The London large peer group has had a tough time of it, but management is looking to international growth to offset disappointing financials. By Margaret Taylor
The past financial year was not kind to the firms that make up the London large peer group. All the firms in the group – CMS Cameron McKenna, Denton Wilde Sapte, Lovells, Norton Rose and Simmons & Simmons – all saw revenues rise marginally over the year, although profits took a dive across the board.
For Dentons, arguably a mid-market firm on size and client base, the year marked the consolidation of several years of muted results, with an average profit per equity partner (PEP) of £300,000 representing a fall of 9 per cent since the start of the century. That said, taking the combined PEP figures of Denton Hall and Wilde Sapte as the starting point, the firm’s PEP has risen by 22 per cent over the past 10 years.
While its lacklustre performance in recent years makes Dentons’ presence in this group appear questionable, looking back over the past decade the firm certainly started out as a serious contender.
As detailed in the introduction, both Denton Hall and Wilde Sapte were chasing a merger prior to their union in 2000, but the combined firm was initially beset with problems, with numerous partners leaving in the months following the deal.
That said, the 2001-02 financial year was more positive for the merged firm, with turnover rising well. While revenue per partner (RPP) was lower than those of the other firms in the peer group (Lovells’ and Norton Rose’s was £1m and Camerons’ and Simmons’ £1.1m), at £873,000 Dentons’ figure was reasonably strong.
For any London large firm a strong international presence is key, but Dentons’ place in the group looked precarious when it decided to withdraw from Asia altogether in 2004. Despite this, the Middle East remains an important part of the firm’s strategy and, given that its five offices and three associated offices in the region bill in dollars, its presence helped boost its overall turnover figure for the past financial year.
Unlike the other London large firms, the bulk of the Dentons’ business is generated in the UK, where it has a presence in Milton Keynes in addition to its London headquarters. The firm did invest in its international network during the past financial year, opening an associated office in Singapore and an office in Kuwait, as well as seconding 14 fee-earners overseas.
But the international scene remains tricky for Dentons and, while the firm’s international network generated 29 per cent of turnover (£48.9m) in the past financial year, it could claim just 22 per cent of overall profit (£5.6m).
Of the other firms in the group, Lovells has seen by far the greatest turnover growth over the past decade, with its May 2009 revenue of £531m sitting 222 per cent above its May 1999 figure of £165m. Despite this the firm’s historic problems with profitability continue, with 10-year PEP growth sitting at 43 per cent. RPP growth has also been muted, rising by 55 per cent, from £971,000 10 years ago to £1.5m in May 2009. Partner numbers over the period have grown from 170 to 349.
International exposure has been a major contributor to strong revenue growth, with pound and dollar strength uplifting results in the past financial year. Just 42 per cent of the firm’s revenue is now generated in the UK.
“Given that so much of our business now comes from outside the UK, the currency effect inflated our revenue figure [in the past year], but it also inflated our costs,” explains managing partner David Harris.
Looking at the firm’s international spread, Harris says that while London “felt the effects of the recession at the sharp end”, Asia and the Middle East, which account for 10 per cent of total revenue at £53.1m, performed well in the past year. Harris also points to Germany and Moscow as being strong generators.
While Lovells was the strongest firm in the group in terms of 10-year revenue growth, Simmons had the strongest showing in terms of PEP. Over the period PEP grew by 144 per cent, from £213,000 in May 1999 to £520,000 in May 2009.
This is a stunning performance given its PEP woes at the beginning of the decade. That said, the firm managed to turn its financial inertia around early on, with 2000-01 being a breakthrough year: PEP rose by 62 per cent to £412,000 and turnover was up 27 per cent to £149m. The firm’s PEP received another major boost in 2004-05, with a rise of 40 per cent taking it to £385,000, thanks in part to culling a number of partners and suffering the loss of a few more.
PEP suffered in 2002-03 because of heavy investment in the international network, with partners prepared to take the hit while turnover continued to rise. In 2001-02 Simmons invested heavily in its European business, merging with Dutch firm Nolst Trenité, opening in Düsseldorf and extending its Italian presence by merging in Padua. It also launched in Tokyo with local firm TMI Associates and formed a joint venture between its Lisbon office and Brazilian firm Veraino.
In 2008-09 50 per cent of revenue (£143.8m) came from the network. At £1.26m RPP fell slightly on the previous year’s £1.28m, but was 60 per cent higher than the May 1999 figure of £788,000.
Weathering the form
The other firms in the peer group, Camerons and Norton Rose, suffered PEP drops of 15 and 17 per cent respectively over the past financial year, but both have built strong enough foundations over the past decade and should be able to weather the recession reasonably unscathed.
The growth of their international networks has been key, with Camerons managing partner Duncan Weston, who ran the firm’s Central and Eastern European (CEE) operations before taking over the firm as a whole in April 2008, a keen proponent of the firm’s profitable CEE network.
Norton Rose has followed an expansionist strategy in recent years, opening nine new offices in the 2006-07 financial year alone. The future for the firm bodes well if its tie-up with Australian firm Deacons, which has an extensive Asian network, can bed down as planned.