Editors' Blog

Countdown to this year’s Global 100: the UK members

Posted 23/05/2008 by Richard Lloyd

Later this year Legal Week and The American Lawyer will be joining forces to produce the Global 100 the definitive ranking and analysis of the world’s largest and most influential law firms.

As a warm-up, Richard Lloyd puts the early financial results from Global 100 UK law firms in an international context. Click here if you want to see how your performance is being reported in the relaunched AmLaw Daily.

Herbert Smith's rebound
The first London-based firms to report their numbers for the last financial year have confirmed what the market has long suspected. Despite the credit crunch that hit last August, the first half of the year in the City was so good that English firms had enough in the tank to report strong growth in turnover and profits for the full 12-month period. Throw in the fact that most of those to report have strong international networks with offices in the likes of Eastern Europe and Asia - regions that so far seem comparatively unaffected by the crunch - and the increases don't look so out of place.

First up is Hebert Smith, home to London's premier litigation practice and a corporate practice that enjoys close referral links to Cravath Swaine & Moore and Simpson Thacher & Bartlett in the US. In mid-May the firm reported that turnover had increased by 25% to £417.5m (up from £334m last year) and profits per partner (PPP) have also jumped by the same amount, to hit £1.02m.

Convert those figures into dollars and the growth is even more impressive, thanks to the weakening dollar: revenues up from $615.5m to $836m, and profits per partner going from $1.51m to $2.04m. In a US context, think Dechert (it had revenues of $836m and ranked 25th in this year's Am Law 100) for the top line. Herbert Smith’s bottom line would be just below Weil Gotshal & Manges and Cleary Gottlieb Steen & Hamilton (both reported profits per partner of about $2.1m).

Herbert Smith's exposure to contentious work - accounting for just under 40% of the practice - makes its business model the closest of all the English firms to the traditional profile of a US practice. And that premier litigation brand certainly helps. Legal Week reported recently that Herbert Smith will be sharing in an expected $100m (£51m) fees windfall from a dispute concerning the ownership of an aluminum business in Tajikistan, in central Asia.

Herbert Smith needed these results - badly. Last year, while the five firms in the magic circle all saw their profits soar (all reported PPP in excess of £1m) Herbies stalled, with partners’ average take-home pay dipping by 2.5% to £821,000. Despite the occasional KKR and Blackstone deal thrown its way by Simpson Thacher, Herbert Smith has never hit the buy-out heights, so didn’t benefit from the LBO boom like close rivals such as Ashurst. Now a significant uptick from the firm’s emerging markets offices, in the Middle East and Moscow specifically, and a slightly tighter financial management (i.e. controlling costs and getting those fees in on time) have paid off.

And then there’s the litigation practice, which is always handy in a downturn.

Ashurst knows how to profit from independence
For an international audience, Ashurst may still be best remembered as the UK firm that went through merger talks with Latham & Watkins and Fried Frank Harris Shriver & Jacobson in the early part of this decade but turned its back at the last minute. For the slightly more curious, it's a kind of magic circle-lite firm - it does not have quite the scale, nor the international network, nor the exposure to the highest-quality corporate and finance mandates of London competitors but it's a quality City thoroughbred nonetheless.

The firm's profits are yet to be announced (the news is a week or two away) but Ashurst was one of the first major London players to reveal its revenue, announcing 9 May a 17% rise to £323m, up from £275m. At around $647m, that means it's rubbing shoulders with the likes of Paul Weiss, Fulbright & Jaworski and Milbank on this year's Am Law 100.

Stay posted for details of the firm's profits per partner. Last year the figure leapt 36.4% to £956,000, so expect them to go past the magic £1m mark.

Norton Rose's and Lovells' Foreign Affairs
It may seem glaringly obvious but when you invest in and expand your business, you need to see a return on your investment. It doesn't take an MBA to tell a managing partner this but the truth is that for many UK firms, their international investments over the past decade have been spectacularly dilutive.

However, it's now becoming apparent that all those offices in continental Europe and the Far East might just be paying off. Take London-headquartered firms Norton Rose and Lovells. Norton Rose has announced growth in revenues of 27%, taking it to £297m and places due credit for the growth at the doors of its international offices, spread across Europe, the Middle East and Asia.

Norton Rose has spent the last 10 years investing overseas and asked its partners to carry the considerable pain. By way of example, consider its profits per partner in 2001 - £522,000 - and compare to last year's £515,000, which was itself a 16% rise on the year before. The firm hasn't yet announced its 2007-08 PPP; for those equity partners that have shouldered the cost of foreign expansion, a little payback is due.

While we wait for news of Norton Rose's profitability, Lovells has announced double-digit growth in both its top and bottom lines. Revenue is up 13%, to £479m, while partner profits have grown by 12% to stand at £662,000.

Where's the management love going? You guessed it - the firm's international offices. Managing partner David Harris told Legal Week that he was "delighted" with the way that the Dubai office in paticular had performed. A lagging London office, not underperforming foreign outposts, is now at the top of the management agenda.

rlloyd@alm.com