Legal Business

Macfarlanes’ revenue continues to defy gravity but PEP holds steady

Macfarlanes’ revenue continues to defy gravity but PEP holds steady

City stalwart Macfarlanes has posted a mixed bag of financial results as the ninth consecutive year of revenue growth failed to translate into a rise in profit per equity partner (PEP) following last year’s 26% surge to £1.74m.

The results announced today (10 July) show turnover grew 8% to £216.98m in 2018/19, a significantly slower pace than last year’s exceptional 20% rise to £201.5m.

Operating profit rose 4% to £110.74m but PEP was marginally down to £1.734m as the firm grew its tight equity partner ranks by three to 56. The total number of partners at the firm was down by three to 84.

‘In a tricky environment to see this increase in revenue is pretty gratifying,’ senior partner Charles Martin told Legal Business. ‘Our model of having a balanced practice between transactional, advisory and contentious/investigation is delivering greater resilience and that accounts in substantial measure for the positive revenue growth.’

On the comparatively slower profit growth he said: ‘We have a cost base that we are obviously working hard to contain but we have to be realistic. We pay our people properly in line with what the market demands.’

Mandates keeping the firm busy included advising Searchlight Capital Partners on the English law elements of its $2bn acquisition of Mitel Networks Corporation; Foncière des Murs on the purchase of 14 hotels for £858m; and a consortium of Stanhope, Mitsui and AIMCo on the letting of White City Place to Novartis.

The year saw some unusual lateral activity for the mid-tier thoroughbred. Of the only 14 partners the firm has hired in the last decade, three joined since the beginning of 2019. Following the early retirement of one of its highest billers, Graham Gibb, in February the firm brought in Ashurst’s former corporate head Robert Ogilvy Watson. The same month it hired Charles Russell Speechlys private client property partner Ian Cooke, and in the spring it recruited corporate partner Peter Baldwin from Ropes & Gray.

Martin added: ‘Going into the summer we are busy. It’s very important to have a busy July, August and September because if you are not you will suffer. So far the signs of activity are good.’

Macfarlanes, which remains one of the most successful and profitable operators in the City, is due for one of the most significant moments in its recent history next year, as Martin hands over to private client partner Sebastian Prichard Jones in April 2020 after 12 years at the helm.

marco.cillario@legalease.co.uk

For more on Macfarlanes’ improbable rise under Martin’s watch, see ‘Defying gravity’ (£)

Legal Business

A special situation – Macfarlanes overcomes lateral reluctance with rare spate of hires

A special situation – Macfarlanes overcomes lateral reluctance with rare spate of hires

Corporate partner Peter Baldwin joins the City outfit from Ropes & Gray

Traditionally reticent to engage in the lateral recruitment market, Macfarlanes has continued its recent flurry of hires, this time recruiting special situations and corporate partner Peter Baldwin from Ropes & Gray.

Legal Business

Defying gravity – Inside the improbable rise of Travers and Macfarlanes

Defying gravity – Inside the improbable rise of Travers and Macfarlanes

‘If you look at Wall Street, this model is replicated again and again. There is no reason it shouldn’t work in the UK.’ David Patient, now seven months into his second term as Travers Smith’s managing partner, responds philosophically to this Legal Business comment on the performance of his firm and Macfarlanes: ‘If two firms with once-derided models can so comprehensively outpace the wider industry, then even more of the profession’s battered received wisdom should be sceptically revisited.’

Criticism of Travers and Macfarlanes has largely focused on them being old-school, City-centric law firms, barring one tiny European outpost apiece. Yet the pair continue to defy expectations post-Lehman. For Travers, 2017/18 was its ninth consecutive year of growth, yielding an 18% uptick in turnover to £146.9m and a 24% surge in profit per equity partner (PEP) to £1.2m. Meanwhile, Macfarlanes’ reputation for striking profitability has yet to desert it in eight years of sustained revenue and PEP growth (marred only by a shaky 2015/16), with the firm upping revenue by 20% to £201.6m in the last financial year and posting an enviable 27% increase in PEP to £1.74m.

