Allen & Overy lifts revenue and PEP to new heights as top earner takes home £3.5m

Allen & Overy (A&O) has posted double-digit growth across all key metrics after a standout year in which revenue and profit per equity partner (PEP) rose to record levels.

The firm added more than £200m to its top line during 2016-17, with revenue rising 16% to £1.52bn. PEP rose even more sharply, shooting up by 26% to reach £1.51m.

On a constant currency basis, stripping out the gains from exchange rate fluctuations, A&O said revenue had grown 6% on last year, with PEP up 14%.

Managing partner Andrew Ballheimer said: “These are strong results, achieved against a challenging backdrop of political and economic uncertainty. While these results include one-off foreign exchange rate gains, this does not detract from the real underlying growth we have seen.”

The sharp hike in PEP is particularly notable as it moves A&O within touching distance of both Freshfields Bruckhaus Deringer and Linklaters (see comparison below), both of which have typically boasted significantly higher PEP than A&O and fellow magic circle firm Clifford Chance.

Ballheimer told Legal Week: “Our partners are as ambitious as the partners at our peer firms are. We are particularly proud of our profit margins, which are now higher than the rest of the magic circle. It’s taken a lot of hard work and people are proud that our investments over time have paid off.”

Net profit grew by 27% during the year, up from £563m to £716m. The firm also announced that this year’s top earner will take home £3.519m, 25% up on last year’s equivalent of £2.808m – with the disclaimer that this year’s figure includes a retirement payment.

The average number of partners increased by five from 523 to 528 in the year, while full equity partners rose from 434 to 441.

During the year, A&O moved a number of German partners down its lockstep, while also making it more difficult for those in the country to move beyond 40 points on its 50-point ladder. Conversely, the firm broke lockstep to recruit a number of New York finance partners, as top UK firms continue to grapple with the challenge of attracting top talent in the lucrative US market.

The firm cited multijurisdictional work as a key driver behind its growth, with 74% of total revenue derived from matters involving two or more countries and 30% coming from matters involving five or more countries.

Ballheimer, who took over as managing partner at the start of the last financial year, said: “Overall, it’s been a challenging year. We did see a slowdown in work during the weeks before the Brexit vote and the immediate period thereafter, but since the end of July last year business across our practice groups and offices has picked up.”

He added that the firm’s alternative delivery models – including its Belfast legal services centre, its contract lawyering business Peerpoint, its online services business aosphere and digital derivatives compliance system MarginMatrix – had seen their strongest year yet.

He said: “aosphere now has 340 clients who pay an annual subscription rate. Belfast has grown to almost 80 professionals and Peerpoint now has around 200 consultants. All of those aspects of the alternative delivery service hit maturity in the last financial year and are all very profitable – both on a standalone basis and also as penetration products that open up opportunities in our core business.”

A&O has been rethinking its approach to performance management in recent months, piloting a new scheme based on regular feedback instead of formal annual appraisals. Other key changes to have taken place at the firm during the year have included a governance shakeup, which has seen the firm introduce a new executive committee.

“Looking forward, we continue to live in interesting times,” said Ballheimer. “We’re moving into another period of uncertainty and all sort of bumps in the road will arise, so nobody can afford to be complacent. We have to ensure our proposition is a best-in-class offering for our clients.”

Magic circle revenue and PEP 2016-17: a comparison

Revenue Clifford Chance: £1.54bn Allen & Overy: £1.52bn Linklaters: £1.44bn Freshfields: £1.33bn

PEP Linklaters: £1.57m Freshfields: £1.55m Allen & Overy: £1.51m Clifford Chance: £1.38m