Top of the PEPs
12 June 2007
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For years, Maclay Murray & Spens has been one of the hardest Scottish firms to penetrate financially (apart from the law unto itself that is Dickson Minto, that is).
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Now, suddenly, it’s an LLP and all is clear. And guess what? It’s figures are pretty much the same as any other transactional firm in this year of the boom. Turnover was up 12 per cent, profit up 15 per cent.
In other words Maclays’ figures are good, but not spectacular. Solid, dependable, consistent. Maybe even a teensy bit dull.
What is less mundane is the confirmation by Maclays’ managing partner Magnus Swanson of the ever-increasing importance of London in the Scottish firm’s plans. Maclays may well still be beefing up in Aberdeen with hires from Paull & Williamsons and Iain Smith & Co, but it knows the real action is down south.
Maclay’s City office is in growth mode, no doubt about that. But according to Swanson it’s only a year, maybe two, away from generating the same amount of fees as Glasgow or Edinburgh.
And the appointment of London-based partner Philip Skerrett as Maclays’ new chairman earlier this year underlined the importance of the English capital in the Scottish firm’s plans.
Will the centre of gravity at Maclays continue to drift south? Certainly. Glasgow and Edinburgh as satellite offices anyone?
A&O's not so transparent performance
One statistic will reveal the extent of Allen & Overy’s return to form. Of the £151m added to top line revenues this year, £106m was pure profit. That’s some margin.
With that sort of performance, it’s no wonder that there was £61m cash on the balance sheet at the end of the year. It seems the move to Spitalfields has been entirely funded by cashflow. “We didn’t borrow a penny of the £75m bank facility,” managing partner David Morley says.
Of course, A&O’s mantra of transparency doesn’t quite stand up to scrutiny. Scratch the surface and it’s clear that A&O is very reluctant to discuss the performance of different jurisdictions or departments. Morley – despite the fact that I begged him not to use this phrase – would only say today that “revenues were up across the board”.
Yeah, right. It’s quite clear that the biggest profit-maker has been the firm’s corporate department. It just doesn’t suit the firm’s internal politics to admit it. Tellingly, A&O itself makes frequent mention of the fact that it has outperformed all previous expectations (internal or external) on the deals tables. Beringer himself has said that banking and capital markets has been the firm’s strongest areas but that view needs to be ‘re-assessed’. You bet it does.
Here’s one of the few things A&O did reveal today. New York has allegedly made a profit. This, dear reader, is just as well, since in 2005-06 A&O’s US practice lost £15m after partner take. Incidentally, A&O’s New York revenues of US $100m are virtually the same as Freshfields’ US operation, only Freshfields is doing it on half the staff.
And what of PEP, which Beringer so derides? At £1.03m, it’s exactly the same as Freshfields’ reported figure this year. The magic circle firms are bunched together on just over a million, with Linklaters edging ahead.
LG and its strange case of stasis
It’s pretty baffling. Lawrence Graham, or LG as its new nifty moniker goes, has posted a bizarrely disappointing set of figures. This year turnover has stayed static at £66m.
It’s difficult to think of many other firms which have not improved revenues this year, unless they have the usual excuse of being litigation specialists. Indeed, over the last four years the firm’s revenues have grown only by 12.6 per cent.
The impact on profits is inevitable. Average profit per equity partner has inched up only by three per cent in the same time – and the equity partner numbers have remained pretty static – it’s been around 50 for the last four years.
LG’s PEP currently stands at £430,000, a drop – a drop! – from last year’s figure of £465,000. Net profit dropped £1.7m this year, largely because of one-off relocation costs. Of course, £430,000 is not the final figure; I suspect it may end up being a touch higher than that on the final audit.
Even so, citing a new building simply won’t do. It looks as if the firm’s 2006 figures of an eight per cent rise in turnover and 15 per cent rise in PEP were a blip. LG doesn’t seem to be able to grow its business at all – and this despite the fact that it is one of the market-leaders in AIM work. Sure, there are pricing pressures on AIM (and I suspect LG must have succumbed), but most firms see AIM as an excellent entrée into all-round corporate and commercial work.