Legal Business

Legal 500 data: behind the story

Legal 500 data: behind the story

The Legal 500 United Kingdom 2019 rankings

Our cover feature this month looks at London-centric peer firms Macfarlanes and Travers Smith. Here we look at the two firms’ UK rankings in The Legal 500. For further information see ‘Defying gravity’.

Legal Business

Double whammy for Ashurst as London head quits for BCLP and Macfarlanes hires former corporate head

Double whammy for Ashurst as London head quits for BCLP and Macfarlanes hires former corporate head

Ashurst London managing partner Simon Beddow and former corporate head Robert Ogilvy Watson have quit the firm to join Bryan Cave Leighton Paisner (BCLP) and Macfarlanes respectively.

A partner at the firm for 21 years, Beddow had led the firm’s City base since 2016 and was previously the firm’s corporate co-head. He will become BCLP’s deputy head of corporate.

BCLP’s co-chair Lisa Mayhew said: ‘At the time of our merger, we said that we would enhance our corporate team in London and hiring someone of Simon’s calibre clearly demonstrates this.  One of his priorities will be to consider which further additions we wish to make.’

Ashurst has appointed real estate finance partner Ruth Harris to replace Beddow as London managing partner, effective today (1 February).

Managing partner Paul Jenkins told Legal Business: ‘Simon wanted to continue in a management role and there wasn’t one available at Ashurst. We want people to be more transaction and client focused.’

He added: ‘I see it as a changing of the guard. We have some amazing corporate partners including Tom Mercer, Karen Davies and Jason Radford. The corporate practice has seen 17% revenue growth over the last year. It’s the strongest it’s been in many years. The departures are not going to impact that.’

Ogilvy Watson, whose 18 years as partner included a seven-year spell in the firm’s Hong Kong office from 2008, has acted on a number of public M&A transactions, including ITOCHU Corporation’s $10.4bn acquisition of a 20% stake in CITIC and Volcan Investments’ £778m offer for Vedanta Resources. He led Ashurst’s corporate practice until Jason Radford took over last year, and is a rare lateral for Macfarlanes, which is beefing up its public company M&A practice.

Macfarlanes senior partner Charles Martin told Legal Business: ‘We see public M&A as an important part of the practice and we see this as a quite interesting year for strategic M&A.’ He added: ‘When the opportunity to have Robert join us came along it seemed very timely.’

He added that the hiring process took ‘weeks rather than months’ and ‘as we got to know him, we thought he would be an outstanding addition to the team’.

marco.cillario@legalease.co.uk

Legal Business

LLP accounts: Linklaters posts fall in profits as top earner doubles income at Macfarlanes

LLP accounts: Linklaters posts fall in profits as top earner doubles income at Macfarlanes

Operating profits at Linklaters dipped 1% to £472.3m, while Macfarlanes’ highest-earning partner brought home almost £4m in 2017/18, the two firms’ LLP accounts showed this week.

In a mixed bag of financial results, the fall in profits at Linklaters came despite a 6% rise in turnover to £1.51bn. The operating profit figure reported is more than £200m lower than the £676.2m pre-tax profit the firm posted in July .

Linklaters said the discrepancy was because the published accounts consider as salaried employees the firm’s 150 partners that are not LLP members. The number of equity partners was down by two on last year to 310, according to the filing. Last year’s accounts had shown a 9% rise in operating profits to £476.2m in 2016/17.

The firm saw a 5% increase in its staff cots to £739m this year, up from £705m last year, as the number of lawyers rose by 30 to 2,487 and business support staff by 41 to 2,190. The share of profit available to the firm’s 13 executive committee members rose slightly however to £21.6m from £20.8m.

Linklaters has the lowest profit per equity partner (PEP) of the Magic Circle at £1.54m. Discussing the financial results in July, managing partner Gideon Moore said he was happy with the firm’s financial performance: ‘The increase in revenue was good and it’s an indication that the clients are supporting what we are trying to do’.

