Top firms in New York outperformed their Am Law 100 counterparts across the country last year, with several reporting double-digit growth in profits or revenue. But achieving that level of performance required making some significant changes, from big rate increases to collecting client payments faster and cutting back equity partner ranks.
To take stock of the firms that dominate the city’s finance, deal-making and litigation scenes, ALM assessed the 2016 financial performance of the same sample group of 17 homegrown New York firms it has surveyed in past years. Last year, six of them had more than 12 percent growth in profits per partner, while a majority of the others saw moderate or strong growth in revenue, profits or both, according to reporting for The American Lawyer’s upcoming Am Law 100 rankings.
Profits per equity partner, for example, shot up by 18 percent at Cravath, Swaine & Moore; 13.5 percent at Davis Polk & Wardwell; 14 percent at Fried, Frank, Harris, Shriver & Jacobson; 12.8 percent at Milbank, Tweed, Hadley & McCloy; 18 percent at Shearman & Sterling; and 22.6 percent at Weil, Gotshal & Manges.
“It was our best year ever,” said Davis Polk managing partner Thomas Reid, adding that the firm saw “above-normal strength in restructuring, leveraged finance and M&A.”
Also reporting strong partner profits were Paul, Weiss, Rifkind, Wharton & Garrison, up 7.2 percent; Cahill Gordon & Reindel, up 8.2 percent; Cleary Gottlieb Steen & Hamilton, up 7.8 percent; and Kramer Levin Naftalis & Frankel, up 8.5 percent.
On the revenue front, 11 of the 17 sampled firms saw gross revenue surge by about 5 percent or more. Revenue was up from 2015 at all but two of the firms.
At Cadwalader, Wickersham & Taft, revenue declined 2.5 percent but profits per partner increased 2.7 percent, after dropping consecutively for three years. And at Debevoise & Plimpton, revenue dipped 2.9 percent in 2016 and PPP was down 8.2 percent, following three years of steady growth.
In the Money Again
Last year marked a turnaround from 2015, when most of these 17 firms had minor if any growth in profits and revenue. But whatever was tamping down growth that year—one explanation was a slowdown in financial crisis-related litigation and a capital markets drought—the good times appear to be rolling once again.
Results from Citi Private Bank Law Firm Group, which surveys a broad index of law firms each year, also found that New York-headquartered firms outperformed the broader legal industry in 2016 and were increasingly pulling ahead of the pack.
“In 2016, we saw very strong performance by some New York firms,” said Gretta Rusanow, head of advisory services at Citi Private Bank’s Law Firm Group, noting “significant overlap” between ALM’s sample and the 15 most profitable law firms in Citi’s index.
In Citi’s sample of 31 New York-headquartered firms, part of the bank’s survey of 193 firms, 77 percent saw profits per equity partner growth—a higher percentage than the rest of the industry, Rusanow said.
Results were even stronger for the Am Law 50 firms in the New York-based group: 91 percent saw profits per equity partner growth, with a notable number reporting double-digit growth, she said.
New York firms had the strongest boost in revenue—4.8 percent—than firms headquartered in any other single U.S. region, she said. Revenue growth in Citi’s New York sample also beat out the overall industry’s 3.8 percent revenue growth.
Like their peers elsewhere, elite New York firms coped with market volatility and political uncertainly from Brexit and the U.S. presidential election last year. They also faced a slowdown in M&A: Global merger and acquisition activity reached $3.6 trillion in 2016, representing a 10.5 percent decrease, according to Bloomberg.
Some top-line growth for top New York firms was driven by increased regulatory and investigations, private equity, mid-market M&A, bankruptcy and restructuring work, Rusanow said. But there was no uptick in demand. In fact, lawyer demand, as measured by total logged billable hours, was up for New York-based firms by an average of just 0.1 percent, compared with 0.3 percent growth for the industry, Rusanow said.
Instead, revenue growth was driven by stronger rate increases—up to 3.7 percent among New York firms compared with 3.3 in the industry—and less discounting pressure, Rusanow said. “They were able to retain higher rate increases,” she said.
A report released last month by CEB Inc. and Wolters Kluwer NV’s ELM Solutions also reported big rate increases for large New York-based firms, based on their most recent survey, finding that firms raised rates by 7.9 percent on average from 2014 to 2015.