Compare with Stephenson Harwood – a firm not without its troubles in recent times – which also has mixed business of corporate and AIM, real estate, financial services and litigation, but whose growth has been helped by a couple of years of hard pruning. And of course, whose international strategy is slowly producing some strong results in Asia.
Still, LG appears entirely sanguine about its financials. You can read our interview with managing partner Penny Francis in The Lawyer next Monday. That interview will reveal that LG is staking much on a new international strategy. It’s going to need to: there’s been precious little growth in London.
Linklaters takes the lead
At the Lawyer Awards when talk turned lightly to Linklaters’ figures (as soon as new managing partner Simon Davies was out of earshot, that is), there was a flurry of speculation about the final profit score. The consensus that evening was pretty much spot on, at around £1.3m.
It means that with three out of the big four having declared (Allen & Overy’s results are out later this month), Linklaters will currently lead the pack on PEP.
There are interesting wrinkles, though. That £1.29m figure applies only to all partners on full equity entitlement. Once you factor in the 149 partners on reduced entitlement – they include key jurisdictions such as Germany – then the average PEP is actually £1.15m.
Or there’s another way of looking at it. If you calculate average remuneration for all partners and factor in the earnings of the hundred-odd salaried partners, then that average all-partner remuneration comes in at over £1m for the first time.
We’ll be returning to facets of the magic circle firms’ performance over the next few weeks as more details emerge.
How to make half a million in Derby
Fancy working in Derbyshire? Easy access to the Peak District, Burton Ale on tap and a top-notch Premiership side on your doorstep (for at least a season). Oh, and a PEP of £530,000.
Midlands firm Flint Bishop & Barnett may have seen its turnover drop by £200,000 last year, but somehow I don’t think managing partner Ken Dixon and his five fellow semi-millionaires are bothered.
In 2006 Flint Bishop registered an astonishing 50 per cent growth in fee income. Last year it took a bit of a knock, to the tune of around £2m, after losing its place on RBS’s panel.
But other areas have stepped up and hey, the equity’s been chopped from 15 to six. Who’s complaining? (Possibly those chopped, but let’s not qibble, eh?)
Wragges gets comfortable with itself
I'm rather intrigued by Wragges, which has managed to keep an all-equity partnership when all around are losing theirs. This usually has a depressive effect on the final profits figures, but Wragges has turned in a rather creditable performance, with average profit per partner now projected to reach £421,000.
At least, senior partner Quentin Poole sounded pretty happy about the figures when I spoke to him at the end of last week. And he only reminded me once that the partnership was all-equity, which is the mark of a relaxed man.
For such a highly transparent firm, the most opaque element of Wragges' financial reporting is in the profit share-out. Because Wragges operates an entirely merit-based distribution the demographics are hard to read, although Poole says that 40 per cent of his 110 partners will earn over half a million. The very top partners will probably make £690,000.
Revenue growth has been decent, at just over ten per cent to £112.6m – but that's not down to corporate work. In fact, Wragges is not really designed to take advantage of the frothy takeover market. "We don’t benefit from the M&A boom," Poole confessed.
You can say that again. Only £14.6m of that turnover is pure corporate work - a figure that might surprise some people. Or put it another way: with real estate, IP and general commercial dominating the business, Wragges will do better in a downturn – comparatively speaking, of course.
The Lawyer has just unearthed a firm where average PEP has fallen. Not just fallen, plummeted. Not just plummeted, cratered.
Just a year after recording a City-level PEP of £712,000, Newcastle’s Watson Burton’s PEP has bombed by - wait for it - half a million quid. Per partner.
In technical accounting terminology, that’s shedloads.
The firm’s blaming the miners. Well, why not? The weather’s probably to blame too.
Partners at local rivals will be rubbing their hands in Schadenfreude - not least Andrew Hoyle, who was binned by the firm last year and promptly joined local rival Ward Hadaway. Where PEP is up 10 per cent.
