It was a great year to be a partner at an elite New York firm.
Once again, the top New York-centered firms financially outperformed the rest of the field in 2014, according to Am Law 100 data.
The American Lawyer’s reporting showed revenue growing an average of 4.5 percent at 17 firms, including Cadwalader, Wickersham & Taft; Cahill Gordon & Reindel; Cleary Gottlieb Steen & Hamilton; Cravath, Swaine & Moore; Davis Polk & Wardwell; Debevoise & Plimpton; Fried, Frank, Harris, Shriver & Jacobson; Kramer Levin Naftalis & Frankel; Milbank,Tweed, Hadley & McCloy; Paul,Weiss, Rifkind, Wharton & Garrison; Schulte Roth & Zabel; Shearman & Sterling; Simpson Thacher & Bartlett; Skadden, Arps, Slate, Meagher & Flom; Sullivan & Cromwell; Weil, Gotshal & Manges; and Willkie Farr & Gallagher.
Profits per partner, meanwhile, rose 5.6 percent. That increase would have been 7 percent—closer to last year’s 8 percent average PPP increase—but for a straggler in the group, Cadwalader, which saw its PPP plunge 15.3 percent last year after a sudden change in leadership. Productivity in the New York firms increased more slowly; revenue per lawyer climbed 2.7 percent to $1.2 million, according to The American Lawyer’s reporting. (National data for The American Lawyer is not yet available.)
Citi Private Bank and Wells Fargo Wealth Management Legal Specialty Group describe similar findings. According to Wells Fargo, the 12 most profitable New York firms on its list saw revenue jump 8.2 percent last year, nearly double the national group’s 4.8 percent growth. (Wells Fargo’s national survey includes information on 130 firms, including two-thirds of The Am Law 100.) Profits per equity partner jumped 7.7 percent on average, compared with a national average of 5.59 percent.
Citi’s analysis of results at the top 15 most profitable firms—a group that includes mostly New York-based firms—found that revenue increased on average by 6.6 percent last year, and PPP by 8.3 percent. That’s a third faster than the national average revenue increase of 4.5 percent and the national 5.7 percent increase in profits per equity partner.
No longer is an average PPP of $3 million rare in the New York group. The mean, in fact, now hovers around $2.8 million, and partners at all but three firms (Shearman, Kramer Levin and Fried Frank) earned on average more than $2 million last year. The average partner at Paul Weiss—the highest earner in our sample—took home $3.85 million.
The strong results were broadly spread across New York firms. Just two of the 17 firms—Cadwalader and Cahill—saw lower profitability last year. Most saw single-digit increases, but six firms—Cleary Gottlieb, Davis Polk, Fried Frank, Simpson Thacher, Weil and Willkie—posted double-digit increases.
“The flood gates opened in 2014,” says Dan DiPietro, chairman of Citi Private Bank’s law firm group. “The firms with the strongest brands were the beneficiaries” of a surge in transactional work that really began mid-2013, he says. And New York continues to have the highest concentration of top legal brands, he notes.
New York elite firms were “situated well for the activity that took place last year,” agrees Jeff Grossman, senior banking director of Wells Fargo’s legal specialty group.
The uptick in M&A and capital markets work was felt across the New York elite firms. Global M&A by value, for example, hit a post-crisis high in the third quarter and continued to climb toward the third-highest annual total since 2001, according to Mergermarket.
Rather than being mostly rate-driven increases, as in 2013, “what we saw this year is two balanced drivers—more work and rate increases,” says Citi Private Bank senior client adviser Gretta Rusanow.
Citi and Wells Fargo data indicates that demand rose more at elite firms than nationally last year. The top New York group in Wells Fargo’s survey reported that lawyer hours increased by 4.6 percent, nearly triple the national average increase of 1.71 percent. Citi said demand at the 15 most profitable grew 4.1 percent, compared with a national average of 1.9 percent last year.
The good news trickled down last year to associates at these firms, who in December saw their bonuses leap by between 33 and 100 percent, depending on seniority. For senior associates, bonuses now nearly meet the heights last seen in 2007; but paying them out in turn increased expenses at most of the firms substantially, dampening PPP by a percentage point or two on average.
There were some meaningful distinctions in growth even within the New York elite. The most profitable eight of the New York group managed to lift both revenue per lawyer and profits per equity partner in 2014, even while adding a healthy 4 percent more lawyers and a few more equity partners. The less profitable gained in both RPL and PPP too, but they did so while keeping head count flat and reducing equity partners slightly (-1.3 percent).
Looking forward, analysts expect that it may be harder to sustain the pace of 2014, even though the pipeline going into 2015 was fuller than it was a year ago. “The stars aligned perfectly last year,” DiPietro notes. “I don’t think profitability growth will be as high this year.”
What follows is a summary of financial results for each of the 17 New York firms for which data had been collected by The American Lawyer as of Thursday.
