Could Latham & Watkins supplant Skadden, Arps, Slate, Meagher & Flom as the nation's top-grossing law firm?
The answer may be yes, if Skadden posts anything short of a solid financial year.
This week Latham posted 2007 revenues of just over $2 billion -- up a whopping 23 percent from last year. It also claimed $2.2 million profits per partner, a similarly massive year-over-year increase.
Skadden has topped American Lawyer magazine's Am Law 100 list of top-grossing firms for many years, with Latham recently moving into the No. 2 position. To stay on top, Skadden, which has not yet reported revenues, will need to show an increase of at least 8 percent from 2006 -- very likely, given its recent history, but not guaranteed.
Latham was one of several Los Angeles-based firms to post strong financial numbers in 2007, though some -- feeling the first effects of the dampening economy -- saw slower growth in the key category of revenue per lawyer. Still, overall revenues were up pretty much across the board.
"Generally speaking, 2007 was a year of very high productivity at most of the top L.A. firms," said Richard Kolodny, president of the L.A.-based recruiting firm The Portfolio Group. "Until the third quarter, the transactional side of firms was extremely busy, with their cylinders firing at a more rapid clip than they have in many years."
Gibson, Dunn & Crutcher, the region's third-largest law firm, was more typical. It grew revenue 12 percent to $908 million, but revenue per lawyer was up only 3 percent while profits per partner were up a solid 8.5 percent to $1.9 million.
Gibson's year "probably would have been even stronger but for the subprime [mortgage] meltdown, which clearly had an effect on transactional work," said Kenneth Doran, Gibson's managing partner.
O'Melveny & Myers, L.A.'s No. 2 firm, also saw 3 percent growth in revenue per lawyer, while PPP were flat at $1.64 million for the second year in a row. O'Melveny leaders declined to be interviewed to discuss their results.
Latham -- which has some 2,000 lawyers spread around the world, including some 670 in California -- claimed revenues per lawyer of $1.04 million, a 14 percent increase.
Scott Haber, the firm's San Francisco office managing partner, said the firm was able to insulate itself against an emerging downturn, in part, through its broad geographic reach.
"We have spread our practice in a diverse array of practice areas and all across the world, and I think that diversity of practice has served us well," Haber said.
Latham wouldn't comment on whether it raised billing rates. But consultant Peter Zeughauser said it's likely the firm's premium M&A work, combined with its strong international practices, played a role in its hefty returns.
To Latham Orange County partner Charles Ruck, what stood out was consistent worldwide demand. "The robust pace in all of our European and Asian offices hit last year at the same time as unprecedented demand in our normal centers such as New York, London and California," Ruck said. "All of those things haven't happened at the same time in the past."
Looking at the market overall, Michael Schulman of the L.A. office of recruiter Major, Lindsey & Africa, remarked on the continued upward trajectory -- "with a few notable exceptions" -- of PPP and RPL. "As the business of law has become more sophisticated, law firms are more focused on the bottom line," he said.
That's not entirely a positive development, he added. "PPP has been seen as a disproportionately important indicator of a firm's health."
THE NEXT WAVE
Smaller leaders in the Los Angeles legal market also had pretty good years, with some scoring double-digit growth and others managing single-digit gains.
Sheppard, Mullin, Richter & Hampton's RPL climbed 12 percent last year to $800,000, and its PPP soared 19 percent to $1.2 million -- as it beefed up its ranks of nonequity partners from 98 to 104.
"It was a strong year and it was very consistent -- we avoided peaks and valleys," said firm chairman Guy Halgren. "Bankruptcy picked up remarkably in the past quarter -- that had been slow the last few years."
In 2007 the firm brought in 15 laterals, part of its strong and steady growth strategy, and made its first international foray, into Shanghai.
Irell & Manella's headcount dropped by about 10 to 189, but the firm posted double-digit gains in revenue and RPL, to $227 million and $1.2 million, respectively. Profits per partner swelled to $1.9 million.
"It was basically working hard, and slightly higher billing rates," said Morgan Chu, Irell's iconic IP lawyer, adding that the rate increase was no different than any other year.
Munger, Tolles & Olson kept headcount stable but was able to see a double-digit increase in revenues and RPL, to $227 million and $1.2 million, a sign the low-leveraged firm kept utilization high. Its PPP also climbed to $1.3 million.
