A&O has posted record results, but does it matter that the uptick can’t match that at rival Clifford Chance?
Earlier this week Allen & Overy (A&O) followed Clifford Chance in reporting its 2013/14 financials, becoming the second of the UK’s four magic circle firms to do so this season. Total turnover at A&O rose by 2 per cent last year from £1.21bn to £1.23bn in 2013/14 (2 July 2014).
Average profit per equity partner (PEP) stood at £1.12m, a 7 per cent increase on the firm’s previous year’s figure of £1.05m, while total profit before tax also rose by 7 per cent from £497m in 2012/13 to £532.1m.
Which sounds great, except that six months ago A&O posted a 7.5 per cent rise at the half-year stage.
And what’s probably worse is that on Tuesday (1 July) Clifford Chance posted sky-rocketing financials, with its revenue soaring by 7 per cent to £1.359bn and PEP shooting up 16 per cent from £1m in 2012/13 to £1.14m, overtaking A&O on the latter metric in the process (1 July 2014).
Were there glum faces over at Bishops Square after A&O’s key metrics failed to match the stellar increases reported by its arch rival? Managing partner Wim Dejonghe and finance and operations director Jason Haines were both sounding upbeat this week when interviewed about their firm’s most recent financial results, despite the PEP rise having failed to match that of Clifford Chance and the firm’s full year results having failed to match the promise of the half-year stage.
“No, I’m not disappointed,” insists Dejonghe. “The fourth quarter was bit weaker than the rest of the year. Capital markets and emerging markets were quieter. But to be honest it’s our best-ever year, and the fifth consecutive year of growing revenue and profits.”
With record financials it’s hardly surprising Dejonghe is upbeat, although the double digit rise in PEP at Clifford Chance is likely to have been at least a little envied. As we know, high PEP means better partner hires.
Or does it? The fact that the dial has finally shifted on PEP at A&O is of course welcome, but what really matters, claims Haines, is the top of equity figure.
While A&O’s partnership and equity partnership over the last 12 months have both remained relatively stable, with the latter rising by two from 442 to 444 and the total number of partners up by one to 526, the top of equity rose by 7 per cent from £1.56m to £1.67m. According to Haines, this is what matters when it comes to recruiting the market’s top talent.
“We’d regard that as the key metric in terms of recruiting, more than the average PEP,” confirms Haines.
If the firm’s recruitment of Ashurst’s former global corporate head Stephen Lloyd (7 November 2013) is any guide, Haines has a point. Lloyd is virtually the only high-flying London private equity partner who has bucked the recent trend of Magic Circle partners jumping ship for high-paying US rivals. A&O’s uptick in terms of top of equity is unlikely to have hurt in this respect while Clifford Chance, despite posting its impressive results this year, has lost a string of private equity partners to rivals.
But back to the financials, and some wrinkles in A&O’s results and Dejonghe’s claim of ‘consistent’ rises over the past five years. While A&O’s net profit has indeed grown every year since 2010, from £429m to £532.1m, average PEP has been all but flat at £1.1m every year since 2010 until the most recent fiscal period.
For the past four years A&O’s PEP, as reported in The Lawyer UK 200, has stalled at £1.1m. That’s four years of stasis.
This year A&O has provided PEP figures to two decimal points, or £1.12m. This approach has allowed the firm to report a 7 per cent rise in PEP between 2012/13 and last year. But the firm concedes that when this approach is applied to previous years, PEP in fact shows a dip from £1.06m to £1.05m between 2011/12 and 2012/13, in contrast with the reported the figures of £1.1m.
You have to stretch back to 2006/07 to find the firm’s biggest jump in PEP, when it leapt by 30 per cent from £788,000 to £1.025m.
Still, as you would expect, the firm’s managing partner is looking forward, not backwards.
“Our strategy of building strength in depth and breadth is delivering,” says Dejonghe. “Litigation has probably been booming for everyone but for us it’s been very strong. Banking has also been very strong while geographically several centres including Germany, London, Singapore, Luxembourg and the UAE, where we’ve been since the 1970s, have performed really well.”
With the bottom of equity at A&O also on the rise last year, from £627,000 to £669,000 and revenue per lawyer up by 6.1 per cent from £429,705 to £455,929, Dejonghe & Co seem satisfied with the year’s work, whatever happens at Clifford Chance.
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