Meanwhile, New York firms in 2016 substantially accelerated their collection cycles, Citi found. Firms based in the city shortened their collection cycle by 4.3 percent compared with 0.9 percent for the broader industry.
Control of the equity partner ranks also helped lead to profit growth. Some firms that saw increasing profits per equity partner, including Cadwalader, Cravath and Shearman, also saw more than 3 percent decreases in their equity partner numbers, according to ALM reporting.
Other firms kept equity partner numbers flat. For instance, Davis Polk elected 11 attorneys to partner in 2016, yet its equity partner ranks stayed about flat at 154.
Citi’s results confirmed that firms are tightly controlling this metric: New York-based firms saw their equity partner head count actually contract, by 0.4 percent. Meanwhile, the broader industry saw 0.2 percent growth in equity partner ranks, Rusanow said.
Finalized financial reports for these firms and the rest of The Am Law 100 will be published in the May issue of The American Lawyer.
• Cadwalader, Wickersham & Taft: Gross revenue fell 2.5 percent, to $452 million, while partner profits rose 2.7 percent, to $2.115 million. (See our previous report.)
• Cahill Gordon & Reindel: Gross revenue climbed 4.9 percent, to $382.5 million, while PPP grew by 8.2 percent to $3.635 million. (See previous report.)
• Cleary Gottlieb Steen & Hamilton: The firm achieved a 4.9 percent increase in gross revenue, reaching $1.272 billion, while PPP increased by 7.8 percent to $3.32 million. That marked a recovery after the firm saw gross revenue decline 3 percent in 2015.
Cleary started 2017 with a new managing partner, Michael Gerstenzang, who was elected in September.
• Cravath, Swaine & Moore: In a firm where lateral partner exits are rare, Cravath saw two in 2016, including Scott Barshay, a top rainmaker who jumped to Paul Weiss. The firm’s partnership also had five retirements and two lawyers elected to partner, leading to 87 equity partners, about three fewer than 2015.
Despite Barshay’s exit in April, profits per partner at the single-tier firm shot up by 18 percent to $4.197 million, and gross revenue rose 10.7 percent to $737.8 million, according to reporting by The American Lawyer. Net income rose 14 percent to $365 million, while revenue per lawyer rose 5.29 percent to $1.484 million.
While Cravath’s profits surge was driven by deals starting in 2015 and 2016, its work on large deals continues. Cravath is currently representing Time Warner Inc. in its pending $108.7 billion sale to AT&T Inc. and British American Tobacco in its pending $97 billion merger with Reynolds American Inc. by acquiring the remaining 57.8 percent in the company.
In litigation, Cravath represented American Express in winning an appeal last year of a lawsuit brought by the Justice Department and 17 state attorneys general alleging that nondiscrimination provisions in card agreements restrained competition. A U.S. Court of Appeals for the Second Circuit panel reversed an Eastern District of New York judge and directed judgment in favor of AmEx in September.
• Davis Polk & Wardwell: Revenue rose about 7.3 percent, reaching $1.18 billion, while profits per partner at the 907-lawyer firm grew about 13.5 percent to $3.75 million, according to preliminary reporting by The American Lawyer. (See previous report.)
• Debevoise & Plimpton: Revenue declined by 2.9 percent to $735 million in 2016, while PPP took a deeper dive, dropping 8.2 percent to $2.41 million.
The firm’s presiding partner, Michael Blair, said the declines were due to a moderate pullback in the U.S. transactional market in 2016, which followed record-high activity in 2015. But Debevoise saw strong performances in 2016 from its white-collar defense, banking and health care practices, Blair said. (See previous report.)
• Fried, Frank, Harris, Shriver & Jacobson: The firm grew revenue by 10.3 percent in 2016, to $556.5 million. PPP increased by 14.1 percent, to $2.515 million. The firm added 28 lawyers in 2016, most of which were nonpartners.
Global chair David Greenwald said it was Fried Frank’s best year ever, surpassing its pre-recession revenue peak. (See previous report.)