Watson Burton claims the drop is not as bad as it seems, as last year’s eye-catching figure was subsequently revised to £460,000 following an official audit. For which read, ‘paying back the miners compensation money’.
So officially it’s calling the drop “an adjustment”. Half a million quid’s worth of “adjustment”.
Average PEP is £672,000, up a tad from last year’s average of £605,000. But again, no turbo-charged growth – revenues are up only a couple of million, which reflects the fact that the Leeds firm offloaded its volume claims business four months into the financial year, so comparisons are tricky.
Walker Morris boss Peter Smart is another managing partner – like Michael Frawley of Taylor Wessing - who is pessimistic about the next couple of years. “This boom won’t last,” he declares.
Ashurst holds its nerve
It’s no longer a case of who wants to be a millionaire at Ashurst.
With an equity spread now ranging between £480,000 and £1.2m, many partners are already laughing all the way to the bank, following Caroline Binham’s story today that the firm’s equity partners now boast average drawings of £956,000.
That means the firm - now very much a top 10 firm, thank you - managed a whopping 36 per cent leap in average profit per equity partner (PEP) to add to its 28.5 per cent rise in turnover.
It’ll also put Ashurst third in our PEP table, way ahead of Herbert Smith - although Linklaters and Allen & Overy are yet to declare.
The profit figures are inevitable given Ashurst’s corporate team’s stellar year. It gained new clients like Rusal in 2006-07 and bedded down with old ones such as Cerberus – a trend that looks to continue this year too if today [see story] is anything to go by.
So far, so obvious: every corporate team in the City is raking in the fees at the moment. But what has underpinned Ashurst’s performance is the renaissance of its international network.
For in 2004 Ashurst was all over the place in Continental Europe. Half of its Paris office had walked, and Germany, which was patchy at best, kept losing partners to US firms.
Fast-forward three years and it’s Germany which has really turned the corner. It has the highest average chargeable hours of any office outside London. (Indeed, only one group in London had a higher average on hours. No prizes for guessing which.)
Holding your nerve works when you build internationally. Next stop, Asia.
Banking not back yet for Dentons
Earlier this year (12 March) we wrote about the travails of Dentons banking group and how, under managing partner Howard Morris, it was in for a good kicking. Well, if last year’s figures are anything to go by, he needs to get some bigger boots.
Ten per cent up on average profits is just about ok in the current market but Dentons’ measly 6 per cent rise in revenue is pretty lame. Morris called it “very pleasing”. Perhaps he’s easily pleased? But I doubt it. That’s the soundbite for public consumption.
Dentons doesn’t have much of a corporate practice so couldn’t join the M&A party. Which means it was counting on its once proud finance practice to come to the rescue. Oh dear.
Yes, the Islamic finance practice was a shining star in the DWS constellation, with the firm nabbing key roles on the world’s largest sukuk to date, along with various other superlative instructions.
Unfortunately for Dentons, many of these deals had much to do with finance partner Rahail Ali, who decided to jump ship to Lovells in spring 2007, taking two of his team with him.
DWS is sanguine about the departure but is yet to fill Ali’s shoes. And finance is yet to show the signs of Morris dancing all over it.
Mishcon strikes Gold
Deep in the heart of Holborn is a relatively small firm that has just posted very big figures indeed.
Mishcon de Reya’s whopping 70 per cent rise in PEP (The Lawyer, 18 June), to just shy of £700,000, is nothing less than astonishing. It was only three years ago that Mishcons’ partners were struggling along on barely two hundred grand apiece.
Back then the firm’s figures had been all but flat for years. Mishcons seemed permanently stuck in lower mid-market hell. But while the outside world carped at Mishcons’ underperformance, inside the firm something was stirring.
The most obvious sign that Mishcons was getting serious about improving its financial performance came in April 2004, when the firm ejected a third of its then 27-strong equity partnership.
But according to managing partner Kevin Gold, the building blocks of Mishcons recent stellar performance were put in place years ago.
