US firms’ profits reach all-time high on back of M&A bonanza

Global exclusive: top 20 US firms’ revenues and profits for 2005 revealed; seven firms break the billion-dollar barrier

Skadden Arps Slate Meagher & Flom has broken through the $1.5bn (£858m) threshold for the first time, as the US firm’s continued expansion saw revenue rise by 10 per cent in 2005.

Skadden New York-based M&A partner Tom Kennedy spoke for the majority of US firms when he called 2005 “a very good year”.

For Skadden, the $22bn (£12.58bn) hostile bid by steel giant Mittal for rival Arcelor was emblematic of a year that saw a return to bigticket M&A, most notably in the fourth quarter.

Skadden’s revenue hit $1.58bn (£903.7m) in 2005, up from $1.44bn (£823.7m) the previous year. Average profit per equity partner (PEP) rose less impressively, up 6.5 per cent, but at $1.85m (£1.06m) per equity partner, few Skadden partners will be beating a path to the exit.

The Lawyer’s exclusive provisional results for the top 20 US firms confirm the findings in a recent report on the US legal market by Citigroup Private Bank in conjunction with Hildebrandt International.

The report found that 2005 was a good year for most firms, with increases “driven largely by a rebound in corporate and M&A practices, particularly during the fourth quarter of the year, and by more overall stability in transactional work than was the case in 2004”. The report said the return to form was “augmented by continuing strong litigation activity”.

The findings are borne out by the US top 20’s performances, with most reporting increased activity across the board. Securities litigation in particular was a key driver of many practices.

Cleary Gottlieb Steen & Hamilton, on the other side of the table from Skadden on the Mittal Steel-Arcelor battle, benefited in this respect. It was counsel to insurer ACE in a bid-rigging investigation and to Bear Sterns in market-timing litigation.

Cleary had a barnstorming 2005, with PEP up 15 per cent to $1.97m (£1.13m) and revenue up 17 per cent to $813m (£465m).

Managing partner Mark Walker declined to say which areas of the practice had performed best, claiming that Cleary does not run financial analyses by practice area.

“We have data on lawyers’ performances. If people are working hard and billing in a reasonable range that’s fine, if they’re not we can tell,” he said. He added, however, that 2005 had been strong “across the board”.

Greenberg Traurig was still finalising its profit figures for 2005, but on revenues it fared even better than Cleary, posting a whopping 21 per cent hike to $860m (£491.9m).

O’Melveny & Myers also confirmed it was in growth mode during 2005 with a 16 per cent rise in revenue to $808m (£462.2m), while PEP rose by a staggering 23 per cent to $1.61m (£921,000). This was the highest figure of growth in profit within the top 20 during 2005, driven largely by the firm’s aggressive expansion campaign, which included boosting its M&A offerings in San Francisco and New York, with raids on Wilson Sonsini Goodrich & Rosati and McDermott Will & Emery.

European expansion assisted Kirkland & Ellis, which launched in Munich at the start of 2005. Access to the German market helped the firm’s 12 per cent rise in revenue to $935m (£534.8m). But chair of firm finance Jeff Sheffield attributed “strong growth in all practice groups” for the firm managing to break the $2m (£1.14m) mark for PEP for the first time, with an increase of 10 per cent to make PEP $2.17m (£1.24m).

Sullivan & Cromwell and Simpson Thacher were the only other firms within the top 20 ranked by revenue to offer PEP above $2m, with $2.59m (£1.48m) and $2.4m (£1.37m) respectively.

Weil Gotshal & Manges and White & Case joined the elite group of firms with gross revenues above the $1bn (£571.98m) mark for the first time, although only by the skin of their teeth after they reported $1.05bn (£600.58m) and $1bn (£571.98m) respectively.

View table: US TOP 20 FIRMS