Cadwalader may have the highest leverage in the New York pack—more than seven lawyers for every equity partner—but the firm’s financial performance was the worst in the group. On the heels of the abrupt departure of Chairman-elect James Woolery, the firm reported a 15.3 percent PPP decline in 2014, slipping to $2.21 million. Revenue remained flat at $481.5 million, while revenue per lawyer decreased by 3.2 percent, to $1.07 million, thanks to softer demand for the firm’s lawyers. At the same time, attorney head count increased by 3.4 percent, to 452.
Cahill’s financial performance was a tad weaker last year, though it remains among the most profitable firms in the country. According to reporting by The American Lawyer, revenue edged down by 1.7 percent, to $380 million; partners took home 4.4 percent less on average at $3.62 million, down from $3.78 million the year before. The firm’s equity partner ranks and lawyer numbers remained basically flat.
Cleary Gottlieb enjoyed a record year in 2014, despite some high-profile setbacks on the litigation front. Revenue rose 5 percent to $1.25 billion, while PPP at the all-equity firm jumped 12.3 percent to break the $3 million mark, according to reporting by The American Lawyer. The storied Wall Street firm continued its high-profile role doing debt restructuring work for sovereigns such as Argentina, Greece and Puerto Rico, as well as its lead counsel role in the ongoing Nortel Networks bankruptcy, one that has brought a whopping $291 million into Cleary Gottlieb’s coffers since 2009. The firm advised buyout shop TPG on its investment in talent agency CAA, while also counseling Japanese brewery Suntory on its $16 billion buy of Beam and medical- device maker Medtronic on its $42.5 billion acquisition of Dublin-based Covidien, which closed in January after skirting the controversy over corporate inversions.
Cravath had a very good year in 2014. Revenue and profitability both increased, with the former surging 5.5 percent, to $648 million, and PPP rising 2.3 percent, to $3.37 million. The small partnership—92 equity partners—was the fastest-growing of the New York elite, increasing by 5.7 percent, mostly as a result of new promotions. Overall attorney numbers increased as well, rising 2.8 percent, to 442 lawyers. Cravath’s lawyers were busy handling a plethora of M&A work, including Mylan’s $5.3 billion inversion into Abbott Laboratories in July and InterMune in its $8.3 billion acquisition by Roche in August.
Davis Polk’s revenue surpassed the $1 billion mark for the first time. According to reporting by The American Lawyer, average PPP at the firm crossed the $3 million threshold last year, to $3.29 million, a record high for the firm and 12.1 percent higher than the $2.94 million a year earlier. Revenue rose from $975 million in 2013 to $1.072 billion in 2014. Davis Polk, which topped year-end league tables in areas such as corporate debt and equity offerings as counsel to underwriters, also took the lead for AstraZeneca in defending the London-based pharmaceutical giant against an unsuccessful $119 billion takeover bid by rival Pfizer.
Debevoise saw more modest growth across the board last year than in 2013, when it posted double-digit gains in PPP. The firm said revenue rose 3.24 percent, from $688 million in 2013 to $710 million last year. PPP increased 3.1 percent, to $2.38 million last year from $2.31 million in 2013. Debevoise, which saw its litigation group honored as one of the best in the business by The American Lawyer in 2014, also handled billion-dollar deals for AIG, TIAA-CREFF and Stone Point Capital.
The financial rebound Fried Frank enjoyed in 2013 after watching profits fall sharply the year before for the most part continued in 2014. The firm, which in January announced plans to shutter its Asian offices in Hong Kong and Shanghai, saw gross revenue remain flat last year at $460 million. But profits per partner and revenue per lawyer both hit the highest markets in the firm’s history, with the former jumping 11 percent to $1.8 million and the latter increasing almost 9 percent to $1.11 million. Fried Frank’s head count fell 8 percent from 450 lawyers in 2013, to 414 last year, while the firm’s number of equity partners dropped another 10 percent to 107 in 2014, down from 119 the year before. Nonequity partner ranks slipped slightly, from 15 in 2013 to 14 last year.
For the second straight year, Milbank showed significant growth in revenue and profits. Gross revenue in 2014 was up 7.8 percent, to $761 million, while revenue per lawyer rose 3.8 percent, to $1.24 million. Profits per partner increased another 7 percent, to $2.745 million, on net income of $395 million, an increase of 12.4 percent. The firm also bolstered its litigation ranks by luring back George Canellos, the former co-chief of the U.S. Securities and Exchange Commission’s division of enforcement and one of The American Lawyer’s star Lateral hires of 2014, to become the global chairman of Milbank’s litigation and arbitration group. On the corporate side, the firm has been busy with corporate leveraged financings, including work on collateralized loan obligations. According to Milbank, its CLO team advised on 38 transactions valued at more than $20 billion.
