DLA sees revenue fall after post-Brexit currency slump while PEP rises to record high
Currency fluctations hit revenues as focus on costs and efficiency drives 5% PEP rise
March 13, 2017 at 06:59 AM
6 minute read
DLA Piper has posted mixed financial results for 2016, with significant currency fluctuations resulting in a rare drop in revenue, while profits rose thanks to a drive to cut costs, improve productivity and target higher value work.
The firm's revenue fell 2.9% during the calendar year to $2.47bn (£2.03bn). Despite this, a 140-lawyer reduction in total headcount, to 3,616 lawyers, meant that its average revenue per lawyer (RPL) inched up 1.5% to $685,000 (£563,000).
At the bottom line, DLA's net income rose 6.3% to $643.5m (£529m) – the second highest in the firm's history, behind a 2014 peak of $667m (£548m). This fuelled a 5.4% increase in average profit per equity partner (PEP), which hit a record high of $1.655m (£1.36m). The firm's profit margin climbed two percentage points to 26%.
DLA co-chair Roger Meltzer told The American Lawyer that the decline in revenue was entirely caused by currency exchange rates and did not accurately reflect what was a "very solid" year for the firm. DLA's international arm compiles its accounts in sterling and the numbers are then converted to US dollars to produce the firm's global figures. A DLA spokesman said that without the currency effect – sterling has weakened from $1.50 (£1.23) to around $1.24 (£1.02) since the Brexit vote last June – the firm's total revenue actually would have increased by 1.1%.
"We've been fortunate that our clients have continued to drive additional market share to us," Meltzer said. "We're continuing on an upward trajectory."
DLA's RPL and PEP have steadily increased every year since 2010, when The American Lawyer first started treating the firm as a single global entity for the purposes of the Am Law 100 survey.
Global co-CEO Jay Rains said the firm's increased profitability is a reward for strategic efforts to focus on quality, efficiency and costs. "When you go through a period of rapid growth, as we have over the past 10 years, it's important to take a breath and reassess," he said. "We've made a conscious effort to be more exacting and improve the overall financial profile of the firm. It's more than a top-line business these days."
DLA made significant cuts to its UK support staff last year and closed a small office in the Yukon territory, which it inherited as a result of its 2015 combination with Canadian firm Davis. Meltzer said this continued "reshaping" has also resulted in some lawyers leaving the firm if they "cannot meet that exacting standard or [if they] reach the conclusion that this is no longer the same firm they joined", although he stressed that no lawyers were laid off.
The firm's US business was "strong across the board" in 2016, Rains added, with the exception of general business litigation, which he said has become "very rate constrained" and was "an area of weakness from a financial standpoint". DLA's US corporate practice had a standout year, Rains said, with the firm topping Mergermarket's legal adviser rankings by number of M&A deals globally, for the seventh year running. "We're still doing a lot of deals but we're also competing head to head with the elite firms [for big-ticket transactions], which we wouldn't necessarily have been doing 10 years ago," Meltzer added.
Internationally, London-based global co-CEO Simon Levine (pictured) said that all of the firm's European offices performed well in 2016 and that the Middle East, where DLA has nine offices, delivered a third consecutive year of increased revenue and profits as part of a continued recovery in the region. DLA's UK business and its transactional practices across the region "softened" in the second half of the year due to Brexit-related uncertainty, he added, although the drop-off was "nowhere near as bad as we might have feared, frankly". This was "more than made up for" by high levels of client demand across regulatory and disputes practices, Levine said.
DLA, which was among 20 firms named by clients in a Legal Week survey as providing the best levels of overall service, continued to invest heavily in expanding its already extensive network in 2016.
During the year, DLA opened an office in South Africa and subsequently hired partner Johannes Gouws from Linklaters ally Webber Wentzel to manage and build its practice in the country. The firm also integrated its Swedish arm and combined with Finnish firm Peltonen LMR and Sweden's Groenberg as part of a new Nordic verein.
Everything about the firm is infinitely stronger than it was five years ago
Its US business, meanwhile, bolstered its presence in Canada by combining with Toronto IP boutique Dimock Stratton, became the first full-service Am Law 100 firm to open an office in Puerto Rico, and signed a cooperation agreement with Chile firm Bahamondez Alvarez & Zegers.
The firm also made 58 lateral partner hires globally in 2016 – including a large real estate team from King & Wood Mallesons' now defunct European arm – and promoted 48 new partners internally.
Other notable developments saw DLA join the ranks of firms utilising machine learning technology by signing a deal with artificial intelligence software provider KIRA Systems. The firm also expanded its collaboration with flexible lawyering provider LOD to Australia, and launched a new online tool that provides clients with information on global patent laws.
Moving into 2017, Rains said the firm is currently busier than at the start of any other year in the past decade. Meltzer remains cautious about the underlying market conditions for global law firms in 2017: "How can you be anything but cautious about 2017, with the uncertainties on both sides of the pond?" But he added that disruption "presents an opportunity" for the firm.
"Everything about the firm is infinitely stronger than it was five years ago," Meltzer said. "There are places where we still need to do better, but we're determined to drive the firm to the highest possible level."
Earlier this week, the firm announced that it had combined with its Portuguese alliance firm ABBC. DLA is now targeting a tie-up with a firm in Peru and is seeking to establish new offices in Denmark – the firm previously had an office in Copenhagen, but the practice span off in 2007, citing client conflicts – and the Republic of Ireland.
DLA's results mean that Latham & Watkins retains its position as the world's largest law firm by revenue. Latham had another outstanding year in 2016, increasing its revenue by 6.5% to more than $2.8bn. The firm has added more than $1bn to its annual revenue since the recession in 2009.
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