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‘Natural attrition’: Sidley’s London growth grinds to virtual halt as global revenue nears $2.4bn

Sidley Austin’s City base grew by less than 1% and missed expectations it would turn a profit in 2019, as the firm’s global growth also slowed.

The Chicago-bred firm reported yesterday (4 March) revenue of £98.1m for its City base compared to £97.5m the previous year, despite a 6% increase in its London lawyer headcount to 153.

Its global top line rose by 5% to $2.34bn, even as it trimmed its legal workforce 1% to 1,922. Profit per equity partner (PEP) rose by a more convincing 10% to $2.82m, although this was partly due to a 6% drop in its equity ranks to 313. Revenue per lawyer reported a healthy 7% rise to $1.22m.

The results mark a slowdown for Sidley, having in 2018 reported stronger performances in most metrics, as revenue lifted 9% to $2.2bn and PEP 13% to $2.55m.

The 2019 financial results also mark four years since the firm started building a European sponsor practice from a virtual standing start. Sidley has since February 2016 recruited over 75 lawyers in London and Munich working with private equity clients across M&A, finance, restructuring and tax – an investment of over $40m. The majority of the recruits came from long-time Chicago rival Kirkland & Ellis.

‘We have seen a 12% [London] revenue growth per year on average over the last three years, we are pretty impressed with the results,’ said Europe-based executive committee member Erik Dahl, one of the former Kirkland partners who made the switch in 2016. The City base reported two consecutive years of 14% revenue growth in 2017 and 2018, both times outpacing the firm’s global performance.

Sidley had expected its previously loss-making London office to turn a profit in 2019 as those investments paid off. But the firm could not confirm this had happened, although London partner Christian Iwasko (pictured) told Legal Business: ‘Our London revenue has grown and our cost base has been reduced. The firm is very happy with the direction of travel.’

The London office moved to new premises at 70 St Mary Axe last month, in the building dubbed the Can of Ham, with room to increase its legal workforce by around 20% and the option to expand office space by 25%.

Dahl denied the drop in global lawyer and partner headcount was due to a restructuring effort: ‘This is part and parcel of our strategic initiative to increase our PE and restructuring business and maintain excellent litigation and regulatory practices and other businesses.’

He added: ‘As we focus on more profitability in that sector, there is a natural attrition that’s occurred with people retiring, moving on and the like, and us being conservative in terms of replacement. We are focusing on the more big ticket stuff.’

In terms of mandates, Iwasko mentioned long-time client Towerbrook being active last year, with the Sidley team advising the PE house on deals including the investment in GBA Group. He added that Global Loan Agency Services had become one of the largest clients of the PE practice, which worked on mandates including the restructuring of Galapagos and Bartec.

Dahl also pointed to a strong performance from the firm’s Munich base, launched in 2017 with a seven-partner hire from Kirkland. That office has since grown to ten partners and over 30 lawyers focusing on PE, restructuring, leveraged finance and tax: ‘Just under three years into the project, we have revenues in excess of €30m [in Germany].’

Looking ahead, he said the firm would continue to focus on building out a PE and restructuring practice in the US, particularly New York. Hires last year included Shearman & Sterling private capital co-head Brien Wassner.

Sidley’s London base is not alone in posting underwhelming financials in 2019. New York firms White & Case and Cadwalader, Wickersham & Taft both saw City turnover fall by around 4%, to $337m and $41.3m respectively. However, Los Angeles-bred giant Latham & Watkins saw its London top line rise by more than 15% to about $450m.

For more on Sidley’s daring attempt to build an elite private equity practice starting from Europe, see ‘The big long’ (£)