Double-digit PEP rise, revenue flat: a year in the life of your average US firm

Early indications are that cost controls are having the desired effect.

Bill Perlstein
Bill Perlstein

The financial reporting ­season for US firms is still in its early stages, but already some trends appear to be emerging.

In particular, the cost-slashing efforts that most US firms have embraced enthusiastically look to be reflected in the double-digit increases in average profit per equity partner (PEP).

Last week Morrison & Foerster (MoFo) became the latest US firm to post its year-end financial results. The West Coast firm’s ­figures reveal a marginal increase in total revenue coupled with a significant hike in PEP.

MoFo chair Keith Wetmore said his firm had “benefited from a strong demand for our services across all our markets, reflecting the legal needs of financial ­services, life sciences and ­technology companies, who together represent more than 70 per cent of our revenues”.

Gross revenue at MoFo grew by 5 per cent last year to $930.6m (£586.45m), while PEP was up by 14 per cent to $1.29m, a figure slightly above MoFo’s 2007 level of $1.27m.

Pillsbury Winthrop Shaw Pittman, one of the first US firms to report this year, also posted a double-digit PEP increase off the back of marginal revenue growth (indeed at Pillsbury it was all but flat). Pillsbury’s 10 per cent PEP hike saw it break through the ­million-dollar mark for the first time, reaching $1.05m.

The latest US firm to join the trend also reported last week, with WilmerHale posting a 17 per cent increase in PEP and a 2.2 per cent rise in total revenue.

Wilmer’s PEP rose from $1.13m to $1.33m, while fee income was up from $941m to $962m. ­Revenue per lawyer broke through the million-dollar mark with a 10 per cent, from $978,000 to $1.08m.

Co-managing partner at Wilmer Bill Perlstein admitted that the improvement in PEP was partly down to a reduction in headcount along with the firm’s continuing push to make economies, notably through the increasing use of its business ­services centre in Dayton, Ohio.

“We reduced headcount at all levels, but we’re now hiring ­associates,” added Perlstein. “We’ve also hired a large team of ­document review attorneys for our Dayton office.”

Perlstein said Wilmer had hired another 20 document review attorneys to add to the 20 already based in Dayton. The back-office administrative facility, Perlstein added, which opened in ­September last year, has been instrumental in helping Wilmer to reduce its overall costs.

In terms of core legal work, ­Perlstein said there had been a “strong demand” for several of Wilmer’s core areas, including its controversies practice, ­government regulation and investigations and IP litigation.

“There was also a good flow of M&A and corporate work, with four IPOs and 20 follow-on ­offerings,” Perlstein revealed.

It is still too early in the season to say whether the pattern for a big profit jump and flattish ­revenue will be replicated across the market more widely. Indeed, the 2010 results will naturally depend heavily on a firm’s ­practice mix and client base.

“The results won’t be uniform,” said one US partner. “Those firms with good litigation practices are likely to have had a good year, but the transactions-driven firms are likely to have done less well.”

So far the clearest example of this has been provided by ­litigation heavyweight Quinn Emanuel Urquhart & Sullivan, which ­posted figures that revealed a 62 per cent profit margin and a PEP of $3.6m, the latter an increase of 9 per cent.

Bucking the early trend, Quinn Emanuel’s total fee income grew by 31 per cent during 2010 to reach $550.5m.

Name partner Bill Urquhart said his firm’s margin had always been historically higher than is typical for top-end US firms because of the contingency arrangements on which it works and because Quinn Emanuel is a single practice law firm focused solely on commercial disputes.

“We don’t need the infrastructure of a more traditional firm,” Urquhart added.