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The Am Law 100, the Early Numbers: Mixed Year for McDermott as Revenue Rises but Profit Falls
The Am Law Daily
McDermott Will & Emery had a mixed year financially in 2012, as a second consecutive increase in annual revenue was offset by declines in most other categories, according to The American Lawyer's reporting.
While McDermott's gross revenues rose 3.1 percent to a three-year high of $851 million, revenue per lawyer slipped just over 1 percent, to $830,000, and profits per equity partner dropped 2.7 percent, to $1.46 million. The firms profit margin also fell slightly, from 34 to 33 percent.
Speaking to The Am Law Daily last February after announcing the firm's 2011 results, which featured increases in both revenues and profits, McDermott global cochair Peter Sacripanti predicted that 2012 would be even better." Interviewed Thursday, Sacripanti attributed the dip in profits to a combination of market forces and a series of major investments made by the firm.
There was uncertainty around the U.S. election, whether or not there would be tax reform, the stability of the euro, and the U.S. economy contracted in the last quarter, he says. Despite all those challenges and the investments that we've made, we were still able to grow our revenue and basically maintain our profits. Wed say that is a pretty good result.
The core of that investment came in the form of two new international offices, as McDermott continued to steadily expand its global presence in 2012. The firm established a base in the key German financial hub of Frankfurt in May, led by a team of four corporate and securities partners from U.K. Magic Circle firm Allen & Overy, and also joined the rush of international firms taking advantage of the liberalization of the Korean market by launching an outpost in Seoul.
Sacripanti says McDermott is now looking to add another partner in Korea and remains keenly focused on developing its practice throughout Asia. The firms Chinese affiliate firm, Shanghai-based MWE China Law Offices, is currently investigating the prospect of expanding into Beijing, he adds.
Zhaos arrival was just one highlight in what Sacripanti calls the firms most successful year ever for lateral hires. No fewer than 54 new partners joined McDermott in 2012, according to Sacripanti, who says the hires were accretive to the firms bottom line. Sacripanti singles out the collapse of Dewey & LeBoeuf as a major factor behind the higher-than-expected number of new arrivals. (The American Lawyer's 2013 Lateral Report, which covers the period from October 1, 2011, through September 30, 2012, shows McDermott adding 42 partnersgood for seventh place on the list of top-gaining firms.)
Weve seen a real flight to safety this year, he says. Were sort of the antithesis to Dewey in that we dont carry any debteverything we do is financed entirely from our current cash flow and operations. A lot of partners are now paying more attention to those issues and are attracted to that sort of economic stability.
McDermott also bolstered its fledgling Paris office launched in May 2011 following the hire of Herbert Smith (now Herbert Smith Freehills) corporate head Jacques Buhartwith a seven-strong team from Orrick, Herrington & Sutcliffe's French practice, Orrick Rambaud Martel. The group included Orrick corporate partner Bertrand Delafaye and two counsel: tax specialist Antoine Vergnat and litigator Antony Martinez, who both joined McDermott as partners. The office now comprises 10 partners.
McDermotts global corporate and tax group both performed well in 2012, Sacripanti adds, thanks in part to a buoyant final quarter as deals were pushed through ahead of end-of-year deadlines, while uncertainty over the sustainability of U.S. wealth transfer laws drove its private client group to one of its best years ever." The firms health care practice also had a busy 2012 following the introduction of the Affordable Care Act.
McDermott's litigation group, on the other hand, saw activity levels drop after the settlement of a number of weighty disputes it was handling for clients such as Brocade Communications Systems Inc. and Celanese Corporation. Sacripanti says that many of the firm's practices across Europe were also slightly down due to inclement market conditions.
Despite having stabilized its fiscal performance after steep declines in both 2009 and 2010, McDermotts finances continue to lag behind their prerecession levels. (In 2008 the firm posted revenues of $966 million, revenue per lawyer of $915,000, profit per partner of $1.52 million, and a profit margin of 42 percent.)
Looking ahead to 2013, Sacripanti says that although it would be difficult to repeat McDermott's extraordinary activity in the lateral recruitment market, he remains cautiously optimistic for the firms overall prospects for growth. He once again predicts an increase in both revenue and profits.
There is still a lot of economic uncertainty with the fiscal cliff and the sequester, and well continue to be conservative as thats the way we run the business, he says. But we will continue to grow.
This report is part of The Am Law Daily's early coverage of 2012 financial results of The Am Law 100/200. Final rankings and full results for The Am Law 100 will be published in The American Lawyer's May 2013 issue and on AmericanLawyer.com. The Am Law Second Hundred will be published in the June issue.