It has been a dramatic year for the world’s top 100 law firms in three respects. Our prediction that the group would break the $100bn barrier by the end of 2016 did not quite happen in last year’s report, but that barrier has been smashed a year later with total revenue for these firms rising 6% to reach $104.42bn. The indomitable US disruptors Kirkland & Ellis and Latham & Watkins ramped up growth substantially to make this the year of the $3bn law firm. Lastly, Kirkland hiked revenue by more than $500m to surpass Latham with a 19% surge to $3.165bn.
Two years on from events that threatened to destabilise the global economy – the UK’s shock vote for Brexit and Trump’s election as the leader of the free world – the harbingers of doom appear to have been wrong. While no self-respecting lawyer would admit to a lull in activity, the figures speak to a market that has not only withstood turbulence but flourished. Overall, it was one of the stronger underlying performances in the elite group since the banking crisis thanks to active deal markets and a robust global economy.
Brad Karp, chair of Paul, Weiss, Rifkind, Wharton & Garrison, speaks for many Global 100 (G100) firms, particularly the leading US pack: ‘The US economy has been strong. There has been a record amount of M&A activity over the past year, and our private equity clients have been doing a significant amount of buying and selling. Our transactional practice has never been busier.’
The big picture
In last year’s report, revenues grew 3% to $98.82bn and this year’s 6% hike builds on the favourable outlook. The stats are not confined to top-line growth: gross profit rose 6% to $40.31bn, while average profit per equity partner (PEP) also increased 4% to $1.76m. The number of equity partners moved up less than 2% to 24,637, suggesting the increase in PEP was not caused by a large reduction in equity partners across the board.
‘If you take a two-year view, we have grown by roughly the size of a mid-tier firm. We have the scale to differentiate ourselves.’
Andrew Ballheimer, Allen & Overy
Total lawyer numbers rose to 131,624, a 5% increase attributable in part to consolidation in the mergers of CMS Cameron McKenna Nabarro Olswang, Arnold & Porter Kaye Scholer and Eversheds Sutherland – three deals that took effect in the first half of 2017. Lawyer numbers have seen the biggest increase since 2016 when there was a 6% boost. Average revenue per lawyer (RPL) is $793,000, barely up on last year’s $790,000, which was itself a recovery on the back of a 2% drop in 2016. The most reliable indicator of profitability, profit per lawyer, shows a 2% uplift on average to $335,000 on last year’s $329,000.
The prevalence of US players also boosted the number of firms with revenues over $2bn from eight in 2017 to 11 this year. Of these, only five are not essentially US-driven operations – Baker McKenzie ($2.67bn), DLA Piper ($2.634bn), Clifford Chance (CC) ($2.092bn), Allen & Overy (A&O) ($2.024bn) and Hogan Lovells ($2.037bn). Joining Kirkland and Latham in the top tier of firms with revenue higher than $2bn are also Skadden, Arps, Slate, Meagher & Flom ($2.582bn), Dentons ($2.360bn), Sidley Austin ($2.036bn) and, by a hair’s breadth, Morgan, Lewis & Bockius ($2.001bn).
Adding firms with turnover higher than $1bn extends the group from 34 in 2017 to 39 this year, with Jones Day, White & Case, Gibson, Dunn & Crutcher, Ropes & Gray, Greenberg Traurig, Sullivan & Cromwell, Weil, Gotshal & Manges, Simpson Thacher & Bartlett and Mayer Brown among those featuring in the upper echelons of global law.
‘In 2018 our billable input, collections, operating profit and share value are all up significantly over last year.’
Brad Karp, Paul Weiss
Yet the number of firms with PEP higher than $5m has dropped from two to one, with Los Angeles-bred litigation leader Quinn Emanuel Urquhart & Sullivan no longer joining Wall Street heavyweight Wachtell, Lipton, Rosen & Katz in that category. The number of firms with PEP of more than $4m remained the same at six, while the number with PEP in excess of $3m has dropped by one to 15 this year.
A dozen firms saw falls in revenue this year, including sharp drops at K&L Gates, Locke Lord and Baker Botts (the latter impacted by a contingency fee flattering its 2016 results).
Yet it ultimately proved an indifferent year for top Wall Street firms, with Cravath, Swaine & Moore, Skadden, Sullivan & Cromwell, Shearman & Sterling, and Cleary Gottlieb Steen & Hamilton all posting either subdued or downright poor results.
Overall, the slow loss of national and cross-border dominance of New York leaders continues. While Shearman’s long-term decline is well documented, the last five years have been weak for Cravath and Cleary – and both saw revenue dips in 2017.