Nobody likes to scoff at law firms trumpeting their ‘core values’ more than me. These lame, mean-nothing terms replicated by every firm, everywhere are an easy target but it seems that in this case, Mishcons’ core values really do seem to mean something - more money.
Three years ago Mishcons cemented its quality assurance programme, encapsulated in the catchy term MQ2, across all of its business processes. Departmental and practice area feedback was “tabularised and corporatised”, as Gold put it, leading to increased efficiencies throughout the firm.
It has been Gold’s mission to instil those values in every person in the firm, from the receptionist to the senior partner. And Mishcons’ new bonus, introduced this year, is probably the most efficient way of ensuring all of the firm’s 300 people keep those values at or near the front of their mind. If doing something differently ends up filling your pocket, it’s more than likely to fill your mind.
Gold says he and the senior management informally introduced the values nine years ago, when Mishcons was more a collection of maverick individuals than a firm.
Last year’s figures are evidence that that kind of long term investment can pay off big.
Frawley fears the end is nigh
Is the boom about to end? There’s not much sign of it in the figures that have been pouring out of the UK’s top firms over the past few weeks, but today’s comments from Taylor Wessing managing partner Michael Frawley (SEE STORY) offer a hint of warning that the market can’t go on forever.
Frawley’s point is simply to ask this question: how much longer can the market keep going like it is?
Yes, law firms are slaughtering each other for lawyers, the magic circle is hitting £1m PEP and firms are paying stupid salaries, but as Frawley says, these are the hallmarks of a “been there, done that” situation. The only thing to do is to sit back and wait for the explosion.
You might want to take his comments with a pinch of salt. Frawley is, after all, a restructuring lawyer. As he says, “insolvency’s in my bones” (must make walking tricky).
But it’s only natural, for Frawley at least, to be cautious. And of course, sitting back isn’t the only thing you can do. You can always start preparing for the bang.
Taylor Wessing has never been the most outré of firms, so Frawley’s inherent conservatism shouldn’t come as too much of a surprise. But the beefing up of its reconstruction and corporate recovery practice at the end of a year that just saw it post record profits is a sign that one firm at least has a downturn in its sights.
Incidentally, Taylor Wessing’s global turnover hike moves the firm above Denton Wilde Sapte in The Lawyer’s rolling revenues table. Click here to see how you’re doing.
Stephenson Harwood floats to the top
Five years ago I wouldn’t have put money on Stephenson Harwood (SH) reporting average PEP of over half a million. Back then SH was posting ghastly figures (£6m net on a turnover of £62.5m, anyone?) in the wake of its merger with fading shipping litigation boutique Sinclair Roche & Temperley (SRT).
The SRT legacy has been well and truly blown away, and not just because net profit has nearly quadrupled in five years from £6m to £22m.
“Actually, I think the market always overstated our shipping work,” says SH managing partner Sunil Gadhia. You get the feeling he says this a lot, but what’s notable about the SH figures which we report this week SEE STORY is that all the growth has come from the mainstream practices of corporate (up 32 per cent), finance (up 23 per cent), real estate (up 33 per cent) and even litigation (up 11 per cent).
You read that right. Litigation revenues in double-digit increase shocker. How? Why?
Well, it’s not shipping litigation, which has stayed flat. Barlow Lyde & Gilbert will be gnashing its collective teeth at this, but SH has quietly been picking up a nice lot of conflict work in suing the banks. Investment banks, that is – it’s still highly dependent on commercial banks for asset finance work, which has broadened away from ships to planes, trains and goodness knows what else.
More proof, if it were needed, that the firms in the lower reaches of the Lawyer 200 are making good money. Look at £13.5m-turnover Michelmores (Exeter with teeny tiny outpost in London), which is making PEP of £249,000 SEE STORY. Meanwhile Lincoln’s Inn firm Dawsons is making PEP of £325,000 after a two-year restructure. SEE STORY
If the mid-size London firms are all aiming for the half a million barrier, there’s a whole bunch of minnows a making more than a quarter of a million PEP themselves.