Editors' Blog

Global 100: restructured Freshfields smashes into PEP elite

Posted 2/06/2008 by Alex Novarese

Last year it was Linklaters that proved you could be big and global and among the most profitable firms in the world. This year it looks like Freshfields’ turn.

The City giant announced its financials today, unveiling PEP of £1.435m - a jump of almost 40% on last year’s figure. Translate that into dollars and the average equity partner in the magic circle practice is taking home a shade under $3m, an increase of 50% on last year.

The firm has not so much crept into the top 10 of the world’s most profitable firms worldwide as landed squarely in the middle, just below Quinn Emanuel’s rapacious litigators and a shade above Simpson Thacher & Bartlett’s buy-out junkies. In our global edition last year, Freshfields was 17th in the profits rankings; it now lies 5th. Of the UK firms still to report, only Linklaters and Slaughter and May have a serious chance of bettering Freshfields’ bottom line.

Revenues have taken a bit of a back seat in this story but the magic circle practice still reported strong growth in turnover, with the top line swelling to £1.178bn (a 19.5% jump) or $2.358bn. So, in three years the firm has doubled its profits, added almost £440m to its revenues and shrunk its equity partnership from around 515 to 415 today.

Of course, that partnership restructuring has played a major part in this year’s numbers. The management decided to take the cost of shrinking the equity – around £50m – in one hit during 2006-07, so a significant uplift was always on the cards. But these numbers also confirm that while there may have been a steady stream of departures from Freshfields’ equity, both forced and voluntary, the firm has not lost business.

Its corporate practice has continued to feature at the top of the deals tables – it topped Mergermarket’s European M&A table for 2007 and has consistently led Legal Week’s lead adviser league, which highlights the firms securing the lead M&A mandates on Europe’s top deals. And when the credit crunch did hit, the firm picked up just about the choicest related mandate in the UK, when it was instructed to advise the stricken bank Northern Rock on a rescue package.

It’s also handy that the firm has a large and top-quality practice in Germany, a legal market that has outperformed expectations over the last two years (arch rival Linklaters would struggle to make a similar claim).

Throw in a spread of vibrant international offices across Europe, the Middle East and Asia – regions that have still not seen anything like the same fallout from the credit crunch as the US or the UK – and you start to build the story behind the numbers.

In the wider context of the magic circle, Freshfields' results have, of course, put down a challenging benchmark for peers to follow, though given its high-stakes restructuring it really had to lead peers on profits growth this year or it would have looked foolish. Early indications would suggest that Clifford Chance, which last week announced more modest but solid results, will probably see the slowest growth in the magic circle this year given its heavy exposure to the US economy, finance and private equity.

Allen & Overy, which reported turnover up 16% at the halfway mark, would have to do amazingly well to match Freshfields’ revenue growth. A very strong performance from Linklaters could conceivably see the firm this year take CC’s crown as the world’s largest law practice but both firms are a way off reporting yet.

In the meantime, stay posted to The AmLaw Daily to see how the UK leaders measure up against themselves and the Skaddens of this world and stay tuned for the upcoming Legal Week/AmLaw Global 100.

alex.novarese@legalweek.com; rlloyd@alm.com