The primary winners in the Global 100 continue to be nationally-expansive US law firms with targeted international coverage, often underwritten by strong representation in leveraged finance and litigation. Moreover, private equity strength appeared to drive many of the strongest performances seen from Wall Street thoroughbreds in 2017.
In the last year, Kirkland’s influence has been more keenly felt by lockstep firms on both sides of the Atlantic. The Magic Circle seemed most vulnerable to being targeted but that threat has turned to the Wall Street elite.
The domestic losers remain US firms without rock solid market positions geographically or in desirable practices. Nevertheless, it was – in contrast to recent years – a subdued 12 months for dispute specialists, with Quinn Emanuel seeing a notable slowdown in growth and Boies Schiller Flexner one of two firms to slip out of the table (alongside Cadwalader, Wickersham & Taft, a firm in long-term decline).
Brightest stars
Collective growth has been robust, but it has been a year of standout performances among the US firms, led by Chicago-bred giant Kirkland in another stellar year of growth (for more, see our cover feature).
Even its staunchest rivals must concede that Kirkland’s success, underpinned by booming private equity and leveraged finance markets, as well as a relentless hiring strategy, has been remarkable, with revenue growing by 63% over the last five years. Surging growth in 2017 saw it overtake Latham to secure the top of the table.
Even in the last year, the firm’s influence, or ‘Kirklandization’, as one partner at a US rival calls it, has been even more keenly felt by lockstep firms on both sides of the Atlantic. Where it had been the Magic Circle that seemed most vulnerable, that threat has turned to the Wall Street elite. Cravath, which fell ten places in the G100 this year amid a 4% revenue dip to $706.7m, lost two high-profile partners since the start of this year alone to Kirkland.
The joint holders of the biggest jump in revenue year-on-year both herald from Chicago and have standout disputes practices. Alongside Kirkland, Winston & Strawn hiked its revenue and PEP by 19% to $978.5m and $2.164m respectively following a run that has seen the firm increase turnover by 30% over five years.
Sixteen firms recorded double-digit revenue growth this year, including from the top quartile White & Case (11%) and Weil (10%). Weil continues its rebound over the past two years to hit $1.39bn revenue and score an 18% PEP uptick to more than $3.6m.
In the 26-50 group, buoyant activity in the tech space sees Palo Alto-headquartered Cooley maintain its momentum with a 10% uptick in growth in the context of an impressive 75% increase over the last five years, while Morrison & Foerster (12%), Goodwin Procter (13%) and Covington & Burling (13%) are among the most thrusting firms in the group with double-digit growth.
‘Getting ahead of the activism is a feature of doing M&A these days and advisers have to be attuned to it.’
Claire Wills, Freshfields
Outside the top 50, Debevoise & Plimpton, (12%), Willkie Farr & Gallagher (12%) and Fried, Frank, Harris, Shriver & Jacobson (14%) have been the leading performers for year-on-year revenue growth.
With 7% growth this year, Paul Weiss’s five-year performance is more striking. Now in its ninth straight year of revenue growth, the New York player has seen turnover rise by 48% in the last five years and double over the last decade to reach $1.3bn while PEP hit $4.49m.
Says Karp: ‘We’ve had a terrific year. Standout recent mandates include advising Qualcomm in defeating the $117bn hostile takeover bid by its rivals Singapore-based Broadcom.’
He describes advising Citigroup on a money-laundering matter arising out of a Department of Justice investigation as ‘an extraordinarily favourable result’ for the client and cites the firm’s disciplined focus on litigation, white collar, regulatory defence, private equity, restructuring and public M&A – as well as the avoidance of commoditised work – as the engine of its success. Its ability, unlike a pure lockstep firm, to pay top dollar to attract heavyweights like Cravath’s head of M&A Scott Barshay – a prestigious partner who has had a material effect on its M&A practice – is also an advantage.
Karp is even more confident in the outlook for the year ahead as a result of investments. ‘2018 is set to be another record-breaking year. Our billable input, collections, operating profit and share value are all up significantly over last year’s levels and I’m hoping that these positive trends continue.’
Richard Hall, Cravath’s head of M&A, is upbeat about the outlook, but conscious of myriad threats to business posed by geopolitical volatility and an increasingly protectionist environment.
‘The market has seen a shift towards international and cross-border deals, reflecting trends in European M&A. There has been a relative outperformance by non-US, cross-border M&A compared to US M&A. Economic fundamentals in North America and Europe are favourable to general continuation of M&A levels and there has been a reversal of 2017’s trend for fewer mega deals. Dollar volume in Q1 2018 is up on Q1 2017, clearly attributable to the increase of mega deals.’
