Dechert Grows Revenue 6.6 Percent, PPP 2.4 Percent
Dechert saw a 6.6 percent rise in gross revenue to $777 million in 2013—a year that was spent digesting the office expansion and lateral growth of 2012.
CEO Daniel O'Donnell said all of the firm's core practices experienced growth between 2012 and 2013, with finance and real estate, financial services and intellectual property litigation leading the way with double-digit increases.
Dechert grew its revenue at a greater pace than its headcount growth, which went from 803 attorneys in 2012 to 845 in 2013—a 5.2 percent increase. The equity partner tier increased nearly 8 percent from 151 equity partners to 163 and the nonequity tier grew 5.3 percent from 113 to 119 nonequity partners.
While Dechert's compensation costs went up in line with its headcount increases, O'Donnell said the firm's other operating expenses held steady between 2012 and 2013. That resulted in a 10.4 percent jump in net income from $317.5 million to $350.5 million. The firm's profit margin rose 1 percentage point from 44 percent to 45 percent.
With the nearly 8 percent rise in the equity partner ranks, Dechert didn't see as large of a leap in its profits per equity partner (PPP) as it did with its net income. Dechert still far outpaces other Pennsylvania-based firms when it comes to PPP, however. The firm's PPP rose 2.4 percent from $2.1 million in 2012 to $2.15 million in 2013. The nonequity partner tier, which grew by six, saw its collective pay grow by $500,000 to $69 million. The average compensation for all partners rose 2.1 percent from $1.46 million to $1.49 million.
Dechert has stopped prepaying the coming year's expenses out of the previous year's profits, so the firm's 2013 PPP was not impacted by any prepayments.
The headcount growth and increase in work in some of the firm's core practice areas coupled with a 3 percent rate increase across the practices and markets the firm felt would accept such a bump, resulted in the 6.6 percent revenue spike. The firm's revenue per lawyer (RPL) grew at a smaller pace of 1.1 percent, moving from $910,000 in 2012 to $920,000 in 2013.
In 2012, Dechert opened in Almaty, Kazakhstan; Dubai, United Arab Emirates; Chicago; Tbilisi, Georgia; and Frankfurt, and added 29 lateral partners. There were no new office openings in 2013 and 10 partners were added laterally, including three equity partners, O'Donnell said.
The firm's finance and real estate practice, which decimated with the economic fallout in 2008 and 2009, has come back strong in the past few years. O'Donnell said the practice was particularly bolstered in 2013 by the commercial mortgage-backed securities market as investors moved away from conventional fixed-income securities to the CMBS market.
The financial services team had a strong 2013 thanks to significant increases in regulation as well as an increase in the amount of money being managed in the markets, O'Donnell said. He said the IP litigation practice saw a rise in work that he expected many firms with that practice experienced in 2013. Dechert, in particular, he said, was helped by its focus on life sciences and the "significant spillover effects" for IP litigation created by the firm's biotechnology clients.
Dechert had an "extremely active" deal practice in 2013, handling a number of billion-dollar-plus deals. But the pure M&A practice was about flat compared to 2012. O'Donnell said the fourth quarter of 2013 wasn't nearly as strong as the fourth quarter of 2012, in which the deal market exploded in advance of changes to the country's tax structure. Dechert did experience a boost in its capital markets practice, handling a number of registrations and IPOs.
Last year's corporate work got a boost from the firm's private equity clients, many of which saw funds raised in 2006 and 2007 move out of their investment periods in 2013. O'Donnell said those clients were looking to sell off companies and raise new funds last year.
Deal pricing is still viewed as being relatively high, however, O'Donnell said, causing some investor funds to sit on the sidelines last year. He said 2014 brings with it a sense from economists that the economic recovery has taken hold and the market is more sound. He said the beginning of 2014 is "going gangbusters" in terms of M&A and financing activity.
Overall, corporate work accounted for 50.6 percent of the firm's revenue in 2013.
Another practice that had a "banner" year for Dechert was its antitrust group, O'Donnell said. The team spent lots of man-hours on four antitrust reviews in 2013: the US Airways merger with American Airlines, the merger of OfficeMax and Office Depot, Georgia-Pacific's acquisition of Buckeye Technologies and transactions for CVS Caremark.
O'Donnell said he expected the firm's bankruptcy practice to be down by quite a bit, but said it was flat year over year.
On the litigation front, O'Donnell pointed to a number of victories for clients, including a win in California of a $100 million asbestos case against client Union Carbide and an appeal victory in a $10 million case against client DHL that resolved issues that would have had a much higher dollar value for the company going forward.
Dechert is in the middle of its representation of BNY Mellon in the $8.5 billion Countrywide/Bank of America litigation. The white-collar defense practice remains strong, with the client roster including Ezra Merkin and Jon Corzine, O'Donnell said. Dechert is handling IP litigation for Intellectual Ventures in its quest for more than $1 billion in royalties against major telecommunications companies, he said.
He also noted that the firm's international arbitration practice remains very strong, particularly in Latin America, where Dechert's energy practice is also robust.
On the whole, 2013 was about spending time reaping the benefits of its 2012 expansion and growing out some of those new offices, particularly in Chicago and Los Angeles.
"We kind of go in a growth and digest mode and 2013 was a little bit more digest," O'Donnell said. "I anticipate growth in '14."
O'Donnell said he expected 2014 would see continued strength in the finance and real estate and IP practices. He said the private equity work would remain solid while M&A activity by strategic buyers was expected to increase. O'Donnell said he thinks companies with a record amount of cash on hand are going to start to use it.
While there is a general sense that the recovery has taken hold, O'Donnell said he thinks it is fragile and a number of things could push the economy off-track.