Top at the bottom of the world

Australian firms have had an outstanding year, with the top 20 all witnessing an increase in turnover. Nicole Maley analyses the performance of the top ten and asks: will their work sustain their practices through the tough times ahead?

Historically, there has been very little public analysis of the Australian legal sector; law firms prefer to play their cards close to their chest for fear of arming competitors with information about their operations. The top eight firms are known to provide financial data to a third-party analyst, but the resultant information is distributed on a no-names basis, leaving the market guessing as to the success of individual firms.
At present, published rankings in Business Review Weekly refer only to revenue, but with incorporation already allowed in some states, there is little doubt that the Aussies will soon follow their US and UK colleagues by introducing a far more transparent system of financial reporting. In the meantime, an assessment of fees per fee-earner provides a good measure of the success of the country's leading practices.
This year, the lawyers at Mallesons Stephen Jaques, Allens Arthur Robinson (AAR), Clayton Utz and Freehills have worked hard to assure their firms' slots in the fees per fee-earner top five. The absence of Minter Ellison in the first half of the table is a surprise, although the firm's position will have been affected by its substantial presence in the low-revenue New Zealand market. Meanwhile, the inclusion of Corrs Chambers Westgarth in the top firms will no doubt be a shock to some.
Top polling goes to Tom Poulton's AAR, currently the firm with the Midas touch, where fee-earners each brought in a A$482,000 , and the lead-up to marriage would typically be expected to affect fee generation. However, in the case of AAR, both the finances and the teams of the constituent firms were already closely aligned, and the formalisation of their relationship on 1 July seems to have had little impact.
AAR will be an interesting one to watch over the next year, as the merger really beds in and its true profitability becomes clear. By then, the firm will also have settled into its new best friends relationship with Slaughter and May, which is expected to bring additional revenue into the practice. The two firms became close when they worked side by side on the BHP-Billiton merger, and are jointly working for major clients in the Asian region. With the UK magic circle's most profitable member as a mate, fees at AAR could climb even higher next year.
The second-highest biller, with fees at A$447,000 (£155,000) per lawyer, was Mallesons.
In the past year, Mallesons has been in the market for a UK merger partner, but its high number of fee-earners is known to be a deterrent to potential suitors. Australia's lower chargeout rates and the poor value of the dollar make it unlikely that magic circle firms will see a good business case in acquiring the entire Mallesons team.
Instead, with its fees per fee-earner revenue already strong for the market in which it operates, Mallesons may be best advised to concentrate on building its revenue and profit base organically rather than through merger.
The positioning of Claytons at third and Corrs at fourth is crucial. Claytons did not see a much of an increase on its overall turnover from last year, but members of its 600-strong team of fee-earners still managed to bring in A$437,000 (£152,000) each.
The firm is one of the premium billers in the Australian market and has a strong transactional focus. Recent work has included representing the Australian Securities and Investments Commission (ASIC) at the HIH Royal Commission.
Claytons chief executive partner David Fagan says the firm's practice in counter-cyclical business areas is a key driver behind its fee-earning success. Litigation, corporate advisory, government and construction work have all been remunerative for the firm, and Fagan believes much of this work will continue throughout the current financial year.
But despite being pleased with the figures, Fagan predicts that there will be little change in the Australian legal market's figures the next time around. “I've seen budgeted projections for a number of our competitors, and most people are budgeting for some growth, but not a lot,” he says. “That's due to a perception in the market that it's either an uncertain economy or a difficult economy in which to see a lot of growth.”
Fourth-ranked Corrs proved that despite a tumultuous year that included on-off merger talks with Andersen Legal, its lawyers could still bill well, with individual fee-earners averaging a turnover of A$427,000 (£148,000).
Last year, Corrs acted for longstanding client Fosters Brewing Group in its A$2.6bn (£902.27m) acquisition of California-based Beringer Wine Estates, and the firm was also involved in Suncorp Metway's recent acquisition of the GIO insurance business. Chief executive officer John Denton says that the firm has made a conscious decision to focus on “quality clients with quality transactions”, rather than seeking to boost revenue on the back of small-money transactions. “Some of our competitors have gone for very high revenue in terms of the firm, and that's great if that's what they want; but I'm actually interested in the kind of transactions that drive that revenue,” says Denton. “It has to be good-quality revenue which is actually capable of drawing a profit for us.”
Denton says that Corrs' commercial litigators had an “extraordinary” year in 2000-2001, along with the litigation division as a whole, but he is conscious that the sectors that draw high-level fees change from year to year. He predicts a continued flow of work from IT outsourcing, along with the biotech and construction industries, but says the initial public offering (IPO) market is a classic example of a sector that has quietened down.
Sitting squarely in the middle of the fee-earner table is Freehills, widely regarded as Australia's leading firm for M&A work. The firm has a reputation for its transactional practice, where the 800-plus fee-earners each turned in A$400,000 (£139,000).
Freehills is a regular fixture at the top of the deals tables in Australia, and played a noteworthy role as the sole Australian legal adviser to Billiton during its merger with BHP.
Minters, thought to be one of the country's most profitable firms, comes in sixth on fees per fee-earner revenue, with its lawyers each responsible for A$352,000 (£122,000) worth of billings. The firm's A$348m (£120.77m) turnover is drawn from its worldwide alliance, the Minter Ellison Legal Group, which has a pool of almost 1,000 lawyers. The introduction into the equation of associated (but not financially integrated) firms – in particular Minters' two New Zealand allies – is likely to have added only slightly to the firm's revenue base, but will have boosted lawyer numbers dramatically.
In any event, managing partner Phil Clark appears happy with the results, saying: “Our fees per lawyer are pretty good by local standards, particularly given that we've made commitments to a number of our clients to keep our pricing.
“When you look at the revenue growth figures in the Australian market, there are three main things to observe. Some of the figures are estimates and not actuals, although I don't think there's a big error there. Also, several of them are driven by mergers and restructurings, and I think some of them are getting bigger without getting more profitable.
“I believe that a significant number of firms – certainly half of the leading eight firms and maybe even more of the followers – didn't increase their profits per partner last year, but we know that we're very profitable.”
Firms seven, eight and nine – Gadens, Blake Dawson Waldron and Phillips Fox – are all relatively close in terms of fees per fee-earner. Gadens, a smaller firm than the other top 10 candidates, splits its A$75m (£26m) revenue among only 236 fee-earners, who each clocked up A$318,000 (£110,000). The lawyers at Blakes each pulled in A$310,000 (£108,000), and Phillips Fox fee-earners billed A$295,000 (£102,000).
Deacons, the great star of the turnover charts, has turned out to be a bit of a disappointment on analysis of fees per fee-earner. This year the firm managed only A$179,000 (£62,000) per lawyer, although the figures apparently account only for fees brought in by the Australian offices and not by the firm as a whole. Even calculating on the basis of the onshore offices only (398 lawyers), the firm languishes in tenth position, although with a somewhat healthier fees per fee-earner figure of A$291,000 (£101,000).
Deacons should probably be afforded some leeway to account for its Asian restructuring and the August 2000 mergers with the Canberra, Melbourne and Brisbane offices of Dunhill Madden Butler, but there is little doubt that management will be hoping for a greater return on its investment next year.
“A large amount of this was planned, because growth has been very much a part of our strategy,” says Deacons chief executive partner Don Boyd. “Since those figures were out, we've made some fairly significant acquisitions of partner groups and areas from other firms, and we'll continue our organic growth. You'll see further revenue growth and you'll see enhanced performance per fee-earner.”
However, in the absence of profit figures, it is difficult to ascertain the true value of the market – and the individual firms working within it. In addition, the criteria used by individual firms to decide their 2000-2001 fee revenues (first published in Business Review Weekly) varied, with some providing a worldwide fee total, while others proffered up only their Australian tally.
Nevertheless, while it may not provide a complete insight into the market, a reasonable measure of success can still be revealed through an examination of the fees per fee-earner achieved by each practice.