Many note that while Trump’s tax reform has stimulated investment, the threat of a global trade war, and the growing drive towards economic protectionism in the US and Western Europe targeted at Chinese buyers, make it difficult to predict the year ahead.
Andy Ryde, Slaughter and May’s corporate head, points to a resurgence of activity towards the tail-end of last year after a subdued summer, citing a string of high-profile mandates, including advising target company Shire on a £46bn pharma takeover bid by Japan’s Takeda Pharmaceutical Company.
‘Bigger deals kicked off from December. Businesses gained confidence as they realised it might not be a Brexit cliff-edge.’
Andy Ryde, Slaughter and May
‘Bigger deals kicked off from December, partly due to market confidence recovering as details emerged of the apparent Brexit deal on financial settlement and transitional period. Businesses gained confidence as they realised it might not be a Brexit cliff-edge. There was pent-up demand for deal making and a lot of cash available to private equity buyers. US tax cuts also encouraged activity. These things combined to kick off the market again. We have had a really purple patch.’
Last year, UK firm rankings were hit by a currency effect that left them with the worst year-on-year performance in dollar terms, in spite of a buoyant performance in sterling.
Now, despite a frothy deal market – surprisingly unaffected by the impact of Brexit – the Magic Circle firms have either stagnated or fallen in the rankings, albeit with modest increases of 4% or 5% in their home currency (see box, ‘The currency effect’, below). A&O, CC and Freshfields have all posted comparable revenue increases in the mid-single-digit range and PEP around the £1.6m-£1.7m mark.
With a solid year but unable to match last year’s impressive 16% revenue increase, A&O’s global managing partner Andrew Ballheimer is still upbeat about the firm’s focus.
‘If you take a two-year view, we have grown by roughly the size of a mid-tier firm and this has occurred across all our main practice areas. Our advanced delivery business, including the legal services centre in Belfast, the consultant lawyer platform Peerpoint and online services business aosphere, have been growing strongly. Clients focus on efficiency and value – that’s part of the challenge of the current era – but we see this as a real opportunity. We’ve invested in the space and will continue to do so. We have the scale to differentiate ourselves.’
But while A&O can take more cheer from its post-banking-crisis form than most City rivals, the hard reality remains that many key US outfits continue to outperform the London elite on headline financial metrics while making threatening inroads into Europe.
Positive spin
Just as Trump’s disruptive influence can generate legal work, so too can other factors, including Brexit, technology and shareholder activism. Claire Wills, co-head of Freshfields’ financial institutions group, says: ‘Activism is making companies plan better and think more. They are asking: “Are we vulnerable? Are we doing everything we should be doing?” Getting ahead of the activism is a feature of doing M&A these days and advisers have to be attuned to it. People have been living in such uncertain times for so long now it’s not stopping deals from being done. In fact, uncertainty and disruption are prompting people to transform their business models. Every business now is a potential tech business – one recent stat showed 70% of tech deals have been done by non-tech companies.’
But as Kirkland shows no sign of slowing its rise within the Global 100, the lagging firms on both sides of the Atlantic will have a struggle ahead if they are to turn that challenge into positive change. The past few years have been dominated by a straight fight between Latham and Kirkland and the battle between this pair looks set to dictate the narrative for some time.
The overall direction of travel is clear: US firms are making more progress and have so far proved remarkably sanguine about the Brexit shadow looming over London. The upbeat assessment by US law firms may well be linked to the fact that areas and clients currently driving their growth – white collar, funds, arbitration, leveraged finance – are less impacted by Brexit. The G100 is dominated by red, white and blue – and will be for the foreseeable future – but tellingly, those colours are littered with stars. LB
nathalie.tidman@legalease.co.uk
marco.cillario@legalease.co.uk
Legal Business would like to thank SSQ for its sponsorship of the Global 100.
Winners
Kirkland & Ellis
Now the world’s highest-grossing law firm, the Illinois powerhouse’s rise to the top of the Global 100 has been remarkable. Over the last five years, Kirkland & Ellis has grown its top line by a pace-setting 63%. It has posted one of the best year-on-year performances, with 19% revenue growth to break the $3bn mark and profit per equity partner (PEP) climbing 15% to $4.7m.
White & Case
White & Case’s success story in London and globally has caught many peers unawares. The firm has grown revenue by 11% to $1.8bn to cap off a five-year run that has seen it grow 30%. PEP also leapt 10% to $2.26bn globally. In London, revenue rose 13% to $328m.
Weil, Gotshal & Manges
Having looked at risk of a Shearman-style decline just a few years back, Weil, Gotshal & Manges posted its second consecutive robust performance as a 10% hike in revenues took income past Wall Street rival Simpson Thacher & Bartlett on the table. Profit per partner at $3.6m is now up there with the true New York elite.
