Focus: Salans, Wherever it lays its hat…

 What an odd firm Salans is. It has no obvious centre of gravity, no head office and no ­jurisdictional affiliation to speak of. Even its partners admit unofficially they can find it difficult to describe or define. “It’s clear that for a number of people Salans is an unknown ­quantity,” admits the firm’s global ­managing partner Dariusz Oleszczuk.

Yet somehow the firm that was founded in Paris by a bunch of US lawyers, is chaired by a Brit and has a Polish managing partner has just rocketed up the rankings in this year’s The Lawyer UK 200 Annual Report. And it has been pursued by a number of UK-headquartered firms looking to bolster their overseas offerings. The one that came nearest to the prize was Pinsent Masons, which ealier this year signed a strategic alliance with the firm (The Lawyer, 2 June). Salans must be doing something right.

The secret of Salans’ success

There is a clue to the firm’s success in the international make-up of its ­management and office coverage. The driving force behind its record year was the firm’s international platform, particularly its offices across the CIS and parts of Western Europe.

Looking back over the past five years, one of the most remarkable areas of improvement has been Salans’ revenue per lawyer (RPL).

In terms of its UK 200 ranking, Salans hit an all-time low three years ago when its RPL stood at £213,000. That year the firm was ranked 113th in the top 200 RPL table. The ­following year, despite improving its RPL slightly to £215,000, Salans slipped to 118th place.

But in the 2008 calendar year the firm jumped to 66th place with an RPL of £266,000. Over the same period the total number of lawyers grew from 665 to 690, so any ­recession-era slashing of the ­headcount can be ruled out as an explanation for the improvement.

“Much of the improvement [in RPL] is because we’ve moved from geographically focused practice groups to groups with a global ­practice and sector focus,” reveals Salans chairman Stephen Finch. “In other words, we’ve been moving to handling an increased amount of more profitable cross-border work instead of less profitable local work.”

Recent examples of such work include advising ING Lease on the e75m (£65.9m) financing of Portico Investments’ Hungarian, Czech and Romanian commercial property portfolio; Guernsey-registered AIM-listed property investment company Raven Russia on its $216m (£130.6m) warehouse complex acquisition near St Petersburg; and Warner Chilcott in France, Germany and Spain on the $3.1bn acquisition of Procter & Gamble’s ethical ­pharmaceuticals unit, one of the largest leveraged buyouts of the year.

The firm has also been busy retooling its lawyers and practice groups to adapt to the demands of clients in the post-financial meltdown world.

“There’s a high degree of flexibility in our partner and lawyer skill sets,” says Oleszczuk. “Some of our banking lawyers have become restructuring lawyers, and although there are
fewer corporate deals, there’s now ­corporate litigation.”

Oil and gas-related financing is still active, adds Oleszczuk, while real estate is continuing to generate fees for Salans, although in a different form from two years ago. Recently Salans advised on the real estate aspects of Allied Carpets’ collapse, including the sale of more than 55 ­surviving stores and the shutdown of the other stores as part of ­delivering an overall rescue plan.

“People are saying that real estate is dead,” says Oleszczuk. “It’s not dead. It’s different.”

Bigger apple

So, some might say, is Salans. The firm’s inclusion in the top 200 ‘UK’ firms is a continuing source of debate at The Lawyer considering it has no obvious HQ. Still, the firm also ­performed well on other financial metrics last year. Total revenue was up by 28.5 per cent, from £143m to £183.7m, a hike that took it into the UK top 20 for the first time.

Average profit per equity partner (PEP) was also up significantly last year, from £502,000 to £559,000. Over the five-year period Salans has managed a 57.5 per cent increase since it posted a PEP of £355,000, a result that left it 35th in the table in 2005. Last year it was sixteenth.

The firm also benefited from ­currency fluctuations, with its decision to bill primarily in euros paying off in spades last year.

Even the firm’s chronically ­underperforming New York office is no longer a financial drain, claims Oleszczuk.

“We struggled for a number of years in New York, but that’s now improving,” says Oleszczuk. “We were losing money there for several years, but now we’re making a profit.”

Finch rules out any further ­expansion of the US office network, however, with a once-­mooted ­Washington DC outpost now on the back-burner at best. “A ­Washington presence is relevant for our business, but not enough to make it worth establishing a presence,” he says.

Salans already has a couple of ­partners in the US with a DC-focused practice and the firm also works closely with a handful of DC firms, including Arnold & Porter, on a non-exclusive basis.
The firm’s 35-lawyer New York office may be profitable now, but it is not really where it is at for Salans. The firm’s calling card is emerging markets, a focus that during 2008 at least provided a significant revenue kick.

Closer to home Salans’ London office has grown its revenue by 700 per cent between 1998 and 2008, although as international development partner Roger Abrahams admits, it is still too small.

“It’s in the top two to three offices in the network and is a very good office, but it’s too small, yes, for the London market in terms of the deals we aspire to,” Abrahams says. “We try all the time to grow it.”

One quick way would be to ­capitalise on the strategic alliance it struck earlier this year with Pinsent Masons, the first it has formed in the UK. The deal is targeted on ­generating cross-border referrals and is already ­bearing fruit.

“It seems to be working well so far,” says Sloane Poulton, a director at headhunting firm SR Search. “I ­certainly understand that there’s a good flow of work from Salans to ­Pinsents at least.”
Presumably there is also some work heading in the opposite ­direction, although as Salans ­operates on a calendar financial year none of the revenue derived from its new Pinsents deal has been included in the results of this year’s UK 200.

Salans’ management rules out any talk of a merger with Pinsents, although inevitably market sources suggest the alliance is a precursor to a more permanent deal.

Just as a pointer, in this year’s UK 200 The Lawyer recalibrated the ­revenue table to reveal exactly where a merged firm would stand in terms of ranking – twelfth, with total revenue of £399m. Truly transformative.

Soft centre

A merger with Pinsents, should it ever happen, is likely to be some years down the track. More immediately Salans wants to capitalise on its mix of strategic foresight and good ­fortune by emphasising the cross-border nature of its business.

In a year when its revenue is ­looking likely to take a dip – “2009 won’t be as spectacular a year as 2008,” admits Finch – targeting ­higher-margin international work over lower-paying domestic ­instructions looks particularly savvy.

The push at Salans is on increasing the international element of the ­practices, leaving those lawyers with more national or locally focused ­practices a little at risk of being left out in the cold.
According to Finch, however, the firm is not about to start jettisoning any of its lower-margin practices.

“It’s more a question of focus and ­investment,” he says. “We’re a bit of a soft shop really.”

Soft maybe, but right now rather successful.