On the weakened profitability, he pointed to significant investments made by the firm in a number of areas, including the joint operations agreement with Shanghai firm Zhao Sheng.

Meanwhile, Macfarlanes’ highest earner took home £3.86m in 2017/18, a 90% increase on £2m the previous year. According to the accounts, the figure includes payments on retirement to a partner who is not a member of the senior management team.

Operating profits rose 24% to £106.27m amid a 20% turnover growth to £201.5m in a standout year for one of the most profitable operators in the City. The strong increase in profits came despite staff cost rising 12% to £59.3m with the firm growing its headcount by 25 to 585. The remuneration available for key management group members was £4.55m, up 10% from £4.11m in 2016/17.

In July Macfarlanes posted a PEP of £1.74m , up 26% and higher than most of the Magic Circle.

Marco.cillario@legalbusiness.co.uk

Legal Business

Macfarlanes holds hands up to significant gender pay gap at partner level

Macfarlanes holds hands up to significant gender pay gap at partner level

In another stark example of the disparity in the treatment of men and women within City law, Macfarlanes has revealed an average gender pay gap of 55% at partner level.

On a median income basis, the gap between the firm’s male and female partners is even higher: a stark 73%. A key factor making this gulf so pronounced is the feeble female representation in its partnership ranks:  in the 2017/18 financial year just 12 of Macfarlanes’ 85 partners were female.

However, in publishing the figures, Macfarlanes becomes the second law firm after Allen & Overy (A&O) to disclose its gender pay data ahead of the April 2019 deadline. At the Magic Circle firm, male partners are paid 61.2% more on average while on a median basis the disparity is reduced to 39%.

Previously Macfarlanes, and the majority of law firms, had opted not to include the specific pay gap between its partners and instead offered an overall firm statistic. But after political pressure, particularly after A&O was hounded by a government select committee over such lack of disclosure, firms are now under pressure to include partner pay data.

With the inclusion of Macfarlanes’ partnership figures, the firm’s overall pay gap which includes associates and business support staff, sits at 75% on average and 49% on a median basis.

The associate pay gap is far narrower than the firm’s partnership discrepancy, with male associates being paid 4% more on both a mean and median basis. According to the firm, this slight gap was caused by the introduction of a bonus scheme in July 2017, in which a larger number of men received a bonus than women.

Macfarlanes said more men received this bonus because more male solicitors went out on secondment, and it vowed to review the bonus scheme for the next financial year.

Senior partner Charles Martin told Legal Business: ‘It’s all about culture and moving forward as an organisation. Making progress in this regard is very high up our list of priorities.

‘It’s a combination of culture, momentum and drive to see progress, and also a lot of important nitty-gritty small changes that collectively make a big difference.’

The firm’s human resources director, Hilary Maurice added: ‘We have gone a step further in putting out more details than has been required. A lot of other firms are saying the gap is a result of the structure of the firm. ’

Among Macfarlanes’ business services staff, men earned 7% more on average but on a median basis there was a 0.5% gap in favour of women.

tom.baker@legalease.co.uk

Legal Business

City’s mid-weight elite set blistering pace as Travers and Macfarlanes surge in 2017/18

City’s mid-weight elite set blistering pace as Travers and Macfarlanes surge in 2017/18

Marco Cillario assesses the results amid another strong year for the City’s mid-tier

The latest financial results by UK law firms show leading mid-market players once again harnessing robust commercial activity to post a series of startling results well ahead of larger rivals.

Legal Business

Macfarlanes breaks £200m barrier as PEP grows 26% in buoyant year

Macfarlanes breaks £200m barrier as PEP grows 26% in buoyant year

Macfarlanes has grown its revenue 20% to £201.5m in yet another sign of a strong financial year for mid-tier City firms.

Profits per equity partner (PEP) also rose 26% to £1.74m as the firm lifted operating profit 25% to £107m, cementing its position as one of the most profitable operators in the Square Mile.

