Herbert Smith Freehills news, updates and analysis | Page 2 of 27

Herbert Smith Freehills has marked a decade of consecutive annual growth with its latest financial results, posting the highest revenue, profit and PEP in the firm’s history.

Revenue has increased by 8% from £1.103bn to £1.186bn, while net profit and PEP are up by a more modest 2% and 1% respectively. PEP moved from £1,163,000 to £1,173,000 for 2022/23.

Speaking with Legal Business, CEO Justin D’Agostino (pictured), said: ‘We are particularly proud of the results this year, especially because there were some significant challenges in all of our markets, including rising costs and tougher trading conditions.’

D’Agostino explained why the firm has fared so well despite the less-than-ideal market conditions: ‘Our clients come from  strong sectors, such as energy, infrastructure, technology and banking. We are also focused on the twin engines of our contentious and transactional practices. That mix results in a very well-hedged global business.’

On the firm’s strategy, D’Agostino elaborated: ‘We launched our new strategy in November 2021, which has been having a positive impact. When we set out our strategy, we set out our choices on the areas we were going to focus on winning market share and grow: private capital, energy transition and ESG. We are seeing significant growth in these areas, and we will see sustainable growth for the next few years.’

Asked which were the firm’s best-performing  jurisdictions, D’Agostino responded: ‘London had an outstanding year, as well as strong, double-digit growth coming from New York. EMEA saw good growth too, with double digits from Milan, Dubai, Germany and Johannesburg.’

He added: ‘The market was tougher than previous years in Asia and Australia. Despite this we still saw double digit growth in Japan and South-East Asia too.

‘On the practice side, our contentious practice did particularly well. We saw increased client demand in class actions, competition and disputes deals. The largest class actions we are seeing are with our biggest clients, such as Google and Meta.’

Probed further on the firm’s US strategy, D’Agostino commented: ‘We have been growing our New York office and we will continue to grow organically there. We are very focused on the US market and real attention will be placed on it by us over the next period.’

HSF’s chief financial officer, Steve Bowers, contextualised the discrepancy between the acceleration in the rate of revenue increase and the reduction of the rate of PEP and profit growth since this time last year: ‘Compensation costs are high because of the intense demand for talent, which remains an issue. We continue to invest and ensure that our employees are rewarded and that we have the right standing in the market for talent compensation.

‘Macro factors such as high interest rates, as well as our investment into digital technology, our core systems, and further investment in our people is the right thing to do with long-term benefits. That means that sometimes there will be a disconnect between profit and revenue growth. You won’t see many firms of our size and scale this year having their best-ever results on those three key metrics.’

He added: ‘The context is important here. If we look at the performance for FY23, you do see client demand soften in a few places, but we are still doing really well. Improving growth has not been an easy task.’

Ayesha.Ellis@legalease.co.uk

Herbert Smith Freehills (HSF) has recorded its ninth consecutive year of growth, with across-the-board increases in revenue and profit.

Global turnover saw a respectable 6% uptick from just over £1bn to £1.1bn, while overall profit increased 4% from £366.9m to £381.2m. Profit per equity partner (PEP), rose 6% from £1.099m to £1.163m.

Chief executive Justin D’Agostino hailed the ‘hat-trick’ of positive financial metrics, telling Legal Business: ‘The main story this year is strong client demand across the board, but particularly in our corporate and transactional teams. They have advised on transformative deals and are playing in the top league.

‘The other key contributor was our Asia-Pacific practice – we saw phenomenal results coming out of Australia, which has seen an M&A boom, as well as China and Hong Kong.’

The results were particularly pleasing for D’Agostino, who unveiled his ‘Ambition 2025’ strategy earlier this year, which placed a focus on boosting the firm’s transactional firepower as well as leveraging HSF’s historic presence in Asia. According to D’Agostino, the region was up by ‘double-digits’.

As outlined in our recent  ‘HSF: Between two peaks’ long read, an underweight private capital offering has long been the elephant in the room for the firm. But HSF is certainly on the right track, boasting an impressive mandate from London, with partners Mark Bardell and Gavin Davies advising Evergreen Coast Capital Corporation on its $16bn acquisition of Nielsen Holdings.

And in terms of mainstream M&A, a team led by Australian M&A partners Tony Damian and Andrew Rich assisted Sydney Aviation Alliance with its A$32bn buyout of Sydney Airport – the largest cash and infrastructure takeover in Australia’s history.

The performance of New York was also eye-catching, with the firm also reporting double-digit growth. Commentators have long been touting HSF as a potential US merger suitor, but the slow and steady approach appears to be paying off. HSF made major lateral partner investment in the region last year, attracting financial litigation partners Marc Gottridge and Lisa Fried from Hogan Lovells.

Other international jurisdictions posting significant growth this year were Australia, Hong Kong, Belfast, the Middle East, Paris and Madrid, while London was highlighted as performing ‘strongly’.

HSF’s profit increase is even more flattering when considering its 34 global partner promotions last year, the largest promotion round in the firm’s history. Alongside 14 lateral partner hires, the firm’s partner headcount swelled by roughly 1 to 2%, according to chief financial officer Steve Bowers.

The firm is clearly serious about the war for talent – it attracted headlines earlier this month when it announced a bold 14% uptick in newly-qualified (NQ) salaries from £105,000 to £120,000. It did not take a shrewd observer to note the timing of HSF’s announcement, just a day after Allen & Overy declared it was freezing its NQ rates at £107,500.

D’Agostino played down any opportunism however: ‘There’s intense competition for talent in the international legal sector. We took steps to make sure our remuneration was competitive. We are making investments very deliberately – the firm is ambitious.’

As for the upcoming year and potential economic headwinds, D’Agostino is upbeat: ‘We are confident with the strategy that we have in place. Will we see the same M&A activity in the next 12 months? Probably not, but the market remains buoyant. We are keeping the momentum for the first few months of this year and in some senses, we are exceeding it.’

Tom.baker@legalease.co.uk