Once again outperforming their Am Law 100 peers, most of New York’s elite law firms enjoyed solid revenue and profit gains, even if growth was at least partially driven by billing rate hikes amid generally flat demand.
To assess the New York law firms that dominate market share over finance, deal-making and litigation, The American Lawyer reviewed last year’s financial performance for the same group of 17 homegrown New York firms it has surveyed in past years.
The results: Fewer firms achieved double-digit profit growth than in 2016, but the landscape last year was still rosy. It was the second straight year of solid profit gains at many New York firms. And New York firms again outpaced the revenue and profit growth of the industry, according to Citi Private Bank Law Firm Group figures for 2017.
All 17 firms, except Cravath, Swaine & Moore; Cadwalader, Wickersham & Taft; and Cleary Gottlieb Steen & Hamilton, posted increases in revenue.
More than half of the 17 firms saw revenue growth of 5 percent or more, and three saw their revenue soar by more than 10 percent: Debevoise & Plimpton, with a gain of 11.8 percent to $822 million; Fried, Frank, Harris, Shriver & Jacobson, rising 14 percent to $634.9 million; and Willkie Farr & Gallagher, leaping up 11.7 percent to $772 million.
Similarly, all 17 firms saw their profits per equity partner increase, except three: Cleary, Cravath and Davis Polk & Wardwell.
Partner profits for many firms grew faster than revenue: A dozen of the 17 New York firms in the sample saw profits per equity partner increase more than 5 percent. Profits per partner at six firms rose more than 10 percent: Debevoise grew PPP by 17.4 percent to $2.83 million; Fried Frank, by 16.9 percent to $2.94 million; Milbank, Tweed, Hadley & McCloy, by 10.9 percent to $3.46 million; Weil, Gotshal & Manges, by 17.8 percent to $3.64 million; Willkie, up 13 percent to $2.97 million; and Cadwalader, up 18.6 percent to $2.51 million.
Other firms showing healthy profit increases included Kramer Levin, up 8.4 percent to $2.15 million; Schulte Roth & Zabel, up 7 percent to $2.56 million; Shearman & Sterling, up 7 percent to $2.32 million; Skadden, Arps, Slate, Meagher & Flom, by 6.5 percent to $3.47 million; Sullivan & Cromwell, by 5.5 percent to $4.27 million; and Simpson Thacher & Bartlett, up 5.1 percent to $3.68 million.
Among Citi’s own sample of 32 New York-headquartered firms, average increases in revenue and profits per equity partner, 4.7 percent and 5.1 percent, respectively, outperformed the industry, according to Gretta Rusanow, head of advisory services at the bank’s law firm group,
The robust performances, however, don’t mean clients have been knocking down doors for law firm legal services. In fact, total demand for New York firms contracted 0.5 percent, compared with the industry, which saw a 0.7 percent increase, says Rusanow, who analyzed the number of hours logged from Citi’s sample of 32 New York-headquartered firms.
Rusanow also points to a wide spread in performance behind the figures, with close to half the firms reporting a demand decline.
Revenue increases were mostly driven by billable rate increases, Rusanow says, noting that New York firms in Citi’s sample boosted their rates an average 4.5 percent—higher than the 3.7 percent rate rise for the industry overall. The 4.5 percent figure is also higher than the rate increases that New York firms pushed through in 2016, Rusanow says.
New York firms’ realization rate improved 1.4 percent from 2016, Rusanow says, suggesting some easing of pricing pressure in the market.
Analysts from both Citi and Wells Fargo Private Bank’s Legal Specialty Group pointed to transactional work, including private equity and mergers and acquisitions, driving firms’ growth.
“For many of these firms that are doing the big transactional work … there’s a lot of elasticity to the rates,” says Joe Mendola of Wells Fargo. Litigation “has continued to be somewhat of a struggle,” he says.