A year after making only slight financial gains, a group of New York–based firms composed of some of The Am Law 100′s most profitable members put even more distance between itself and the rest of the pack in 2013, according to The American Lawyer’s reporting.
Collectively, the 14 top New York firms for which The American Lawyer had gathered financial data as of Thursday—Cadwalader, Wickersham & Taft; Cahill Gordon & Reindel; Cleary Gottlieb Steen & Hamilton; Davis Polk & Wardwell; Debevoise & Plimpton; Kramer Levin Naftalis & Frankel; Paul, Weiss, Rifkind, Wharton & Garrison; Proskauer Rose; Shearman & Sterling; Simpson Thacher & Bartlett; Skadden, Arps, Slate, Meagher & Flom; Sullivan & Cromwell; Weil, Gotshal & Manges; and Willkie Farr & Gallagher—saw their gross revenues increase 4.9 percent on average last year.
While profits per partner at the 14 firms jumped 8 percent on average last year, the results for individual firms varied widely, from Weil’s 7.4 percent dropoff to Davis Polk’s 22.5 percent surge. The only other firm where profits declined was Cadwalader, which saw a 1.5 percent slip. Three firms enjoyed partner profit increases of at least 18 percent, and six recorded upticks ranging from the high single digits to the low double digits. Partners at three of the firms saw their annual compensation close in on the $4 million mark.
The New York group’s strong overall showing in large part reflects the fact that the nation’s major financial institutions make up the 14 firms’ core clientele for both litigation and transactional work .
Several New York firm leaders say that following a somewhat sluggish first quarter, U.S. M&A, credit and leveraged finance activity gathered momentum as 2013 went on. “Really it’s been strong demand across the board,” says Cahill executive committee member Jonathan Schaffzin. “Everybody in every area was working hard throughout the year.”
Firms with a heavy litigation emphasis, meanwhile, found themselves tapped by financial institutions grappling with significant new matters while continuing to cope with the economic meltdown’s lingering fallout.
“There was a lot of financial crisis litigation last year,” says Davis Polk chairman and managing partner Thomas Reid.
Last year’s revenue growth among the 14 firms was nearly double the 2.5 percent national average reported by Citi Private Bank’s Law Firm group in its survey of 2013 law firm financials. The 180-firm survey included 43 of The Am Law 100′s top 50 firms, 37 other Am Law 100 firms, 46 Second Hundred firms, and 54 additional firms.
To confirm that the elite New York firms outperformed the rest of the market, The Am Law Daily asked Citi to do deeper analyses of two subsets of its survey group: the 34 New York–based firms and the 10 most profitable firms. Seven firms fell into both categories.
Citi found that, on average, the New York–based firms it surveyed saw profits per partner increase 9.5 percent last year. Following closely behind were Chicago-based firms, which saw profits rise 7.8 percent on average. No other geographic group enjoyed an increase of more than 4 percent, and removing the New York firms from the survey results dropped the average partner profit increase for all firms to just 1.5 percent. (The Am Law Daily reported separately Thursday that Chicago-based Kirkland & Ellis saw its profits per parter rise 1 percent, to $3.278 million, and its gross revenue increase 4 percent, to just over $2 billion.)
Citi’s 10 most profitable firms, meanwhile, registered average profits per partner increases of 9.9 percent last year. Firms 11 through 50, by contrast, registered profit increases of just 4.3 percent.
In terms of gross revenue, the 34 New York firms surveyed by Citi enjoyed a 4.2 percent uptick on average, compared to the average 1.9 percent increase recorded by their non–New York counterparts.
“The most profitable firms are once again pulling away—a dynamic we haven’t seen since the Great Recession,” says Dan DiPietro, chairman of Citi’s Law Firm Group. “These firms benefited greatly by the uptick in transactional work where their brands are very strong.”
What follows is a summary of financial results for each of the 14 firms in question. (Scroll to the bottom of the story for a chart that compares the average change in the New York firms’ results between 2012 and 2013 in profits per equity partner, gross revenue and attorney head count to comparable figures for Citi’s full survey group as well as the non–New York firms in that group.)