With an array of major litigation, regulatory and transactional matters having its lawyers going full-throttle, Paul Weiss broke the billion-dollar mark in gross revenue last year and set new records for partner profitability and attorney head count. The firm reports that gross revenue surged to $1.036 billion, a 10.9 percent increase over 2013, when the firm grossed $934.5 million. Partners saw their earnings increase at almost the same rate. The firm’s average profits per partner were $3.845 million in 2014, a 6.2 percent increase from the $3.62 million they earned a year earlier.
Schulte Roth’s financial performance was lifted by strong demand for transactional advice. The firm raked in 3 percent more in revenue in 2014 and 4.5 percent more in PPP. Revenue stood at $400.5 million last year, while PPP reached $2.315 million, the firm reported. Partner ranks remained flat at 84, and overall attorney numbers grew slightly by 1.4 percent, to 351. Schulte Roth had the lowest leverage numbers in the New York group last year, with just 3.18 lawyers per equity partner. Highlights included representing Aeroflex Holding on its $1.46 billion acquisition by British defense contractor Cobham, advising Albertsons and an investor group led by Cerberus Capital Management in the $9.2-billion merger of Safeway and representing longtime hedge fund client Jana Partners in the shareholder activism campaign that led to the $8.7 billion leveraged buyout of PetSmart last year. The firm ranked among the top legal advisers for activist shareholder campaigns last year.
Shearman & Sterling climbed another rung up the profitability ladder in 2014, boosting PPP by 5.8 percent to about $1.9 million last year after a jump of nearly $300,000 per partner the previous year. The firm recorded more modest increases of 1.5 percent in revenue per lawyer and 3 percent in gross revenue. The surge came on the back of a blowout year in litigation, overturning hedge fund manager Todd Newman’s insider trading conviction on appeal and winning a record $50 billion arbitration award against the Russian state on behalf of majority shareholders in defunct oil giant Yukos. IPO and M&A work was also busy, the firm said.
Simpson Thacher had among the strongest years of any New York firm, posting double-digit growth in PPP and revenue. Surging demand on both the transactional and litigation fronts prompted it to be the first-mover this past year in raising associate bonuses. PPP surged 10.1 percent to $3.485 million. Revenue also jumped 10.4 percent, to $1.245 billion, aided in part by increased demand for transactional and litigation services. In part, the shift was due to a 5.9 percent increase in head count, to 929 in 2014. Partner numbers also grew by 1.1 percent, to 187. With some of the firm’s largest private equity clients—including KKR and The Blackstone Group—active in the deal space, Simpson Thacher handled scores of multibillion-dollar transactions, as well as topping the league table rankings in several capital markets categories.
Skadden’s overall performance improved modestly last year, lifted by solid performance in litigation and transactional work. Bankruptcy remained soft. The firm’s revenue increased 3.6 percent, to $2.315 billion, on the back of increased demand, according to reporting by The American Lawyer. With partner head count dropping by 4 percent, to 383, PPP rose 6.4 percent, to $2.9 million. Overall head count edged slightly lower, to 1,654. M&A, a longtime Skadden staple, was a key highlight of 2014 as the firm snagged lead roles on a bevy of notable transactions, including many in the pharmaceutical sector, where controversial corporate inversions helped bolster Skadden’s bottom line.
Sullivan & Cromwell’s financial performance was virtually unchanged last year, with its revenue and PPP flat to slightly down, according to reporting by The American Lawyer. The firm brought in $1.276 billion, and the average partner took home $3.68 million, making it among the top two to three firms in profitability. Lawyer head count remained flat at 805, while partner head count dropped to 170 from 172. The firm had a hand in some big bank and energy litigations, including representing London-based Barclays in LIBOR investigations and France’s BNP Paribas to a $9 billion settlement, the largest criminal penalty in U.S. history. Sullivan & Cromwell also played a top role in two aborted takeovers: Valeant’s attempt to acquire Botox-maker Allergan and AbbVie’s ill-fated bid for Shire.
After two consecutive years of PPP declines, Weil reported a 16.5 percent upswing in PPP, from $2.065 million in 2013 to $2.4 million last year. Increased demand and lower head count pushed revenue per lawyer up 9.1 percent, to $1.075 million from $985,000. Equity partner numbers declined to 171 from 174, and overall partner numbers plunged by 10 percent, to 281 from 312. Revenue edged up 1.2 percent to $1.151 billion, while net income rose 14.5 percent, to $411.5 million.
Last but not least, Willkie’s gross revenue and PPP both spiked by 14.5 percent, the second-highest surge in the group. The firm increased in size, adding 5.3 percent to its lawyer head count (from 526 in 2013 to 554 last year) and to its partner tier, where it grew another 4.5 percent (from 132 to 128). Despite having the lowest leverage of the New York group—three lawyers to every equity partner—Willkie managed to be among the most profitable, with 55 cents of every dollar going to profits in 2014.