Historic rivals Clifford Chance and Allen & Overy became the first of the Magic Circle firms to publish their results for the fiscal year ended April 30, with both announcing solid topline growth within a few hours of each other Tuesday.
Clifford Chance saw its revenue climb 7 percent to £1.303 billion ($2.1 billion) last year, equating to an impressive 13 percent gain in net profit, to £431 million ($697 million). The firm’s profit margin inched up two percentage points to 33 percent, while average profit per equity partner (PPP) stood at £1.1 million ($1.8 million), an increase of 7 percent over the previous 12-month period.
A&O, meanwhile, posted a 6 percent rise in revenue, to £1.18 billion ($1.9 billion). The firm’s PPP figure matched Clifford Chance’s at £1.1 million ($1.8 million), remaining flat despite a 7 percent boost to net income. That increase was offset by equal growth of the firm’s equity partnership, which now stands at 442 partners. (A&O made 23 lateral hires last year, and promoted 23 additional lawyers to partner.) The firm’s profit margin gained two percentage points to hit 41 percent—the first time it has broken through the 40 percent barrier since the 2007–08 fiscal year.
A&O global managing partner Wim Dejonghe says the results vindicate his firm’s decision to continue with its ambitious plans for international expansion in the face of “difficult circumstances” during the downturn.
“We have a clearly defined long-term strategy for growth, which over the past three years has consistently delivered increases in [revenue], profits, partner head count, offices, and locations,” he says. “We’re confident that our ongoing investment in our global coverage will continue to pay dividends.”
Once known for its strategic reticence, which earned it the moniker “Allen & Overcautious,” A&O has in recent years transformed itself to become one of the most pioneering of the global legal elite.
The firm’s relentless globalization continued during the last fiscal year, with new outposts added in Washington, D.C., Istanbul, and Casablanca—the latter being the first permanent African base among the Magic Circle. In May, A&O announced plans to open in both Ho Chi Minh City and Hanoi by the end of the year, at which point it will have established 14 new offices in the past four years alone.
The launches, which follow the controversial relocation of 180 back-office staff to Belfast and a dramatic entry into Australia in 2010, will further expand the firm’s network to 42 offices across 29 countries—an increase of more than 40 percent since 2008. (The next most internationally expansive Magic Circle firm, Clifford Chance, has 34 offices in 24 countries.)
For A&O, the geographic diversity is paying off. Nearly half the firm’s work last year involved three or more offices, and almost a quarter involved five or more. And in addition to a strong showing by A&O’s London headquarters, Dejonghe says the firm experienced particularly high levels of growth across Australia, Indonesia, Thailand, France, Germany, and Spain. A&O’s international offices contributed more than 60 percent of total revenue in the last fiscal year. A decade ago, the firm’s 24 foreign offices accounted for less than 20 percent of total revenue.
(See here for a recent American Lawyer feature detailing this growth.)
At Clifford Chance, meanwhile, managing partner David Childs says he was pleased by the firm’s continued resurgence in the face of “very challenging market conditions.”
“Things are still very patchy—transactional work has been inconsistent and the euro zone problems are starting to have an effect worldwide,” he says. “To have achieved two years of decent growth in revenue and profitability under those conditions is very pleasing.”
With large practices in finance, private equity, capital markets, and real estate, Clifford Chance was hit harder than most firms during the recession. The firm’s PPP plummeted 37 percent to a four-year low of £733,000 ($1.36 million) in the 2008-09 fiscal year, and more than £130 million ($210 million) was wiped from its top line after revenue fell almost 10 percent in the space of two years.
Having ranked as the world’s largest law firm by revenue in 2007—narrowly ahead of Linklaters and several hundred million dollars in front of Freshfields Bruckhaus Deringer and Baker & McKenzie—Clifford Chance found itself overtaken by both Linklaters and Freshfields the following year. The firm moved back to the top of the U.K. 100 in 2009, but this year’s Global 100—which The American Lawyer is scheduled to publish in October—will show Clifford Chance ranking below Baker; DLA Piper; Skadden, Arps, Slate, Meagher & Flom; and Latham & Watkins in revenue.
Childs insists he is unconcerned by the slip, saying Clifford Chance has “never set out to be the largest” and dismissing revenue rankings as “totally irrelevant.” More important, he says, is that the firm’s revenue has now almost recovered to precrisis levels, while its PPP has stabilized above the crucial £1 million mark in each of the past two financial years. (It is also worth noting the impact of fluctuations in currency exchange rates. At $2 per pound, as it was for much of 2007 and 2008, Clifford Chance’s 2011–12 revenue would be $2.6 billion—some $335 million ahead of Baker, which topped The Am Law 100 this year.)
Childs says the firm’s recovery is the product of a two-pronged strategy aimed at deepening its U.S. presence—established through what proved to be a painful merger with Rogers & Wells in 1999—and to rebalance the business with a greater emphasis on fast-growth markets such as Asia, Africa, and South America.
As with most other global law firms, Asia is a particularly key focus. Childs says that with 340 fee-earners based in the region full-time, Clifford Chance is already the largest of the “top-tier” firms in Asia—a not-so-subtle slight to Baker & McKenzie, which has 850 lawyers in Asia and another 250 in Australia. In 2010, Childs announced to partners a bold four-year plan to double its Asia revenues by 2014.
The firm is “well on track” to meet that target, Childs adds, with Asia revenue up 28 percent in the past 12 months on the back of significant growth in Hong Kong, China, and Singapore. Asia now accounts for 14 percent of firmwide revenue, ahead of North America on 11 percent. The firm’s regional presence was also boosted by its Australia launch in February 2011 through mergers with local boutiques Chang Pistilli & Simmons in Sydney and Cochrane Lishman Carson Luscombe in Perth. (See here for a previous Continental Breakfast column analyzing mergers between international and Australian firms.)
Clifford Chance has also been investing heavily in its corporate practice in an attempt to “make sure we’re as well regarded for corporate as we are for finance,” Childs says. The department last year grew by 18 partners globally through a combination of lateral hires and internal promotions, and recently topped Mergermarket’s legal adviser rankings for global M&A in the first half of 2012.
Elsewhere, Clifford Chance’s U.K. and U.S. revenues grew 3 percent each. Its European offices were up 5 percent on average—led by increased demand in France, Germany, Spain, and Russia. And having launched in Qatar last January, the firm saw its Middle East revenue rise by 6 percent.
All eyes will now be on Linklaters and Freshfields, which are due to release their results later this week. Linklaters came within just £19 million ($30 million) of Clifford Chance’s revenue in 2010–11. A 9 percent increase will be enough for it to overtake its rival this year.
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Chris Johnson is The American Lawyer’s chief European correspondent. Reach him at firstname.lastname@example.org. Follow him on Twitter at @chris_t_johnson.