O’Melveny & Myers, which experienced a rebound in 2015, continued its financial growth in 2016.
The Los Angeles-based firm reported $725.5 million in gross revenue for the year. This was a solid 5.2 percent increase over 2015, although it was still below the record-high revenue of $818.5 million the firm reached in 2012 and the $733 million it reported in 2013.
Net income in 2016 surged by 14 percent to $341 million, representing a 47 percent profit margin. Profits per partner (PPP) saw a 10.8 percent increase from 2015, reaching $1.95 million. This marks the second consecutive year that the firm saw a double-digit gain in partner profits. In 2015, O’Melveny’s PPP grew 10.3 percent, to $1.76 million over the prior year.
The 648-lawyer firm also reported its highest-ever revenue per lawyer of $1.1 million—up 3 percent from 2015.
“We were at the higher end of our target range,” said Bradley Butwin, O’Melveny’s New York-based chair, referring to last year’s financial results. “The 14 percent increase in net income, following the double-digits increase the year before, was something that I would say exceeded our plan.” In 2015, the firm’s net grew by 10.9 percent.
Butwin said the growth was driven by both litigation and transactions work. In 2016, the firm worked on 20 trial cases, including several settled before going to trial, and closed more than 300 transactions with a total value of $225 billion.
“We were firing on all cylinders,” he said.
In December, O’Melveny helped US Airways Inc.—now American Airlines Group—win a $15 million jury award in a five-year-long antitrust case against travel technology company Sabre Corp. The firm also scored a win for Twentieth Century Fox on the use of word “Empire” for its hit television show, with the judge ruling the name is protected by the First Amendment. In addition, in May, it secured a jury win for Google Earth against patent infringement claims brought by German company Art+Com Innovationpool.
On the transactions side, O’Melveny acted for Alaska Airlines on its $4 billion acquisition of Virgin America. It also represented Hong Kong-listed Alibaba Pictures, the filming production unit of the Chinese ecommerce giant, on a co-production partnership with Steven Spielberg’s Amblin Partners. Besides M&A deals, the firm advised New York’s LaGuardia airport on a $4 billion public-private partnership to overhaul its central terminal. It helped Verso Corp. work out a restructuring deal for its $2.4 billion debt that was “a remarkable result,” according to U.S. Bankruptcy Judge Kevin Gross of the District of Delaware, who approved the plan.
Last year, O’Melveny expanded its profit margin from 43 percent to 47 percent. The firm said it managed to reduce operating expenses by nearly 3 percent. Butwin said in a year when the firm raised associate compensation and renovated its Menlo Park and Century City, California, and Washington, D.C., offices, the reduction of costs was largely a result of O’Melveny’s longtime investments in firm infrastructure.
Its initiatives to boost efficiency included: implementing the OMMLit, a proprietary research computer system that breaks down the litigation process into more than 400 tasks; collaborating with document vendors to do document review and e-discovery; and hiring Jesse Katz, a two-time Pulitzer Prize-winning former Los Angeles Times writer, to edit legal briefs.
But one important driver of the firm’s high margin, Butwin said, was a 2 percent year-on-year increase in the realization rate. O’Melveny declined to disclose the exact realization rate, but Butwin noted that the firm has had years when revenue increases were driven by contingency fees or success fees. Last year, he said, was not one of those years.
What worked last year was the firm’s commitment to alternative fee arrangements, the firm said.
“We collaborate with clients to discuss what the matter is going to cost rather than billing off rack rates,” Butwin said. “For an increasing number of clients, we try to come up with more value-based billing.”
The focus on growing client relationships has rewarded O’Melveny with a loyal and steady base of clients, Butwin said. “If you look at our top 15 clients or so over the last five years, you see a lot of consistency and a lot of increases in work.” In addition to Fox Group and Alibaba Pictures, Butwin also cited Warner Bros. Entertainment Inc., Honeywell International Inc., Samsung Electronics Co. Ltd. and Mitsui & Co. Ltd. as important clients.
“To me that’s an indication that the strategy is working,” Butwin said.
In 2016, O’Melveny expanded total lawyer head count to 648 from 634 in 2015. The total number of partners, 183, was the same as last year, although the number of equity partners increased to 175 from 170 and the nonequity partner count dropped to eight from 13. The firm made two lateral hires—Menlo Park partner Einat Meisel and Hong Kong partner Edwin Kwok—and promoted 11 lawyers to partner.
O’Melveny also saw several significant losses last year. In June, prolific tech litigator and former San Francisco partner George Riley died of leukemia at age 59. Departures were particularly frequent from its Asian offices. Former Shanghai managing partner Li Qiang left the firm for DLA Piper, and former Hong Kong managing partner Friven Yeoh joined Sidley Austin. Toward the end of the year, the firm’s last Singapore partner, Nathan Bush, also left for DLA Piper.
Butwin said he is bullish about 2017, envisioning growth in trial work, health care, antitrust, cybersecurity and data privacy and infrastructure. The firm has 25 trials scheduled; in addition, it is representing Twentieth Century Fox on an executive poaching case against Netflix. The firm is acting as antitrust counsel to outdoor gear and apparel retailer Bass Pro Shops on its $5.5 billion offer to buy rival Cabela’s; it also continues to advise the developers of a $1 billion project to redevelop the Port of San Diego.
On the M&A front, though, O’Melveny lost its former practice head Paul Scrivano to Ropes & Gray in early February. Scrivano co-led the Alaska Airlines-Virgin America acquisition last year.
The firm has already announced five lateral hires so far in 2017. In January, it hired former DLA Piper partner Charles Baker and former World Wrestling Entertainment general counsel Jared Bartie in New York. Both brought sports expertise to the firm’s entertainment, sports and media practice. In February, the former general counsel of the Department of Homeland Security, Stevan Bunnell, returned to the firm as a Washington, D.C., partner; he joins Thomas Donilon, former National Security Advisor, and Danielle Gray, former assistant to the president and Cabinet secretary for the Obama administration, in a cybersecurity practice. Also in Washington, D.C., IP litigation partner Sean Trainor joined from Kirkland & Ellis. In London, the firm recruited funds partner Jonathan Blake from King & Wood Mallesons.
In the United States, O’Melveny has five offices in California and an office in Washington and New York. Overseas, it has an office in London and Brussels, as well as six office across Asia—one each in Hong Kong, Singapore, Beijing, Shanghai, Tokyo and Seoul. Despite recurring departures in the region in recent years, Butwin said the firm remains committed to Asia.
“Our non-U.S. strategy has always been centered on Asia,” he said. “We have offices in London and Brussels, but we are not all over the globe. Asia has always been a very important part of who we are and our international strategy.”
For now, Butwin said he is happy with having 15 offices. “One of the benefits of not being all over the world is that we can continue to focus on growing the offices that we have, rather than staking out brand new ground in regions that may be speculative,” he said.
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