Author Archives: Hanover Legal

Killing & Eating and its Ascent to the Summit

As we approach the midway point of calendar year 2018, we observe the New York Yankees of BigLaw, Kirkland & Ellis, acquiring Guillermo Stantons ad nauseaum in its quest to pull away from the rest of the world’s major league firms in the revenue rankings.  Clearly, K&E is not resting on its laurels in breaking the $3 billion barrier in gross revenue last year after increasing its bottom line to $3.165 billion from $2.65 the previous year, squeaking by now number two Latham in that category by $100 million.  See https://www.law.com/2018/03/22/what-is-the-new-normal-for-kirkland-ellis/

To fully appreciate K&E’s laser-focused quest to ascend to the top of the charts, one need only look at the pace at which K&E is achieving its record setting accomplishments, its 2017 gross revenue figure representing a more than 100 percent increase over its pre-recession total in 2007 and 19.4 percent increase from 2016.  But perhaps even more remarkably, K&E is simultaneously nearing the top of the BigLaw standings in profitability as well, reporting $4.7 million in profits per equity partner for number three in the nation in that category, topped only by Wachtell and Quinn Emanuel.  See https://www.law.com/americanlawyer/2018/03/21/kirkland-overtakes-latham-as-worlds-biggest-firm-by-revenue/.

K&E’s strategy essentially boils down to offering tremendous compensation packages to BigLaw’s heaviest power-hitting revenue producers in traditionally lucrative transactional areas like M&A, private equity and restructuring, in contrast to less dependable revenue flows from big-ticket litigation, the decrease in the firm’s percentage of litigators of over ten percent in the last ten years signalling that change in strategic focus.  See http://www.chicagobusiness.com/article/20180518/issue01/180519866/kirkland-ellis-reaches-the-top-as-it-focuses-on-corporate-work

K&E’s rise to the top has also been facilitated by the resistance of other major firms to change the way they compensate their partners, venerable firms like Cravath, Debevoise & Plimpton and London-based Freshfields maintaining their lockstep compensation structures and their gentility but at the cost of rendering their most productive partners easy prey for K&E, where gentility is generally anathema to the extent it may impede the latter’s ability to compete for revenue streams and maximize profits among their limited echelon of equity partners.  See https://www.thelawyer.com/issues/online-march-2016/partnership-prospects-at-kirkland-ellis/

Consequently, K&E has been able to lure perennial power-hitters seemingly at will, most recently signing litigator Sandra Goldstein from Cravath by reportedly offering her about $11 million for each of her first five years there – perhaps twice as much as she was earning at Cravath – plus a signing bonus.  See https://www.wsj.com/articles/m-a-litigator-sandra-goldstein-leaves-cravath-for-kirkland-ellis-1523663003, and see https://www.reuters.com/article/moves-kirklandells-goldstein/moves-cravath-ma-litigator-goldstein-leaves-for-kirkland-ellis-sources-idUSL1N1RQ28T.  Their acquisition of Goldstein came on the heels  of their acquisition from Cravath earlier this year of M&A superstar Eric Shiele, see https://www.reuters.com/article/kirklandellis-moves-schiele/moves-cravath-ma-lawyer-schiele-to-join-kirkland-ellis-sources-idUSL2N1PI027, who lateraled only about one month after Erica Berthou, formerly global head of Debevoise’s investment management and funds group, jumped aboard along with former Debevoise deputy corporate chair Jordan Murray.  See https://www.law.com/americanlawyer/sites/americanlawyer/2017/12/01/just-in-time-for-the-holidays-kirkland-recruits-another-rainmaker/.  That same month K&E landed private equity star David Higgins from Freshfields as well. See https://www.law.com/americanlawyer/sites/americanlawyer/2017/12/18/freshfields-private-equity-heavyweight-david-higgins-quits-to-join-kirkland-as-london-co-head/.  This no-holds-barred approach to compensation also allowed them to out-compete any venerable lockstep competitor in bidding for Robert Khuzami when he was transitioning from his position of SEC Director of Enforcement, according to public disclosure forms paying him $11.1 million from late 2016 to early 2018.  See https://biglawbusiness.com/government-disclosures-shed-light-on-big-law-salaries/. Other prominent examples of K&E’s successful talent-acquisition ventures include their 2016 luring of appellate superstars Paul Clement and Viet Dinh, while absorbing the rest of their elite 17-lawyer Washington, D.C. boutique as well.  See https://www.wsj.com/articles/kirkland-ellis-to-absorb-bancroft-1473711303.

K&E is working hard not only to win the race for highest revenue and profits per equity partner, but also to brace its attorneys for the rough and tumble emotional ride that goes hand in hand with billing the mountains of hours needed to generate the cash required to satisfy the compensation commitments extended to all these heavy hitters.  About two years ago the firm made headlines for implementing a yoga and meditation program to help their army of non-equity partners, counsel and associates maintain their health while working hard.  Here, for the equity ranks at least, the proof is in the eating of the pudding:  they are currently savoring a hearty 5.2 percent increase in revenue per lawyer to $1.58 million.  See https://www.law.com/americanlawyer/2018/03/21/kirkland-overtakes-latham-as-worlds-biggest-firm-by-revenue/.  See also https://blogs.wsj.com/law/2016/05/03/kirkland-ellis-lawyers-to-get-emotional-fitness-training/

In sum, in this era of free-agency, even leading partners at the elite lockstep firms are switching teams at rates never before seen in the history of BigLaw in order to maximize compensation.  While we have no concerns with respect to the ability of those elite lockstep firms to continue to thrive nonetheless in the short term, we expect to see more of those firms modifying their lockstep compensation systems in order to better fend off the attacks of the elite eat-what-you-kill firms on their rainmakers.  As to the rest of the BigLaw market, we expect to see continuing contraction at the rate of at least one major firm collapse every year and a half, while managing partners everywhere invest additional resources in eating heavy-hitters elsewhere and simultaneously protecting against the risk of losing their own to the increasingly predatory lateral market.

