Amid a challenging year for London’s top firms, Allen & Overy (A&O) managed to hit its stride with revenue growth of 4% to £1.28bn, while profits per equity partner (PEP) came in at £1.21m, a rise of 8%.
The result was significantly ahead of A&O’s London peers, which have also seen their sterling results impacted by weakness in the euro and the inroads of US law firms in City deal work (in constant currency, A&O estimates its revenue growth at 8%).
The performance was driven by a strong run in London, the Middle East and A&O’s disputes and regulatory practices. The firm capped off its trading period in fine style after advising lead arranger and sole lender Bank of America Merrill Lynch on the £47bn merger between BG Group and Shell in April.
The performance in 2014/15 was enough to see A&O overtake Linklaters in revenue – a striking result for a firm that a decade ago was by far the smallest of London’s Big Four. The firm, which has grown revenues by 22% over the last five years, pushed its revenue per lawyer to £508,000, well ahead of Linklaters and Clifford Chance.
A&O once again maintained its expansive form, with office launches in Barcelona, Johannesburg and Toronto. The 2,500-lawyer firm is also gearing up for a launch in the much-touted South Korea market.
The firm’s profitability was further supported by the substantial expansion of its Northern Ireland support hub, which launched in 2011. The firm now has nearly 400 staff in Belfast and is estimated to have saved more than £10m since its 2011 launch.
The global firm has also expanded its contract lawyer arm Peerpoint in Asia and currently has over 80 lawyers on its books. Further supporting its credentials as arguably the most progressive elite law firm in the world, A&O cited 15% annual revenue growth in its portfolio of online legal services, Aosphere, which is subscription-driven. Online services now generate well over £10m a year and serve more than 10,000 users.
‘Our constant drive to think ahead, challenge convention and be original is something our people and clients have embraced,’ says managing partner Wim Dejonghe (pictured).
Senior partner David Morley argues that A&O’s growth has been underwritten by a ‘clearly articulated strategy and brand identity, dating back over seven years, combined with a strong and distinctive culture’.
Significantly, A&O made two key moves to address the intense competitive threat of US law firms, last year ushering in a bonus pool for ‘exceptional partners’ in a bid to retain its stars and attract key lateral hires. The move has been positioned as preserving its lockstep by allowing additional flexibility to pay a handful of exceptional individuals over the top of its 50-point equity ladder.
In July 2015 the firm also dramatically overhauled its pay structure for associates to merge bonuses into its standard salary bands, leading to a dramatic £20,000 hike in associate salaries. The move is widely seen as responding to the threat of higher salaries on offer by the London arms of top US firms, with A&O pledging to pay bonuses in addition to a handful of star performers.
While A&O has frequently faced criticism for failing to make ground in the US, Dejonghe says the firm’s US office has had its most successful year so far. ‘There is no one else in the UK market that can provide the full gambit of English law and NY law advice across the full range of products,’ he adds. ‘So, as is happening in many deals, when the source of finance or structure change mid-deal, we are able to provide that advice whereas others are not.’
LB: US firms are making ground in London, why can’t UK firms do the same in New York?
Wim Dejonghe: ‘We’re pretty evenly matched if you look at the relative size of US firms in London and compare them against the relative size of UK firms in the US. Also when you look at the league tables, some of the US firms have established some successful niche practices in London but do not offer the breadth of advice that we do and even the most successful US firms in London still only advise on a fraction of the deals we do in London.’
What is the firm’s focus in Asia and Africa?
Dejonghe: ‘Emerging markets continue to be a key part of the firm’s strategy but the focus has probably shifted from investment to consolidation. That’s not to say we won’t take advantage of opportunities as and when they arise but the pace of investment will not be as aggressive as it has been in the past.’
David Morley: ‘We are focused on cross-border financing and investment as well as big-ticket dispute resolution but we are unlikely to expand our network significantly in Africa or Asia over the next 12 months.’
How do you see the legal market evolving in the near future?
Dejonghe: ‘It will increasingly be a case of which firm can meet the needs of the client, no matter what the structure, no matter what the law, no matter what method of delivery of that advice. Each firm will have to decide for themselves whether they are going to focus on providing part of the solution or the whole solution. There are very different models, but you need to know what you are trying to achieve as a business.’
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