Rankings according to fees per fee-earner
1 Allens Arthur Robinson: A$482,000 (£167,000)
2 Mallesons Stephen Jaques: A$447,000 (£155,000)
3 Clayton Utz: A$437,000 (£152,000)
4 Corrs Chambers Westgarth: A$427,000 (£148,000)
5 Freehills: A$400,000 (£139,000)
6 Minter Ellison Legal Group: A$352,000 (£122,000)
7 Gadens: A$318,000 (£110,000)
8 Blake Dawson Waldron: A$310,000 (£108,000)
9 Phillips Fox: A$295,000 (£102,000)
10 Deacons: A$179,000 (£62,000)

Firm Fee revenue 200-2001 (A$m/£m) Partners worldwide Other qualified lawyers worldwide Total fee-earners worldwide Fees per fee-earner 2000-2001 (A$/£)
Mallesons Stephen Jaques 360/124.9* 184 equity
18 fixed profit
603 805 447,000/155,000
Minter Ellison 348/120.8 262 equity
29 fixed profit
697 988 352,000/122,000
Freehills 325/112.8 240 equity
3 fixed profit
570 813 400,000/139,000
Allens Arthur Robinson 320/111* 182 equity
No fixed profit
482 664 482,000/167,000
Clayton Utz 262.3/91 156 equity
22 fixed profit
422 600 437,000/152,000
Blake Dawson Waldron 260/90.2 173 equity
7 fixed profit
659 839 310,000/108,000
Phillips Fox 165.2/57.3 101 equity
71 fixed profit
388 560 295,000/102,000
Corrs Chambers Westgarth 160/55.6 84 equity
29 fixed profit
262 375 427,000/148,000
Deacons 116/40.3 257
(partner split unavailable)
390 647 179,000/62,000
Gadens 75/26 51 equity
32 fixed profit
153 236 318,000/110,000
Fee revenue figures first published in Business Review Weekly (BRW) (27 Sept-3 Oct 2001);
* = estimated by BRW; fee-earners include partners, fully-qualified solicitors, special counsel and consultants. Trainee solicitors, articled clerks, graduate lawyers and paralegals are not included.