Clouds mass on US horizon as Sullivan punches through $1bn revenue barrier

Sullivan & Cromwell

has broken through the $1bn (£500m) revenue barrier for the first time, topping $3m (£1.51m) average profit per equity partner (PEP) in the process.

Internal sources have estimated that revenue will rise by approximately 12 per cent to $1.01bn (£508m) and PEP will rise by 11 per cent to $3.13m (£1.57m). While these figures are initial estimates, it is clear that Sullivan has achieved the iconic $1bn revenue and $3m PEP benchmarks.

Sullivan’s success is the latest in a groundbreaking year for US firms. It is a year that has been documented in detail on’s Rev Counter.

Considering Sullivan’s impressive deal portfolio for 2007, these strong results are hardly surprising. UK partner Chris White led the firm, advising on the lucrative $80bn (£40.23bn) ABN Amro-Barclays merger along with Clifford Chance. Despite shaky market conditions – notably the onset of the credit crunch later in the year – the firm maintained its deal flow, winning highly sought-after instructions, such as the role advising private equity house Olivant on its bid for beleaguered UK mortgage lender Northern Rock during the summer.

Sullivan’s new London managing partner Vanessa Blackmore and corporate star Tim Emmerson led the firm on the ultimately unsuccessful bid.

Sitting comfortably near the top of the revenue table, Latham & Watkins and Skadden Arps Slate Meagher & Flom both became the first US firms to post revenues of $2bn (£1.01bn), reporting increases of 23 per cent and 9 per cent respectively.

Latham’s global PEP was up by 22 per cent to $2.27m (£1.14m) in 2007 from $1.85m (£930,398) in 2006. Skadden’s PEP increased by nine per cent from $2m (£1m) in 2006 to $2.28m (£1.15m) last year.

Considering the boom period of the first six months of the year, it is hardly surprising that most US firms reported excellent growth.

Mark Hanrahan, global banking chairman at Latham concurs, saying: “Pretty much every firm has had a good year. This was inevitable considering how buoyant the market was at the beginning of 2007.”2008 will be a tougher year simply because fewer mandates are out there while the markets remain uncertain.”

Latham’s strong positioning in the high-yield and debt market certainly paid off in the 2007 financial year. Latham New York finance partner Marc Jaffe advised longstanding client Goldman Sachs as the underwriter of the Dollar General Corporation’s $1.17bn (£588.41m) debt offering in June last year.

Latham also advised Barclays on its $4.8bn (£2.41bn) revolver bridge facility for Thomson Corporation to finance the acquisition of Reuters Group in 2007.

“Latham’s been successful in securing and maintaining financial institution clients,” says Hanrahan. “High-yield has been extremely important to Latham for a long time and will continue to be a core strength for all of our offices.”

While Hanrahan and many of his peers admit that this year’s figures will give a clearer picture of success and failure for global firms, some casualties have undoubtedly already begun to surface.

Cadwalader Wickersham & Taft reported disappointing figures, with PEP dropping from $2.9m (£1.46m) in 2006 to $2.72m (£1.37m) in 2007. The firm saw a decrease of 9 per cent in revenue per lawyer (RPL) from $1m (£502,918) to $910,000 (£457,655), while net profit dropped by 6 per cent, from $220.5m (£110.89m) to $207m (£104.1m). But global revenue saw a 5.5 per cent hike, up to $587m (£295.21m).

“The firm was bound to have a difficult year,” says a New York-based recruitment consultant. “Their heavy emphasis on structured finance meant the firm could not avoid bad results for 2007 despite the beginning of the year being so busy for them.”

Earlier this year (10 January) The Lawyer reported on the firm streamlining its US offices, making 35 capital markets associates redundant in response to dwindling market conditions.

Since then the firm has fought back by attempting to reposition itself in the market and gain strength in private equity. It snared Latham global private equity head Ron Hopkinson to lead its private equity offering.

Cadwalader argues that it has used downtime in the market productively and has looked at how best to move into 2008 while the deal flow is not so demanding.

Bob Bevilacqua, the firm’s head of corporate and M&A, says: “Last year the market was moving too fast – everybody was too busy chasing their tails and focusing on their own practices to be able to look at anything new.”

Last week (25 February) The Lawyer revealed that Cadwalader’s head of structured finance Chris White had been named as the firm’s new global chairman, signifying further strategic restructuring.

Cadwalader is gearing up to take on 2008 with a new and improved strategy and a focus on private equity. But this may not be enough to see it through the tough year that 2008 is shaping up to be.

One US recruitment consultant claims that even the heavy-hitting firms that were sitting pretty in 2007 have already been predicting disappointing results at the end of 2008.

“I’m getting the general feeling from the market that people aren’t optimistic about this year,” the consultant says. “Some firms have already said they anticipate a drop of 10-15 per cent in profit for 2008.”

Strength in restructuring will definitely be an asset in 2008. Last year turned out to be a turbulent year for everyone and 2008 will undoubtedly demonstrate the fallout.