Luce, Forward, Hamilton & Scripps grew revenue 6 percent to $110.5 million, with RPL nearly flat at $610,000. It boosted its nonequity tier from 25 to 30, and brought PPP up nearly 7 percent, to $605,000.
Managing partner Robert Bell said the flat RPL was a result of new attorney additions during the year -- such as a big land use group in San Francisco, and the start-up time involved. "We brought in a lot of new attorneys and groups and it takes about three months before you get collections -- that artificially brings down RPL," he said.
Manatt, Phelps & Phillips saw revenues climb 14 percent to $242 million, with modest RPL growth of 5 percent. The firm also grew its nonequity tier by 12 partners. That helped bring up PPP 14 percent to $1.25 million.
"It's just a function of folks we evaluated during the course of the year who qualified to be nonequity partners," said firm leader William Quicksilver. "Associates can become nonequity partners or we can hire in laterally to be nonequity."
As reported in a previous story, Quinn Emanuel Urquhart Oliver & Hedges reported a stunning 29 percent increase in revenues to $384.5 million and an equally jaw-dropping $3.01 million in PPP. RPL growth was much more modest, a 7 percent increase to $1.09 million.
"Our margins are pretty good," said managing partner John Quinn. "They always have been very good, and since we get a fair amount of contingency fee income, the amount that we generate per hour tends be a lot better than hourly cases."
Quinn said that about a quarter of the firm's revenue comes from contingency fees. He said "several" came in 2007, including one on a $60 million settlement for restaurant owners against Rewards Network, in which that company was accused of gouging the owners on loans. Plaintiff's counsel got around $10 million for the work, according to court papers.
THE BIG NUMBERS
Latham worked on numerous billion-dollar deals in California alone in 2007, including representing Oracle Corp. in its acquisition of BEA Systems Inc., for $8.5 billion; Advanced Micro Devices Inc. in its acquisition of ATI Technologies for $5.4 billion; and Kyphon in its acquisition by Medtronic for $3.9 billion.
Worldwide in 2007, Latham advised on $182.6 billion in debt offerings and $72.7 billion in public equity offerings, including $32 billion of initial public offerings.
Gibson, Dunn's growth was boosted, in part, by litigation such as representing Intel in its antitrust suit with AMD; billions worth in deals in Europe for Marriott Hotels; and the firm's role as counsel to the board of directors of Altria Group in its spin-off of Kraft Foods for $60 billion.
In a year in which Gibson opened in Dubai, it represented Borse Dubai in a $4 billion acquisition of OMX.
Sheppard, Mullin had "one of the surprising years in which litigation and corporate were both strong," Halgren said. Its Del Mar Heights office, the firm's fastest growing outpost, added strong IP and corporate work, he said.
Irell's Chu said the firm was busy in IP, securities and general business litigation as well as on the corporate side. The firm won big cases for Tivo, Texas Instruments and ASML. Chu said that the firm sometimes works for contingency fees, but that there were no unusually large ones in 2007.
Manatt saw strong performance in litigation, particularly intellectual property and complex business, as well as robust M&A work throughout the year, said managing partner Quicksilver.
After logging a 23 percent increase in 2006 gross revenues, Loeb & Loeb reported a 21 percent increase in 2007, for a total of more than $218 million. Firm leaders attribute some of this past year's success to the addition of lateral partners with books of business.
Much of the growth was driven by litigation — the firms' largest revenue generator -- and corporate work, which according to New York-based Co-Chairman Michael Beck was up "at least 25 percent" over the previous year.
Loeb has also benefited from the meltdown in the subprime mortgage market, primarily from client Merrill Lynch, which the firm is representing in about 12 subprime bankruptcies. Co-Chairman John Frankenheimer said that work is primarily in California.
At another notable L.A. firm, Paul, Hastings, Janofsky & Walker, the fiscal year ended Jan. 31 and firm leaders said financial results aren't yet available. But Chairman Seth Zachary predicted strong results.
While 2007 proved fruitful for most L.A. firms, recruiter Kolodny said he expects a more cautious road ahead. Most firms here have learned a lesson from the Internet bubble, and will be keeping a lid on excessive hiring and overspending.
"In the last five months of the year, savvy executive committees at many of these firms started to see the handwriting on the wall in terms of the current economic environment and are now proceeding in a more cautious manner to see what 2008 will bring," he said.
Reporters Petra Pasternak and Zusha Elinson contributed to this report.
