Cadwalader revenue shrinks 2.5% following office closures and partner exits

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Cadwalader Wickersham & Taft saw its revenue decline in 2016, amid partner defections and office closures. But managing partner Patrick Quinn pointed to higher profits as a sign that the firm’s tighter focus on core clients and practices is paying off.

Profits per partner, after dropping consecutively for three years, rose 2.7% in 2016 to $2.115m (£1.69m). Gross revenue fell by 2.5% to $452m (£360.9m) last year, according to preliminary American Lawyer reporting.

Even with declining income, revenue per lawyer at Cadwalader, with its smaller size, held steady at about $1.03m (£820,000). Headcount declined 2.2% to 438 lawyers, while the number of equity partners dropped by two to 45.

Revenue dropped in 2016 because “we’re a smaller firm than where we were before”, Quinn said. 

The rise in profits per partner, he said, stemmed from the firm focusing its energies on its largest client base and Wall Street heritage, including financial institutions, large corporations and public companies and, increasingly, hedge funds and private equity firms.

“We emphasise practices where the firm is best situated to succeed by meeting the needs of our clients, rather than trying to create demand in other areas,” Quinn said.

Quinn said the firm had sought years ago to diversify too broadly, entering areas that were “not the practices that best served our natural client base”.

During the past year, he said, partners have conducted a “top-down look at the firm as to which practices are consistent with that focused strategy, and putting our resources behind those and making some, frankly, difficult decisions about some of the other offices”.

Cadwalader confirmed in September it was closing its Asia offices in Hong Kong and Beijing, and in January said it was closing its Houston branch. The energy practice “had a tough year”, Quinn said.

But he added that closing in Houston and other markets had more to do with targeting the firm’s core client base than with short-term performance.

In Asia, “the work they were doing was just different from what the firm is known for – we’re not typically known for representing Chinese-state owned entities”, Quinn said.

Although Cadwalader reportedly explored merger options with other firms in the past year, Quinn denied that a combination was in the cards. “The strategy is really about building the best Cadwalader – the best standalone firm to service our natural client base,” he said. “All of our energy is going into growing on that strategy.”

Net income dropped by 2.1%, which Quinn said was a combination of several factors, including the costs of closing offices and the rising cost of associate salaries. Still, he said the firm did not make above-average billing rate increases to make up for the rising costs.

Meanwhile, Cadwalader had a steady stream of prominent partner exits in 2016, including a group of antitrust lawyers led by Charles ‘Rick’ Rule, who went to Paul Weiss Rifkind Wharton & Garrison; four litigators, including Louis Solomon, who joined Greenberg Traurig; litigator Martin Seidel, who left for Willkie Farr & Gallagher; and executive compensation lawyer Steven Eckhaus, who joined McDermott Will & Emery.

While Quinn said he couldn’t comment on individual departures, he said “virtually all of the partner movement” was tied to the firm’s strategy realignment.

“One of the consequences of having real clarity about your strategy and communicating it is that partners will decide; they’ll make their own decision whether their practice may or may not fit within that strategy,” Quinn said.

The practices that performed well last year, he said, included Cadwalader’s well known securitisation and finance practices, corporate and mergers and acquisitions, regulatory, and white-collar defence and investigations.

Among its most prominent work last year, the firm advised on the securitisation of loans originating through the Funding Circle platform, in the first securitisation of marketplace loans in Europe; advised Pershing Square Capital Management in acquiring a 9.9% stake in Chipotle Mexican Grill; and advised Procter & Gamble on two major transactions, including the tax aspects of the transfer of its Duracell business to Berkshire Hathaway.

It also advised Ashford Prime, a real estate investment trust for luxury hotels, in response to a campaign by activist investor Sessa Capital, and it is representing 32 NFL clubs in a US Justice Department investigation.

Quinn said the firm isn’t contemplating any other office closures. “We feel really good about where we are as a firm now,” he said. “We feel good about 2017.”

He said the firm is poised for growth “in a disciplined way”, adding that it’s talking with potential lateral partners in corporate and litigation practices and it is open to small group acquisitions.