Morrison & Foerster
Listed among the losers last year, Morrison & Foerster has enjoyed better fortune this time around, posting a 12% increase in revenue to exceed the $1bn mark. This, and a 23% rise in PEP to $1.74m, was a much needed rebound.
Goodwin Procter
Goodwin Procter seems intent on giving Ropes & Gray a run for its money as the Boston-born institution most dramatically asserting itself on the global stage. With a potent mix of private equity and real estate helping to power a 13% revenue rise, the 900-lawyer shop was expansive at home and abroad.
Winston & Strawn
The only firm to match Kirkland’s 19% top-line increase, fellow Chicago firm Winston & Strawn posted revenue of $978.5m and a matching 19% rise in PEP to $2.2m. The firm has grown turnover 30% over the last five years on the back of a solid reputation as a full-blooded litigation business.
Debevoise & Plimpton
Having last year slipped down the table following a slump in M&A work, Debevoise & Plimpton is back in the game. Revenue was $822m after a 12% year-on-year increase and PEP increased 17% to $2.8m. The firm’s 22% growth over the last five years has been pacier than New York peers.
Willkie Farr & Gallagher
Shooting five places up the rankings in the Global 100, Willkie has achieved a 12% increase in revenue to $772m and a solid 13% PEP growth to $2.97m. Its 45% growth over the last five years means it is bucking the trend set by many of its Wall Street rivals.
Fried, Frank, Harris, Shriver & Jacobson
The firm has capped off a five-year stint of 43% revenue growth with a 14% jump this year to $635m. PEP has also seen a 17% increase to $2.9m off the back of a buoyant litigation market.
Losers
Gibson, Dunn & Crutcher
Unusually, the Los Angeles-bred leader has not achieved material growth,
despite 27% revenue growth on a five-year track. Revenue was up a modest 2% to $1.64bn. PEP took a 1% dip to $3.24m amid a year of investment that saw it open a Houston office and increase its lawyer headcount.
Quinn Emanuel Urquhart & Sullivan
While Quinn Emanuel Urquhart & Sullivan remains the story of the decade after a frantic spell of growth, which last year culminated in the firm having average partner profit of $5m, its ascent has stalled. Compared to last year’s double-digit revenue and PEP growth, a 2% increase in revenue to $1.23bn and a 6% PEP cut to $4.7m is underwhelming by its own high standards, with 44% revenue growth on a five-year track.
K&L Gates
Following last year’s recovery with 11% year-on-year revenue growth in 2016, the firm has once again been relegated to the losers column. This year saw revenues fall by 16% to $989.9m, with the effect of five-year revenue growth plummeting from 11% to -7%. After last year’s double-digit profit per equity partner (PEP) growth, PEP shrank 8% to $929,000 in 2017.
Cravath, Swaine & Moore
Cravath, Swaine & Moore was among the Wall Street leaders struggling to excite this year as the effect from challengers outside Manhattan took its toll. Revenue took a 4% hit, taking it to $706.7m, and PEP was down 5% to $4m. The 17% revenue growth on a five-year track is sluggish in comparison with many peers.
Bryan Cave
In the run-up to its merger with Berwin Leighton Paisner, legacy Bryan Cave has had a less than exceptional year. Revenue saw a 3% decline to $592.6m as PEP took a 7% tumble to $804,000. The merger, which went live in April 2018, will hopefully have a positive impact on next year’s ranking.
Jenner & Block
The Chicago litigation specialist saw a 2% decline in revenue for 2017 to $448.7m, an unwelcome development after a 2% dip in 2016. PEP took a 19% hit to $1.4m and revenue per lawyer was also down due to an increase in non-equity headcount and investments in core practices, as well as newer groups including aviation and energy.
