnership.

Managing partner Simon Davies said: “PEP reflects our partnership mix. If profit is relatively flat, PEP falls. What’s driving it is that we believe lockstep will drive greater cohesion in the firm.”

Last year, Linklaters became the largest UK firm by turnover for the first time ever, knocking Clifford Chance off the top spot. But the latest figures open the way for either Clifford Chance or Freshfields Bruckhaus Deringer to move into the number one position.

In 2008-09 Freshfields and Clifford Chance were only marginally behind Linklaters in the turnover stakes, posting figures of £1.29bn and £1.26bn respectively against Linklaters’ £1.3bn.

Davies said the firm was focused on overall profitability rather than its revenue, which has suffered due to the deflated M&A market with about 40 per cent of income generated by the corporate department.

“Our objective has never been to maximise our revenue,” he said. “We’re not focused on being the biggest firm by revenue but on being the leading firm as far as our clients are concerned.”

Linklaters’ results come after the firm registered a slight improvement in revenue in 2008-09, despite paying out around £50m in redundancy packages after New World.

Davies confirmed that “the vast majority” of New World costs were met in 2008-09, with commentators suggesting that this year would see the firm post improved figures.

We were all expecting quite a big bounce,” commented one senior partner at a rival firm.

Allen & Overy became the first magic circle firm to reveal its results last week, posting a 4 per cent drop in revenue and 10 per cent rise in PEP (TheLawyer.com 1 July 2010).

Clifford Chance and Freshfields are both expected to register similarly small downturns in revenue.