Cadwalader: In contrast to the sharp rise in profits it enjoyed in 2012, Cadwalader saw its profits per partner dip 1.5 percent in 2013, to $2.61 million. The firm’s gross revenue rose 3.2 percent, to $481.5 million, amid what was essentially a stagnant year on the head count front in both the partner and associate ranks. Chairman W. Christopher White says Cadwalader got a boost from a rebound in capital markets work. “[The commercial mortgage–backed securities] market is coming back very strong, and we continue to be … the most dominant firm in that market,” White says. His point is underscored by Commercial Mortgage Alert data showing that Cadwalader represented issuers of U.S. commercial MBS in 79 deals totaling $59.1 billion last year.
Cahill: The firm’s gross revenue rose 10.9 percent, to $386.5 million. Profits per partner increased a more modest 6.3 percent, to $3.78 million—still the highest among the elite New York firms whose 2013 financial results had been confirmed by The Am Law Daily as of Thursday. It was the second straight year that Cahill set firm records for both revenue and profitability. Schaffzin says Cahill lawyers were particularly busy handling litigation, government investigations and capital markets and finance matters. The firm’s overall head count rose 6.3 percent, to 322, and grew by 5.1 percent, to 62. In a sign of just how strong 2013 was, Cahill announced in December that its associates would get $10,000–$25,000 above the New York market scale set by Cravath, Swaine & Moore.
Cleary: The firm’s gross revenue rose 5.2 percent, to $1.19 billion. Its profits per partner increased 7.1 percent, to $2.876 million. While overall head count was up 2.8 percent, to 1,192, the firm added just one partner—an increase of 0.5 percent—to bring its total in that category to 194. Cleary’s litigators were especially busy in 2013, helping to resolve a class action against client Massey Energy Company and defending the Russian Federation against claims asserted by former OJSC Yukos Oil Company majority shareholders seeking more than $100 billion in damages related to the expropriation of oil assets. On the transactional front, the firm ranked second in terms of the number of financial industry deals handled last year, according to Thomson Reuters legal advisory league tables. M&A highlights included the firm’s representation of retailer Neiman Marcus Group Inc. on its $6 billion buyout by a consortium made up of Texas Pacific Group and Warburg Pincus and America Movil SAB de CV in its $22.7 billion acquisition of Koninklijke KPN NV.
Davis Polk: The firm’s profits per partner surged 22.5 percent in 2013, to $2.94 million, the sharpest increase among the top-tier firms. Gross revenue rose 5.4 percent, to $975 million. Davis Polk’s overall attorney population ticked up 2 percent, to 804, and its partnership ranks shrank 3.8 percent, to 153. Reid says the firm’s performance was driven by an ability to land assignments, not by any changes to how it billed clients: “The growth in revenue was entirely driven by gains in market share and [was] not rate-driven.” Reid says the firm’s litigation, enforcement and white-collar defense; M&A and capital markets; bankruptcy and restructuring; and financial institutions regulatory practices were all busy.
Debevoise: The firm’s gross revenue edged up 1.9 percent, to $688 million, while profits per equity partner climbed 11.3 percent, to $2.31 million. The increase in profits was the product of both the slight uptick in revenue and a continuing push to control costs. In the latter category, Debevoise partners enjoyed the fruits of an ongoing staff hiring freeze as a well as reduction in real estate costs. A 3.5 percent decline in the partnership ranks—from 143 to 138—also boosted the firm’s profitability. Overall attorney head count dipped 3.3 percent, to 595. Debevoise’s notable assignments included representing JPMorgan Chase in connection with multiple government investigations that ultimately led the bank to agree to a record $13 billion settlement last October; winning a unanimous jury verdict in March for Bristol-Myers Squibb in a $3.4 billion lawsuit brought by generic drug manufacturer Apotex Inc.; and securing a favorable verdict in a $3.5 billion bench trial on behalf of American Airlines in March as part of the World Trade Center Properties litigation.