‘All of our critical business generating areas have performed consistently strongly throughout the year,’ senior partner Charles Martin told Legal Business. ‘We have had a busy summer, and that makes a big difference.’

The growth outpaced last year’s performance by some margin, with Macfarlanes growing revenues 4% to £167.6m and PEP 7.6% to £1.38m in 2016/17.

Mandates keeping the firm busy included advising US cinema chain Regal Entertainment on the $3.6bn takeover bid from Cineworld and tech start-up Improbable on its $502m financing from SoftBank.

‘M&A has held up surprisingly strongly, private equity was buoyant, there has been a huge amount of fundraising, lots of exit activity,’ Martin said. ‘Virtually every industry is dealing with disruptive change, and one of the ways clients are responding to it is through M&A activity.’

The year also saw some unusual lateral market activity for the City stalwart. Macfarlanes launched a corporate crime and investigations practice in March with the hire of Eversheds Sutherland corporate crime head Neill Blundell but lost investment fund finance group leader Bronwen Jones to Reed Smith and rising deal star Emmie Jones to White & Case.

The firm also made the unusual move of announcing Martin’s successor as senior partner two years before the end of his term. Private client partner Sebastian Prichard Jones will take over in 2020, bringing to an end Martin’s 12 years at the helm.

Martin struck a cautious tone when discussing the prospects for the coming year, saying the firm expected it to be more challenging: ‘The year has started well, but it’s far too early to say.’

A number of other mid-tier players have posted strong financial results over the last few weeks. Fieldfisher hiked its top line 24% to turn over £207m, while Osborne Clarke reported 14% global revenue growth to €273m.

marco.cillario@legalease.co.uk

Legal Business

Deal watch: Global 100 elite line-up on $6bn GKN-Dana transatlantic union

Deal watch: Global 100 elite line-up on $6bn GKN-Dana transatlantic union

A group of elite firms both sides of the Atlantic, including Macfarlanes and Slaughter and May, face off as British engineering giant GKN has agreed to a $6.1bn merger of its automotive business with US-based car parts supplier Dana.

In a deal that will create one of the world’s largest auto parts providers, Macfarlanes’ corporate partners Graham Gibb and Richard Burrows acted for Dana as it announced today (9 March) that its shareholders will get a 53% stake in GKN.

Paul Weiss Rifkind Wharton & Garrison’s corporate partner Tarun Stewart also acted for the Ohio-headquartered company, while Skadden Arps Slate Meagher & Flom advised Dana’s board of directors with a team including M&A partners Stephen Arcano, Ann Beth Stebbins and Scott Hopkins.

Slaughters partners Martin Hattrell and Robert Innes acted for GKN alongside Cravath, Swaine & Moore.

Slaughters previously advised GKN on a £7.4bn takeover bid launched by British investment company Melrose earlier this year. Head of M&A Roland Turnill led the Slaughters team as GKN rejected the offer.

As part of its defence against the Melrose takeover bid, GKN announced earlier this month that it was going to split the two main parts of its business – its aerospace division and its Driveline unit, which supplies parts to about half of the world’s makers of passenger cars.

Melrose’s offer sparked a public debate with some worrying that Melrose would break up GKN to hike its value ahead of re-selling it within a few years. A cross-party group of MPs asked in a letter to business secretary Greg Clark that the bid be blocked, as the Pensions Regulator warned that the move could affect GKN’s ability to fund its pension scheme. Melrose now has about ten days to decide whether to raise its offer for GKN.

But GKN chairman Mark Turner said in a statement the combination of GKN Driveline with Dana ‘will create a US and UK-led global market leader in vehicle drive systems. The synergies between these two businesses and our complementary product portfolios make this a great deal for GKN shareholders.’

With customers including Fiat Chrysler and Volkswagen, GKN’s auto parts business generated £5.3bn in sales last year. According to the terms of the deal, GKN’s shareholders will now own around 47% of the new business, which will operate as Dana Plc, have its domicile in the UK and continue to trade on the New York Stock Exchange.

marco.cillario@legalbusiness.co.uk