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The Am Law 100, the Early Numbers: Dechert Grows Revenue 8.6 Percent, Holds PPP SteadyDechert was able to increase its net profit in 2012 while growing partner ranks and footing the bill for significant international expansion thanks to an 8.6 percent increase in gross revenue last year, the firm said.
2013-02-04 12:00:00 AM
Dechert was able to increase its net profit in 2012 while growing partner ranks and footing the bill for significant international expansion thanks to an 8.6 percent increase in gross revenue last year, the firm said.
After four years of decline in gross revenue from 2007 through 2010, the metric has grown for the past two years. Dechert's gross revenue of $671 million in 2011 rose to $729 million in 2012, according to numbers gathered by Legal affiliate The American Lawyer.
The firm maintained the same 44 percent profit margin year over year while seeing its net profit rise 6.5 percent from $298 million to $317.5 million. Profits per equity partner (PPP) dipped less than 1 percent from $2.11 million to $2.1 million, but the firm increased the equity partner tier by 7.1 percent from 141 to 151 equity partners.
After expanding into five new markets Almaty, Kazakhstan; Dubai; Chicago; Tbilisi, Georgia; and Frankfurt, Germany and adding 29 lateral partners in 2012, the firm saw a 7.5 percent increase in attorney headcount.
The total number of lawyers rose from 747 lawyers in 2011 to 803 in 2012. The nonequity partner tier grew 7.6 percent from 105 to 113.
Dechert Chief Executive Officer Daniel O'Donnell said there was no question the rise in headcount contributed to the rise in revenue, but he said that wasn't all of it considering those attorneys joined over the course of the year and there is often a 90- to 120-day cost associated with laterals before they start generating revenue for the firm.
The jump in revenue was due in large part, O'Donnell said, to strength across all of the firm's core practice areas. The highest growth areas in 2012 were portions of the corporate practice, such as private equity transactions and corporate deals in the energy space, the firm's finance practice in the real estate securitizations and structured finance space, and international dispute resolution, O'Donnell said. Those three areas grew at faster rates than any other practice, though O'Donnell noted the white-collar defense and investigations, financial services and commercial litigation practices all continued to be strong.
O'Donnell said individual lawyer productivity was about flat year over year. Dechert's revenue per lawyer (RPL) grew about 1 percent from $900,000 to $910,000. Firms with multiple offices outside of the United States the most profitable market for legal services tend to take a hit on RPL. O'Donnell said Dechert has been slightly affected by that phenomenon as it has expanded outside of the states. But he said that was less of an issue in 2012 because the firm's offices outside of the United States had a stronger year than they ever had, particularly in London and Paris.
Beginning in 2011, Dechert stopped the practice of prepaying some of the next year's expenses. So the firm did not prepay any of 2012's expenses or take any of 2012's profits and put them toward 2013 expenses.
"We had $17 million of additional expense in 2012 versus 2011 because we didn't do prepayments into 2012, so we were able to have the [expansion] we had, we didn't have the benefit of prepayments from the prior year and, despite that, we end up with our [net] profits up almost 7 percent and a steady basically the same [PPP] as the prior year," O'Donnell said. "So we performed at a high enough level that we were able to overcome not having the prepayments and we were able to overcome the costs involved in having the sort of expansion we had."
O'Donnell again cited 2012's revenue growth as how the firm was able to incur those additional expenses and still increase its net profit. He said there were no major expense cuts during the year. Rather, the firm invested even more into things like project management.
Capturing additional revenue in this climate has been difficult to do. When asked how Dechert did it in 2012, O'Donnell said the firm gained the most additional revenue from new clients rather than getting more work from existing clients. He said about half of that new client roster came from the attorneys who were joining the firm and the other half were new clients brought in by existing Dechert attorneys.
Dechert was able to hold on to more of that revenue in terms of profits through an increased use of project management, O'Donnell said.
"We face, in at least some areas, the same price pressures everybody else is facing," O'Donnell said. "We've chosen to deal with that by investing very heavily on the project management side so that we can do things more efficiently and we can have more confidence in so-called alternative fee arrangements, fixed-fee or staged-fee arrangements."
O'Donnell said the firm has tried to stay away from the "let's-just-bid-a-discount approach" and rather work out a plan with clients to look at each matter as a project and price it accordingly.
Dechert has integrated its project management team into its finance department. The team provides weekly reports to the heads of the legal teams working on the matter to ensure everyone is on track to meet the budget. If the work isn't on track, O'Donnell said, then the staff on the matter might be adjusted. Dechert also increased rates in 2012 by just under 3 percent, he said.
Dechert has seen its attorney headcount fall from a high of 922 lawyers in 2007 to a five-year low of 747 attorneys in 2011. That turned around in 2012 with the jump to 803 lawyers. O'Donnell said the firm's real estate finance practice, which "took major body blows" to headcount in 2007 and 2008, is being built back up. He said it wouldn't be built to anywhere near where it was before, however. And the firm got into the international trade practice in 2012 through hires in London and Washington, D.C. That is a practice O'Donnell said he expects to grow this year.
Not all practices are growing. The "nature of the way clients view some product liability matters" has changed, O'Donnell said, causing that group to reduce headcount and revenue during 2010 and 2011. Others in the practice group were "redeployed" and now maybe handle 50 percent products liability work and 50 percent commercial litigation, he said.
There are more partners at Dechert these days 7.3 percent more.
"We want to provide career paths for people who grow up in the firm," O'Donnell said. "The period from 2008 through certainly 2010 was pretty tough. It was hard to do that."
O'Donnell said the firm had a bit of a "logjam" and cleared that up in 2012 through putting more people into the partnership ranks. He said the firm had that many people who were deserving of partnership and had confidence in the future that it could afford to grow those ranks.
For 2013, Dechert will focus on gaining a larger presence in some of its newer markets, such as Chicago, Los Angeles and Frankfurt. There are no plans to open in new markets at this time, though O'Donnell said everyone is looking at certain locations, such as Singapore. But he said the plan now is to grow within the firm's existing framework.