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‘All options on the table’: US investment pays off as A&O sees double-digit revenue increase

Allen & Overy (A&O) has set an early Magic Circle benchmark, today unveiling a robust 10% uptick in global revenues from £1.77bn to £1.94bn.

Growth was broadly matched in terms of profit before tax, which was up 9% from £822m to £900m. This translated to a milder 3% jump in profit per equity partner (PEP) from £1.9m to £1.95m, but the figures are cast in a favourable light given significant US investment.

According to the firm, over half of its revenue growth for the year came from the US. A&O added an eye-catching 27 partners across the jurisdiction last year, 24 of which via lateral recruitment, and opened new offices in Silicon Valley, San Francisco and Boston. In a statement, the firm said the new offices had ‘performed beyond expectations’.

The growth will fuel A&O’s belief that a slow and steady stateside approach, making surgical lateral hires in key practices such as tech, life sciences, and private capital, is a valid alternative to pursuing a high-profile combination. Notably, merger discussions with Los Angeles-bred O’Melveny and Myers collapsed in 2019.

Gareth Price, A&O’s global managing partner (pictured), told Legal Business: ‘This is a good performance that really validates our US strategy, which has started to bear fruit. When the talks with O’Melveny were called off, we said at the time that we would keep all options on the table when it came to the US, and we still hold that view.

‘We wouldn’t pretend that the way we do it is the only way, or even the best way. It’s just the way that works for us at the moment. I’m sure there are peer firms that look at our investment in the US and think “well they won’t be able to do a merger now”, but the 50% revenue growth is evidence that the additions have settled in well and that client demand is strong.’

A&O also pointed to ‘strong financial performance’ across its European network as well as its UK heartland. This neatly intertwined with the firm’s stated ambitions in private capital on a mandate advising Bridgepoint on the sale of Element to Temasek, with A&O teams from across Europe, UK and the US offering M&A, finance, antitrust and IP advice.

The upbeat results contrast with the firm’s frugality displayed at the end of last month, when it announced it would be freezing its newly qualified (NQ) solicitor salaries at £107,500. Herbert Smith Freehills quickly took advantage, announcing a bold 14% boost in its NQ rates from £105,000 to £120,000.

With the rest of the Magic Circle yet to reveal financials or stick or twist on their NQ remuneration, A&O appears to have used its first mover’s advantage to make a wider point. Today’s more than respectable results suggest a decision made out of principle rather than necessity.

Price takes a different view however: ‘You need to look at the financial year and remember it’s not all even – we started to see a softening of the market towards the end of the year. These salary decisions are made by looking forwards, not backwards.

‘It isn’t born purely out of principle – we aren’t trying to be the Bank of England!’