The world’s largest law firms continue to defy predictions that lawyers will suffer, sooner or later, from flat legal demand.
One of the largest firms, Baker McKenzie, provides a good example of why the industry remains optimistic. The firm released its annual financial report today, which said its global revenues reached $2.9 billion in the most recent fiscal year.
That is up 8 percent in U.S. dollars compared to the firm’s prior year earnings. The increase is 10 percent before global currency fluctuations are taken into account. Baker McKenzie, with 4,700 lawyers, operates in nearly four dozen countries in Europe, the Asia Pacific, the Middle East, and Africa, as well as the Americas.
A closely watched measure, profits per partner, also rose a hefty 13 percent, to $1.44 million, as Baker McKenzie benefited from a healthy number of cross-border transactions. Overall, the 1,600-partner firm said that it closed an average of three deals a day last year. And more than two-thirds of those deals were cross-border.
The firm’s financial results tracked the steady, if modest, climb in gross revenue at the country’s major firms. Last year, those revenues rose 5.5 percent, to a record $91.4 billion, at the top 100 firms, according to American Lawyer’s annual tracking report published last spring. Some law firms release their financials according to the calendar year. Baker McKenzie and other firms adhere to a July-June fiscal year cycle.
Baker McKenzie comes in at No. 3 in terms of top firm revenue, according to the American Lawyer. Only Kirkland & Ellis and Latham & Watkins surpass it in revenue, breaking the $3 billion mark. DLA Piper and Skadden, Arps, Slate, Meagher & Flom rounded out the top firms in terms of earnings.
A lot of the firm’s profitability is due to high-value, complex work, which many clients demand repeatedly, said Paul Rawlinson, the firm’s chair. Rawlinson spoke with Bloomberg Law on Aug 3, ahead of the release of the firm’s financial data.
“It’s ‘bet-the-company’ work involving compliance risk or significant regulatory change,” he said in a phone interview. “For example, if a Midwest industrial owner wants to carve out part of what he owns over a period of time, we would be providing lawyers specializing in mergers and acquisitions, tax and employment, and probably some of our business professionals.”
Other types of work include major investigations. One, he mentioned, is a consortium of 40 Swiss banks that hired Baker McKenzie to review millions of documents in connection with a U.S. Department of Justice inquiry into offshore bank accounts.
The firm’s strongest practices of late have been its trade, employment, and capital markets practices, Rawlinson said. Financial institutions are also major clients.
Some of the major legal matters the firm handled over the past fiscal year included:
- Lead counsel on the German company Knauf’s proposed $6 billion takeover of USG Corporation, the construction materials company.
- Advisors to board of directors in LafargeHolcim investigation of its operations in Syria.
- Legal counsel in sale of Sheraton Buenos Aires Hotel & Convention Center and Park Tower Hotel for about $100 million.
- Legal counsel to DK Telekommunikation and a consortium in a $6.7 million takeover of Danish telecoms business TDC A/S.
- Advisor to Marriott hotel group in a transaction to manage a casino hotel in Madrid, the first to be located in the city in 20 years.
- Lead counsel for France-based pharmaceutical company Servier in its acquisition of Shire’s oncology business for $2.4 billion.
Baker McKenzie also focused on plowing money back into the firm to innovate and upgrade its operations, and hired laterally from other firms to boost its book of business. Like other mega-firms, it is spread widely geographically and operates under a vertically integrated model that tries to offer one-stop legal shopping for multinational corporations.
“We have been making continued investments in industry, practice and client programs, and our people,” said Rawlinson, who became chair in October 2016.
He said investment in the firm’s global digital innovation platform already is making “a direct impact on our financial performance.”
“We estimated that our use of legal services in Belfast, our e-discovery platforms, and our use of legal project management are already bringing in more than $50 million in annual revenue to support our legal services in high-value work,” he said.
Belfast is the site of one of its shared service centers that handle more routine legal work, like document review.
Like some other major firms whose work flow has been challenged by the rise of alternative legal services providers, Baker McKenzie has opened such service centers to stay competitive. Rawlinson said the firm plans to expand the one in Belfast and to open new centers as well.
The firm also recently adopted artificial intelligence tools in 11 offices in three continents as the first step in a worldwide rollout. This will allow faster, more comprehensive review of merger and acquisition work, and other work involving contracts, the firm said.
In terms of physical footprint, Baker McKenzie a few months ago opened a new office, in Los Angeles, and hired five lateral partners to staff it.
Overall, Baker McKenzie expanded its ranks by adding 53 lateral partners during the last fiscal year, building its transactional capability in London, New York, and China – all major financial centers.
Rawlinson made good on his comments from this time last year that the firm was looking to add laterals and lawyer teams to build up its presence in London and China.
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