Global 100 averages
The ins and outs
| Rank | Firm | Turnover | Change |
|---|---|---|---|
| 92 | Bird & Bird | $434.4m | 10% |
| 100 | Cozen O’Connor | $416m | 11% |
| Rank | Firm | Turnover | Change |
|---|---|---|---|
| 86 | Cadwalader, Wickersham & Taft | $408.1m | -10% |
| 97 | Boies Schiller Flexner | $410m | 0% |
Best and worst Global 100 growth 2013-18
Revenue
Best
| Firm | 2013 | 2018 | % change |
|---|---|---|---|
| Cooley | $617m | $1,072.1m | 74% |
| Ropes & Gray | $945.1m | $1,597.1m | 69% |
| Kirkland & Ellis | $1,937.5m | $3,165m | 63% |
| Morgan, Lewis & Bockius | $1,230m | $2,001m | 63% |
| Sheppard, Mullin, Richter & Hampton | $437.6m | $671.1m | 53% |
Worst
| Firm | 2013 | 2018 | % change |
|---|---|---|---|
| O’Melveny & Myers | $818.4m | $738m | -10% |
| Herbert Smith Freehills | $1,312m | $1,194.6m | -9% |
| Freshfields Bruckhaus Deringer | $1,935.6m | $1,808.5m | -7% |
| K&L Gates | $1,060.3m | $989.9m | -7% |
| Bryan Cave Leighton Paisner * | $624m | $592.6m | -5% |
* For legacy Bryan Cave only. See methodology
Profit per equity partner
Best
| Firm | 2013 | 2018 | % change |
|---|---|---|---|
| Fried, Frank, Harris, Shriver & Jacobson | $1,313k | $2,930k | 123% |
| Davis Polk & Wardwell | $2,453k | $3,700k | 66% |
| Weil, Gotshal & Manges | $2,219k | $3,639k | 64% |
| Vinson & Elkins | $1,469k | $2,355k | 60% |
| Akin Gump Strauss Hauer & Feld | $1,539k | $2,382k | 55% |
Worst
| Firm | 2013 | 2018 | % change |
|---|---|---|---|
| Morgan, Lewis & Bockius | $1,550k | $1,370k | -12% |
| Ashurst | $1,084k | $958k | -12% |
| Locke Lord | $1,066k | $937k | -12% |
| Littler Mendelson | $500k | $461k | -8% |
| Clyde & Co | $919k | $856k | -7% |
Revenue per lawyer
Best
| Firm | 2013 | 2018 | % change |
|---|---|---|---|
| Ropes & Gray | $938k | $1,374k | 47% |
| Fried, Frank, Harris, Shriver & Jacobson | $933k | $1,293k | 39% |
| Winston & Strawn | $833k | $1,153k | 38% |
| Orrick, Herrington & Sutcliffe | $768k | $1,037k | 35% |
| Vinson & Elkins | $866k | $1,144k | 32% |
Worst
| Firm | 2013 | 2018 | % change |
|---|---|---|---|
| Herbert Smith Freehills | $565k | $472k | -16% |
| Clyde & Co | $479k | $420k | -12% |
| Linklaters | $812k | $722k | -11% |
| CMS | $424k | $379k | -11% |
| Bird & Bird | $409k | $364k | -11% |
Global 100 headcounts
The currency effect
The dominance of the US dollar against sterling has once more affected the ranking of Global 100 firms that report in sterling, despite the majority recording positive revenue growth – allbeit at a slower rate than last year. In the 2017 report, the exchange rate was £1=$1.3555. This year, the exchange rate used was £1=$1.2890, again meaning firms had to comfortably post double-digit growth in sterling just to stand still in dollar terms. Few did. Therefore the table below shows the actual year-on-year growth in home currency for these firms.
NOTE: As per the methodology, the financial data in this table for UK firms is from unaudited or estimated figures. Please see the Legal Business 100 report in the September issue for the full results.
| G100 rank | Firm | Revenue | % change | PEP | % change |
|---|---|---|---|---|---|
| 7 | Clifford Chance | £1,623m | 5% | £1,596,000 | 16% |
| 10 | Allen & Overy | £1,570m | 4% | £1,640,000 | 4% |
| 12 | Linklaters | £1,523.5m | 6% | £1,537,000 | 2% |
| 15 | Freshfields Bruckhaus Deringer | £1,403m | 5% | £1,734,000 | 12% |
| 29 | Herbert Smith Freehills | £926.8m | 1% | £852,000 | 12% |
| 57 | Slaughter and May | £576m | 7% | £2,664,000 | 11% |
| 61 | Ashurst | £564m | 4% | £743,000 | 11% |
| 63 | Clyde & Co | £551.3m | 9% | £664,000 | 2% |
| 73 | Pinsent Masons | £449.8m | 6% | £653,000 | 4% |
| 88 | Simmons & Simmons | £354m | 12% | £686,000 | 8% |
| 91 | Bird & Bird | £337m | 11% | £550,000 | 10% |
* See methodology
Global 100 total gross profits and revenues
Partnership growth
The total lateral hires among the Global 100 are up 5% on last year. There were 1,527 lateral hires in 2017, up from 1,452 the previous year. Seventy-two firms reported making lateral hires, at an average of 21 lateral per reporting form. Promotions are up 5%, from 1,270 to 1,332, from the same number of firms reporting. Each firm averaged a total of 19 promotions.