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, ALM 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, according to reporting for The American Lawyer’s upcoming Am Law 100 rankings. 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 last year, according to ALM reporting.
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: About 70 percent of the 17 New York firms in ALM’s sample saw their 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 by 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, said Rusanow, who analyzed the number of hours logged from Citi’s sample of 32 New York-headquartered firms.
Rusanow also pointed 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 said, 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 said.
New York firms’ realization rate improved 1.4 percent from 2016, Rusanow said, 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 transitional work … there’s a lot of elasticity to the rates,” said Joe Mendola of Wells Fargo. Litigation “has continued to be somewhat of a struggle,” he said.
To be clear, 2017 was not a record year for global mergers and acquisitions. Global merger and acquisition activity dipped about 3 percent by value to $3.15 trillion, while deal count dropped from the 2016 record, according to Mergermarket numbers. But it was the fourth consecutive year in which M&A has broken the $3 trillion barrier, Mergermarket said, and the year ended on a high, with five megadeals announced in the final month, including Walt Disney Co.’s acquisition of 21st Century Fox and the merger of CVS and Aetna.
With the big close to the year, it should come as no surprise that both Wells Fargo and Citi data point to high inventory at New York law firms going into 2018, which should bode well for the first half of the year.
Below is a rundown of financial performance for each the 17 firms surveyed for this story. Finalized financial reports for these firms and the rest of The Am Law 100 will be published in the May issue of The American Lawyer, and online on Tuesday.
Cadwalader, Wickersham & Taft: Profits per partner shot up by 18.6 percent to $2.51 million as the equity partnership contracted by five partners to 40 partners. The firm’s revenue dropped 9.7 percent to $408.1 million. Revenue per lawyer increased 6 percent to $1.09 million, as head count declined nearly 15 percent. (See our previous report.)
Cahill Gordon & Reindel: Gross revenue grew 1.3 percent to $387.7 million; revenue per lawyer grew 3.3 percent to $1.34 million, while profits per partner increased 1.5 percent, to $3.69 million. (See our previous report.)
Cleary Gottlieb Steen & Hamilton: Coming off a strong 2016, Cleary’s gross revenue dropped 4.5 percent to $1.214 billion, while profits per equity partner dropped 7.6 percent to $3.07 million, according to reporting by The American Lawyer.
Cleary made significant investments last year, including in technology, infrastructure, and training for younger lawyers, and the firm moved locations in some overseas offices.
Despite the down year, Cleary was ranked No. 2 adviser in global M&A league tables, behind Skadden.
Cleary had some of the most high-profile antitrust work last year, including serving as global antitrust counsel to The Dow Chemical Co. in its $130 billion merger with DuPont and advising on antitrust matters for the Disney-Fox deal.
Cleary’s only U.S. lateral partner in 2017 was Matthew Solomon, who served for more than 15 years at the U.S. Securities and Exchange Commission and the U.S. Department of Justice.
Cravath, Swaine & Moore: While the exit of Cravath partners Eric Schiele and Sandra Goldstein in 2018 for Kirkland & Ellis have made headlines, Cravath’s partnership slightly shrunk through other departures in 2017. The firm’s equity partnership dropped by four to 83, after Rowan Wilson joined New York’s top appellate bench; former partner C. Allen Parker became general counsel of client Wells Fargo & Co.; and litigation partner Teena-Ann Sankoorikal joined a boutique. Those moves came after Scott Barshay, now at Paul, Weiss, Rifkind, Wharton & Garrison, made his exit from Cravath in 2016.
Last year Cravath saw revenue drop by 4.2 percent to $706.7 million and profits per partner drop 4.6 percent to about $4 million, according to reporting by The American Lawyer. Net income fell 9 percent; and revenue per lawyer decreased 5.6 percent to $1.4 million, as total head count increased slightly to 504 lawyers. Nonetheless, the firm saw its second-highest recorded profits per partner, after 2016.
Cravath is advising on some of the largest transactions announced in 2017, including representing Walt Disney Co. in the $66 billion acquisition of 21st Century Fox and representing the industrial gas company Linde Group in its $70 billion merger with Praxair Inc. In deals closing last year, Cravath represented British American Tobacco in its $97 billion merger with Reynolds American and advised Johnson & Johnson in its $30 billion acquisition of Actelion Ltd.
After advising on the deal, Cravath is representing Time Warner as trial counsel, among other firms, in an antitrust challenge by the Justice Department seeking to block its $108.7 billion acquisition by AT&T. Meanwhile, Cravath continues to represent utility PG&E as lead trial counsel in about 145 lawsuits filed against the company arising out of California wildfires.
Davis Polk & Wardwell: While gross revenue rose 5 percent to $1.24 billion, profits per partner dropped by 2 percent to $3.7 million, according to reporting by The American Lawyer. As total head count grew 6 percent to 967 lawyers, Davis Polk’s revenue per lawyer dipped slightly to $1.283 million. The firm grew it equity ranks by about five to 158 partners.
In rare lateral moves, Davis Polk hired former federal prosecutors Kenneth Wainstein, arriving from Cadwalader, and Patrick Sinclair, arriving from Ropes & Gray, as well as Howard Shelanski, an antitrust partner with high-level experience at the Federal Trade Commission.
The firm landed a role advising Aetna on its $77 billion acquisition by CVS and advising PwC on its acquisition of GE’s tax group. Meanwhile, its capital markets group advised on a host of initial public offerings, including those for Roku, Tamar Petroleum, Sushiro, REV Group and WideOpenWest.