We at Hanover Legal remain on board consulting with managing partners and attorneys at all levels as to staying alive and thriving in this competitive and dynamic environment.

 

The Shrinking Pack of BigLaw Front Runners

As we enter the final ten of days of calendar year 2017 and contemplate resolutions and goals for the coming year, we take a moment to shift our focus and glance into the rear view mirror at the twelve months we are soon to leave in our wake.   From the perspective of this market observer, BigLaw 2017 looks like mile 17 of a marathon, with a handful of firms racing neck and neck, leading a pack of elite runners which is growing smaller mile by mile.

In terms of strategy, dominance for law firms can theoretically be attained by organic growth, individual attorney or group lateral acquisitions, smaller firm acquisitions or the rare merger-of-equals, but with the race for global market dominance among the few remaining elite-of-the-elite international firms only gaining intensity and more major-city markets being effectively closed to potential late-comers, law firm mergers and acquisitions have increasingly been defining competitive strategy over the last two decades, with 2017 being a record-setting year with about 100 law firm acquisitions tracked.  See  https://biglawbusiness.com/law-firm-mergers-on-record-breaking-pace-in-2017/.

The venerable London based firm of Norton Rose is a case in point, its 2017 acquisition of former AmLaw 100 stalwart Chadbourne representing only a piece of their current merger plans and recent merger history.  See  http://www.legalweek.com/sites/legalweek/2017/06/30/chadbourne-name-disappears-as-norton-rose-merger-goes-live:  “Norton Rose, the product of a 2013 mega-merger between Houston-based Fulbright & Jaworski and London-based Norton Rose, has expansion plans beyond Chadbourne.  Since the February merger announcement with Chadbourne, the Swiss verein announced plans to unite with Australia’s Henry Davis York … Norton Rose has been through a succession of major mergers.  It merged with Australian firm Deacons in 2010, then in 2011 with Canadian firm Ogilvy Renault and leading South African firm Deneys Reitz. These were followed by a second Canadian merger with Calgary’s Macleod Dixon in 2012, while legacy Norton Rose’s union with US firm Fulbright & Jaworski went live in summer 2013. The firm also inked a deal with Vancouver-based firm Bull Housser & Tupper in September 2016.”

With AmLaw100 firms disappearing at the rate of about one every year and a half, the question of which among them will be the next to fade away is fodder for odd makers.   But look to 2018 to see more BigLaw acquisitions and consolidations than ever before as the leading pack in the race for global dominance continues to shrink and the rest of the market grinds to remain viable.

The Ever-Contracting Landscape of BigLaw

Chadbourne’s February 2017 melting into Norton Rose Fulbright continues the trend of AmLaw 100 firms dissolving or being acquired or absorbed by larger, stronger players at the rate of one every year or so since 1999, starting that year with Brobeck and since followed by other now fallen but once-titans Coudert Brothers, Rogers & Wells, Rosenman & Colin, Kronish Lieb, Brown Raysman, Thelen, Thacher Profitt, Howrey, McKee Nelson, Dreier, Heller Ehrman, Wolf Block, Dickstein Shapiro, Dewey & LeBoeuf and Bingham.   Current firm rankings thus inevitably cause BigLaw market observers to ponder which are the currently rising or waning power-players therein, which is the next to be doomed to the in-memoriam list, and which three in all likelihood before the end of this decade.  Who are the great sharks in the ocean of BigLaw and who are their likely prey?

It is no secret that not only the biggest and strongest U.S. based firms have an increasingly whetted appetite for smaller firms which will enable them to enhance their global major market presence, but their London-based competitors are particularly hungry as well (see, for example “British Firms Still Trying to Conquer New York“, and “Are we about to see more UK-US law firm mergers?”).   Law firm sharks generally first seek prey not only with compatible and ideally complimentary practice areas, profitability and billing rates, but also displaying signs of weakness.   We refer our readers to our earlier post entitled  37 Signs That Your Firm May Be Sinking for indicators as to when a firm may become an especially attractive potential acquisition candidate.

In the meantime, our smaller and weaker players are increasingly frenzied to overcome the threat of falling victim to the hunt generally by one or a combination of several means:  merger with a relative equal in stature and profitability, see, for example, “Law Firm Mergers Off To Hot Start In 2017” ; “Law Firm Merger Mania Continues in First Quarter of 2017“;  “Law Firm Mergers Keep Pace with 2015’s Record”);  so called “one-off” individual lawyer or practice group lateral acquisitions, see, for example, The Lateral Report: Moves Hit a Post-Recession High;  Lateral Love: A Near-Record Year for Lateral Hires” or developing or enhancing a special niche or other competitive advantage.  See, for example,  “5 Reasons Large Companies Are Turning To Boutique Firms“;  “Boutique Law Firms: The Future of the Legal Profession?

In short, in the ever-increasingly treacherous ocean of BigLaw, it’s now more than ever be or be eaten.  Our consultants at Hanover Legal remain on call to assist all our clients in assessing how not only to survive, but grow faster, more efficient and thrive.