Kramer Levin: The firm’s gross revenue inched up 0.9 percent, to $322 million. Profits per partner rose 4.5 percent, to $1.75 million. The overall attorney rolls shrank 2.2 percent, to 313, and the equity partnership was unchanged at 70. Managing partner Paul Pearlman, who was among the firm leaders to cite the year’s slow start, says bankruptcy and litigation stayed strong throughout 2013. “A lot of firms had a slowdown in litigation and bankruptcy,” says Pearlman, “but we did not.” Major highlights included the firm’s representation of ResCap’s official creditors committee and its role on behalf of a group of bondholders in the AMR bankruptcy. Kramer Levin litigators represented former SAC Capital Advisors portfolio manager Michael Steinberg in a criminal insider trading trial, and obtained a dismissal for client JPMorgan Chase & Co. in a major litigation over its marketing of a collateralized debt obligation. Significant transaction engagements included representing Del Monte Pacific in its $1.68 billion acquisition of Del Monte Foods’ consumer products division in October; and Perella Weinberg in the sale of rail leasing firm Flagship Rail Services LLC to Japan’s second-biggest bank, Sumitomo Mitsui Financial Group Inc., in December.
Paul Weiss: The firm’s profits per partner rose more than 8 percent in 2013, to $3.62 million, while gross revenues rose about 7 percent, to $934.5 million. In terms of hiring, Paul Weiss added two partners and 51 lawyers, to increase its partnership ranks to 131 and its total attorney population to 854. Paul Weiss chair Brad Karp says the firm has plenty of work to keep those lawyers occupied. “Our demand in 2013 and the beginning of 2014 has been off the charts,” he says. The firm’s major litigation engagements last year included several matters for Citigroup, among them a case that led to a March 2013 ruling rejecting a $4 billion arbitration claim by Abu Dhabi’s sovereign wealth fund. The firm also guided Citigroup to both a $590 million investor settlement approved last August and a $250 million settlement with the Federal Housing Finance Agency involving mortgage-backed securities in May. Paul Weiss’ dealmakers, meanwhile, helped negotiate transactions for such clients as Nexen Inc., Aurizon Mines Ltd., Swiss Reinsurance Company Ltd., Oaktree Capital Management, Ericsson, Nielsen Holdings N.V., The Carlyle Group, MacAndrews & Forbes Holdings Inc., William Morris Endeavor Entertainment and Time Warner.
Proskauer: The firm registered a 4.3 percent increase in gross revenue, to $758 million, and a 5.4 percent gain in profits per partner, to $1.95 million. Overall head count fell 4.6 percent, to 712—a decline that chairman Joseph Leccese attributed to natural attrition following a 2012 growth spurt caused by an influx of associates who had been deferred the previous fall. The number of equity partners rose nearly 4 percent, to 171; the firm’s nonequity tier was flat at 61. “The growth was nicely distributed across major areas,” says Leccese. “It was a solid year across the board.” In addition, Proskauer saw a strong increase in high-end real estate deals for the first time in several years. On the litigation front, the firm—which is known for its sports practice—was retained by Major League Baseball in connection with a suit filed in October, and later dropped, by scandal-scarred slugger Alex Rodriguez. The firm’s transactional highlights included advising Barcelona-based health care company Grifols in the $1.7 billion sale of its blood transfusion diagnostics unit to pharma giant Novartis in November.
Shearman: On the heels of several rocky years, the firm saw its gross revenue rise 9.1 percent, to $820.5 million, in 2013. At the same time, Shearman’s profits per partner soared 18.4 percent, to $1.8 million. The firm’s equity partner population ticked up by one, or. 0.6 percent, from 158 to 159, and its total number of lawyers dipped about 4 percent, to 809, largely because of decisions to trim associates in China and close two offices in Germany. Senior partner Creighton Condon says Shearman’s move to reorganize into cross-disciplinary client teams had the effect of increasing billings to 22 key clients by more than 80 percent. In a sign that firm leaders anticipate demand to continue to grow, Shearman has hired 18 lateral partners over the last 14 months in the targeted areas of litigation and investigations, project finance, leveraged finance and private equity.