Its litigation group secured a foreign bribery resolution for Swedish telecom Telia Company AB and its Uzbek subsidiary related to allegations that employees paid $331 million in bribes to enter the Uzbekistan market.
Debevoise & Plimpton: After a dip in profits in 2016, Debevoise rebounded last year. Gross revenue grew 11.8 percent to $822 million; profits per partner jumped 17.4 percent to $2.83 million, while revenue per lawyer grew 8.8 percent to $1.3 million. (See our previous report.)
Fried, Frank, Harris, Shriver & Jacobson: The firm saw gross revenue rise 14 percent to $634.9 million. Revenue per lawyer rose 2.2 percent to $1.29 million, while profits per partner jumped nearly 17 percent to $2.94 million. (See our previous report.)
Kramer Levin Naftalis & Frankel: Gross revenue grew 9.9 percent to $387 million, as its profits per equity partner exceeded $2 million for the first time. The firm’s revenue per lawyer of about $1.19 million was up 7.9 percent from 2016, while head count rose slightly. (See our previous report.)
Milbank, Tweed, Hadley & McCloy: Gross revenues rose 7.1 percent to $916.54 million in 2017, while the firm’s profits per equity partner grew nearly 11 percent to $3.46 million. Revenue per lawyer increased 3 percent to $1.33 million, while the equity partnership ranks decreased by 2 percent, dropping to 145. (See our previous report.)
Paul, Weiss, Rifkind, Wharton & Garrison: The firm pulled in more than $1.3 billion in gross revenue in 2017, up 6.5 percent from the prior year. Profits per equity partner rose 4.2 percent to more than $4.56 million, and the equity ranks added five partners for 144 in all. Revenue per lawyer rose 2.2 percent to $1.3 million, even as the firm added about 40 lawyers to reach an overall head count of 1,000. (See our previous report.)
Schulte Roth & Zabel: The firm took in gross revenue of $424.1 million in 2017, up 3.6 percent. Profits per partner grew 7 percent to $2.56 million, while revenue per lawyer at the 357-attorney firm was $1.19 million, a 1.8 percent increase from the prior year. (See our previous report.)
Shearman & Sterling: Gross revenue rose less than 1 percent to $917.5 million, while profits per equity partner increased 7 percent to $2.3 million. With a slight increase in the total number of lawyers, to 853 firmwide, revenue per lawyer decreased less than 1 percent to $1.075 million. (See our previous report.)
Simpson Thacher & Bartlett: Gross revenue rose 5.7 percent to $1.375 billion, and profits per equity partner rose 5 percent to $3.68 million, according to reporting by The American Lawyer. Even as head count rose slightly to about 988 lawyers, revenue per lawyer rose 4 percent to $1.39 million.
In a rare lateral move between two Wall Street mainstays, Simpson Thacher recruited bankruptcy and restructuring partner Michael Torkin from Sullivan & Cromwell in late 2017.
Legal work in funds, real estate and mergers and acquisitions were active at the firm last year, and tech, banking, health care and energy client industries were key drivers of work.
The firm saw activity in private equity and investment company transactions, such as representing KKR in its acquisition of Unilever’s margarine and spread business, as well as strategic transactions such as representing SiriusXM in its deals with Pandora and Automatic Labs.
Simpson Thacher scored litigation victories last year on behalf of hotel chain La Quinta, JPMorgan Chase, solar power company Yingli Green Energy and Pfizer.
Skadden, Arps, Slate, Meagher & Flom: The global firm’s gross revenue grew 3.5 percent to $2.582 billion, while profits per equity partner leaped 6.5 percent to $3.47 million, according to reporting by The American Lawyer. Even as firm head count rose by 3 percent to 1,784 lawyers, revenue per lawyer stayed steady around $1.45 million. The firm’s equity partnership, with 361 partners, was seven less than 2016, as the firm saw a couple prominent departures to Kirkland and Latham & Watkins.
Sullivan & Cromwell: The firm’s revenue rose 3 percent to about $1.4 billion, while profits per partner rose 5.5 percent to $4.27 million, according to reporting by The American Lawyer. Even with a slight increase in total lawyer head count, to 812 lawyers, the firm’s revenue per lawyer ticked up to $1.73 million.
The firm had four fewer equity partners, after several lawyers were tapped for Trump administration roles, including Jay Clayton, Steven Peikin, Jeffrey Wall and Brent McIntosh.
M&A partners advised Amazon in its plans to buy grocery company Whole Foods Market Inc. in a $13.7 billion mega-deal; represented Praxair in the Linde merger; and represented Joe Tsai, co-founder of Alibaba Group, in his purchase of a 49 percent interest in the Brooklyn Nets.
The firm scored strong litigation wins in 2017, including prevailing on behalf of Barclays Bank on summary judgment in a massive securities class action. Sullivan & Cromwell continues to represent Volkswagen as national coordinating counsel in multinational litigation and investigations stemming from its emissions scandal and represents Fiat Chrysler Automobiles in emissions litigation.
Weil, Gotshal & Manges: Gross revenue rose 9.8 percent to $1.39 billion, while profits per equity partner rose 17.8 percent to $3.64 million. Even as the firm’s attorney head count and equity partner ranks grew, revenue per lawyer grew 6.3 percent to $1.24 million. (See our previous report.)
Willkie Farr & Gallagher: Revenue rose nearly 12 percent to $772 million; profits per partner rose 13 percent to $2.97 million; and revenue per lawyer rose 5 percent to about $1.2 million. The firm increased its profitability even as it boosted its size, with total attorney head count rising 6 percent to 644 lawyers. (See our previous report.)