• Kramer Levin Naftalis & Frankel: Gross revenue grew 6 percent to $352 million and profits per partner jumped 8.5 percent to $1.985 million, amid an 11.6 percent rise in net income. Total lawyer head count, at 320 lawyers, and the numbers of equity partners, at 70, grew modestly,
The firm had a blockbuster past year in litigation matters and investigation work, including representing New York City Mayor Bill de Blasio, in an investigation into campaign fundraising; Las Vegas professional gambler William “Billy” Walters, facing insider-trading charges; and Elizabeth Elting, the co-owner of language services company TransPerfect, in a large business divorce in Delaware.
• Milbank, Tweed, Hadley & McCloy: The Wall Street firm saw its gross revenue leap 11 percent to $855.5 million last year. Profits per partner grew by 12.8 percent to $3.12 million, while revenue per lawyer at the 664-lawyer firm grew by 8.4 percent to $1.29 million. (See previous report.)
• Paul, Weiss, Rifkind, Wharton & Garrison: Gross revenue rose 10.1 percent to $1.222 billion, making 2016 a record year for the 959-lawyer firm. Profits per partner rose 7 percent, to $4.38 million. The number of partners stayed flat at 139, with overall head count at the firm reaching 959, a slight increase over 2015. (See previous report.)
• Schulte Roth & Zabel: Revenue grew by just 1 percent, to $409.5 million, while PPP grew by 2.6 percent to 2.39 million. The firm’s equity partner tier shrank by 2.4 percent in 2016, to 83.
In March 2016, the firm brought on a 10-lawyer team from Bracewell, led by Julian Rainero, who had led the broker-dealer and market regulation practice at his former firm.
One of Schulte Roth’s founding partners, Daniel Shapiro, died in April 2016. At 77, he was still an active partner in the firm’s investment management and tax groups.
• Shearman & Sterling: The firm’s equity partner profits spiked by 18 percent last year to $2.165 million, as the firm posted revenue growth across several practices while also de-equitizing some partners. Its gross revenue rose 6 percent to $912.5 million. (See previous report.)
• Simpson Thacher & Bartlett: The firm saw a 1.8 percent increase in gross revenue, reaching $1.3 billion, while PPP increased by 1 percent, to $3.5 million. Its lawyer head count and equity partner head count were essentially flat from 2015 to 2016.
Simpson Thacher grabbed headlines over the summer when it took the lead in advising Microsoft on its $26.2 billion acquisition of LinkedIn, the professional social networking site.
• Skadden, Arps, Slate, Meagher & Flom: Revenue grew by 3.5 percent, to $2.5 billion, while PPP increased to $3.26 million, a 4.3 percent bump.
Many of the big deals Skadden advised involved companies in Asia, such as its work with Chinese ride-hailing app developer Didi Chuxing on its acquisition of Uber’s China business.
The firm dodged a bullet in October, when a New York judge dismissed a $35 million legal malpractice suit brought by the creditors of a bankrupt aviation company. The judge said the suit was time-barred.
• Sullivan & Cromwell: Growth in profits outpaced gross revenue, which increased by 3.5 percent to $1.36 billion. PPP increased by 4.7 percent to $4.05 million.
The firm has received nationwide attention in recent months, as several of its top lawyers joined President Donald Trump’s administration, including Jay Clayton, who was nominated to be chairman of the U.S. Securities and Exchange Commission.
• Weil, Gotshal & Manges: Revenue jumped almost 9 percent in 2016 to $1.27 billion, and profits per partner rose more than 22 percent to about $3.1 million. Attorney head count increased nearly 2 percent to 1,083, while the number of equity partners at the firm dropped from 164 to 161. (See The Am Law Daily’s early Am Law 100 report.)
• Willkie Farr & Gallagher: The firm said it had a record year in 2016, achieving all-time highs in revenue, net income and profits per partner. Revenue increased by 5 percent to $691 million, while profits per partner inched up nearly 1 percent to about $2.63 million. Total head count grew by 6 percent to 605.
“The firm’s investments in our platform, and in particular the expansion of London and Houston, contributed meaningfully to our top and bottom line,” said chairman Thomas Cerabino in a statement, noting that the firm ended the year with inventory up more than 20 percent.
Among its notable matters, the firm represented longtime client Level 3 Communications in its $34 billion acquisition by CenturyLink; Allied World in a $4.9 billion acquisition by Fairfax Financial; and handled several transactions for private equity clients such as Insight Venture Partners, Warburg Pincus, Aquiline Capital Partners, Friedman Fleischer & Lowe and PAI Partners.
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