Prestigious Law Firms Show Impressive Growth in Revenue

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Summary: Although on average, law firm revenues increased, these increases were primarily seen in “big law” firms.

Last year was the best year on average for law offices across the country since the recession hit. However, according to the Wall Street Journal, averages are not always the best figures to use for such data.

  

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In large, corporate firms, revenue rose by nearly 5% in 2014. However, the increase was due to the continued success of elite law firms, whereas over 100 others struggled to keep up.

Roughly 15 to 20 law firms lead the market, according to industry observers. Many are corporate firms that benefited from an increase in mergers-and-acquisitions work last year. These firms include Davis Polk & Wardwell LLP, Skadden, Arps, Slate, Meagher & Flom LLP, Kirkland & Ellis LLP, and Sullivan & Cromwell LLP.

At the 15 most profitable firms, revenue increased by an average of 6.6%. According to data collected by Citi Private Bank’s Law Firm Group, this was compared with a 4% increase in 170 other firms that Citi interviewed.

In D.C., law firm profits varied.

Bruce MacEwen, a legal consultant, said, “I think this gap is becoming insurmountable. If you’re a general practice, national-destination-for-nothing-in-particular law firm,” it’s easy to “fall behind.”

However, Citi’s total numbers show a better year for many law firms. According to the survey, net income increased by 6.1% on average, and profits per equity partner increased by 5.7%.

Although in past years, revenue increases were attributed to inflation and increased work rates, more work was actually presented to law firms in 2014, Citi said. Many legal advisers earned seven-figure fees as a result of $3.45 trillion worth of deals.

Among the most profitable firms were Paul, Weiss, Rifkind Wharton & Garrison LLP and Sullivan & Cromwell. Paul Weiss saw $3.85 million in profits-per-equity-partner, and Sullivan & Cromwell reported $3.68 million.

Paul Weiss reported billion-dollar revenue in 2014.

Law firms that focus on technology have also done well. Fenwick & West LLP and Cooley LLP, both of which focus on technology and life-sciences work, reported an impressive 19% in revenue increases. Fenwick advised on over 170 mergers and acquisitions, including representing WhatsApp Inc. when it was acquired by Facebook Inc. for $19 billion. Cooley’s increased revenue was largely due to adding 50 attorneys from the regulatory firm Dow Lohnes , which is no longer in existence.

For those firms that are not top-ranked or focused on technology, new methods of standing out in a buyer’s market must be assessed.

Some have attempted to merge with rivals. For example, Bingham McCutchen LLP dissolved last year when over 500 of its attorneys joined Morgan, Lewis & Bockius LLP. Last summer, Patton Boggs merged with Squire Sanders LLP, forming Squire Patton Boggs .

Mark Ruehlmann, the chairman and global chief executive of Squire Patton Boggs, said, “For us, the merger was an opportunity to stay ahead of our competitors.”

Other firms have refocused their efforts into certain practice groups or locales, arguing that they do not need to provide an endless array of services.

In the first nine months of 2014, hours and profits both increased.

Wiley Rein LLP , a Washington-based firm, closed its bankruptcy group last year. In March, 18 partners and senior attorneys were let go to maintain “our strategic and practice area goals.”

Dan DiPietro, the chairman of Citi’s law firm group, said, “Half the battle is figuring out what [firms] really have to offer here other than a slick logo and slick marketing campaign.”

Before the economy crashed in 2008, it was much easier for law firms to make money. Joe Conroy, the CEO of Cooley, said, “We were all running this ATM machine called big law firms. The notion of just being great, that’s the part that’s getting harder …You’ve got to have something else.”

Part of the issue is that firms who do transactional work have done well, but for other firms who depend on litigation, that practice has slowed. According to The American Lawyer, many firms took a hit when corporate America stopped spending as much on legal work.

Many legal experts expect litigation and other investigations resulting from the financial crisis to completely stop within the next year.

DiPietro said, “Overall there are still too many lawyers chasing too little work. But it’s not as bad as prior years.”

Source: Wall Street Journal

Photo credit: Bloomberg