Herbert Smith Freehills on Wednesday announced its inaugural set of combined financial results following the merger between U.K.–based Herbert Smith and Australian firm Freehills on October 1, 2012.
The firm—which, unlike the majority of recent Anglo-Australian combinations, is a financially integrated entity—achieved gross revenue of £471.2 million ($717 million) in its first seven months of operations, with net income standing at £137.2 million ($209 million).
“We’re still very excited by the merger and pleased by the way it’s going,” says joint CEO David Willis. “The integration of a merger is a massive exercise, but the client reaction has been very positive, and we’re now beginning to see that manifest itself in a flow of [mandates].”
The results provide little insight into Herbert Smith Freehill’s true performance to date, however, because the firm has taken the unusual step of making public data for only part of the most recent fiscal year—the seven months between the merger's effective date of October 1, 2012, and its fiscal year-end on April 30, 2013. This precludes direct year-over-year comparisons with either the legacy firms or rival practices.
HSF declined The Am Law Daily's requests for full-year financial data for the separate legacy firms, despite the fact that the fiscal years of both Herbert Smith and Freehills have already ended (on April 30 for the former; June 30 for the latter), and the requirement that it must still file publicly available accounts with Companies House under its obligations as a U.K. LLP. A Companies House spokesman confirmed that the agency will expect HSF’s accounts—which must be filed before January 31, 2014—to cover the last full fiscal year that began on May 1, 2012. It is unclear what plans, if any, HSF has to account for its financial performance for the period from May 1, 2012, through September 30, 2012.
Projecting HSF's seven-month results for a 12-month period yields an annual gross revenue estimate of of £807.8 million ($1.3 billion) and a net income estimate of £235.2 million ($358 million). Those figures would represent significant year-over-year declines for the two legacy firms, which, according to The American Lawyer's Global 100 survey, would have collectively generated revenues of $1.35 billion and net income of $419.5 million in 2011. On that basis, the combined firm’s annualized revenue is down 9 percent year-over-year, while its net income has dropped 14.6 percent. (Such a comparison is slightly misleading, however, as it assumes that HSF's performance in its first seven months of operations would be mirrored exactly over the additional five months, while the aggregate figures also do not account for the the fact that Herbert Smith and Freehills had different fiscal year ends.)
Willis admits that markets remain “challenging," notes that the firm suffered a “very slow period” in China in the run-up to the country’s presidential elections in March, and adds that it also saw a slight reduction in activity levels in Australia. The firm’s U.K.–based transactional practices have enjoyed a “marked increase” in workloads this calendar year, however, with U.K. managing partner Ian Cox saying he is "cautiously optimistic” about prospects for the rest of 2013. Its fledgling New York office, launched in September with the hire of a six-partner commercial litigation team from Chadbourne & Parke that included practice head Thomas Riley, has also performed strongly, Willis adds.
HSF’s results are the latest in what has proved a tough year for the United Kingdom’s top law firms.
The malaise that continues to plague transactional markets across Western Europe—where M&A activity has slumped to its lowest point since 2009—left most of the country’s elite Magic Circle firms struggling to simply hold revenue steady during the most recent fiscal year.
Allen & Overy and Linklaters, for example, both saw their gross revenue inch up by less than 1 percent in the 12-month period that ended April 30, 2013, while Clifford Chance suffered a 2 percent dip to its top line. Magic Circle rival Freshfields Bruckhaus Deringer, on the other hand, bucked the trend by recording impressive gains of over 7 percent in both revenue and PPP.
Though Freshfields declined to comment on its results or to provide details about how it achieved them, global managing partner Ted Burke said in a statement that the performance serves as proof that the the firm's current strategy has put it on a solid financial footing.
“Over the past six years we have worked hard at making our offering across our practices, sectors, and geographies as nimble and flexible as possible to ensure we can adapt to changing client demand,” he said. “We feel that we are now very well-placed to provide the transactional, regulatory, contentious, and risk management help our clients need, wherever in the world they want it. These strong results demonstrate how this approach is working.”