Simpson: The firm recorded a 14.9 percent increase in gross revenue last year, to $1.128 billion. Profits per partner also surged, rising 18.8 percent, to $3.165 million. Simpson’s head count was flat both overall and in the partnership ranks; the firm ended the year with two fewer attorneys all told and one fewer partner. Simpson was not lacking for M&A work in 2013, with Bloomberg crediting it for advising on 157 announced deals worth a combined $302 billion—double the total value of M&A deals it handled in 2012. The firm had a hand in 41 IPOs that generated a total of $21 billion, according to Thomson Reuters. High-yield work was another area of strength, as Simpson advised on 114 transactions compared to the 107 it worked on in 2012.
Skadden: The firm’s gross revenues ticked up 1.1 percent, to $2.235 billion, and profits per partner rose 4.4 percent, to $2.73 million. Overall head count fell 4.1 percent, to 1,664, and the equity partner tier shrank 1.5 percent, to 399. Skadden’s transactional specialists kept the firm in the top dealmaking echelon by advising on 196 announced global M&A deals worth a combined $214 billion, according to Thomson Reuters. And while the stream of large Chapter 11 filings continued to dry up last year, Skadden’s 63 bankruptcy lawyers handled five new filings totaling $9.4 billion as well as several nonpublic workouts. Skadden litigators were also busy in a variety of substantial matters in 2013, including the defense of new client UniCredit SpA in connection with a multibillion-dollar claim asserted by the trustee for Bernard Madoff’s defunct investment company.
Sullivan & Cromwell: The firm saw its gross revenue grow 7.9 percent, to $1.278 billion, and its profits per partner climb 6.5 percent, to $3.674 million. S&C expanded its attorney ranks by 3.6 percent, to 804; and added two partners, for a total of 172. The firm’s growth was linked by a plethora of dealmaking. S&C lawyers, for example, represented Apollo Tyres in connection with its ultimately abandoned $2.5 billion merger agreement with Cooper Tire and Rubber Co. and related litigation; Ally Financial Inc. in the $4.1 billion sale of its Canadian auto finance business; and Bayer AG in its pending acquisition of Algeta ASA for about $2.9 billion. The firm’s litigators were also busy handling JPMorgan’s response to multiple government investigations in the run-up to the bank’s mammoth $13 billion settlement with the U.S. Department of Justice; and energy giant BP and its board of directors in shareholder and derivative litigation stemming from the Deepwater Horizon disaster.
Weil: With the heaviest commitment to restructuring and bankruptcy work among this group—it has 109 lawyers, nearly 10 percent of the firm’s head count, in its restructuring practice—Weil was the lone firm to post a substantial decline in profitability last year to go along with a dip in gross revenue. The turbulent year saw at least three dozen partners—10.8 percent of the firm’s total—and roughly 70 associates leave, and some core practices fall into the doldrums. The firm’s revenue was down 7.4 percent, to $1.14 billion, while profits per partner for those that remained fell by the same percentage, to $2.07 million. Weil’s total lawyer head count fell 3.7 percent, to 1,157 lawyers, and the firm ended 2013 with nearly 11 percent fewer partners than it had when it started the year. In early March, executive partner Barry Wolf offered a blunt take on 2013: “It was a year of repositioning.”
Willkie: The firm’s gross revenue rose 4.9 percent, to $559 million, while profits per partner jumped 8 percent, to $2.235 million. Willkie’s head count declined 2.6 percent, to 526 lawyers; the firm’s partnership ranks dipped 0.8 percent. “It was the best year we’ve had since the financial crisis and really one of the best years ever,” says firm cochairman Steven Gartner. Private equity and litigation both boomed, he says, but all offices and practice areas saw increased demand. Willkie dealmakers represented Hudson’s Bay Company in connection with its $2.9 billion cross-border acquisition of Saks Inc., and advised insurance industry clients on seven deals worth a combined $3 billion. The firm’s litigators stayed busy with such high-profile assignments as representing SAC Capital Advisors LP in the ongoing insider trading case in Manhattan federal district court and won approval of a landmark settlement for client MasterCard Incorporated in a class action involving allegations of price fixing.
This report is part of The Am Law Daily’s early coverage of 2013 financial results of The Am Law 100/200. Final rankings and full results for The Am Law 100 will be published in The American Lawyer’s May 2014 issue and on AmericanLawyer.com. The Am Law Second Hundred will be published in the June issue.