You think A&O has problems? Take a look at O’Melveny in London

While many commentators will now be disparaging Allen & Overy’s US practice, the firm with the bigger overseas headache is O’Melveny & Myers (OMM). Just this year Akin Gump Strauss Hauer & Feld made several swoops on OMM’s London ranks, sending the latter’s partnership headcount to just three.

O’Melveny has had plenty of time to bulk up in the City, but there has been precious little support from the US to do so. As a result its numbers have been on the wane rather on the up. Financials and headcount data from 2010 shows a decline in O’Melveny’s London turnover, operating profit, employee numbers and partner headcount, in what are alarming statistics for a US firm struggling to compete against expansive rivals in the City. Here’s what the data shows.

The firm’s financial health

While O’Melveny globally reported strong results for 2018, with revenue up 8.5 per cent to $800.6m, its London office has been unable to get past the £15m mark since 2010, according to its filings at Companies House. Turnover has dropped from £14.3m in 2010 to £11.7m for 2018, while operating profit has also more than halved from £2.9m to just under £1m.

In comparison, Dechert’s operating profit has increased from £14.9m to £47.9m over the same period, according to its Companies House accounts.

Another US firm that publishes its accounts is McDermott Will & Emery. The firm’s London office too has struggled financially and personnel-wise (more on that later), but it at least managed to increase its operating profit in the last financial year from just under £10m to £12.6m. This marked a recovery more than anything else, as it recorded profits of £12.5m in 2010.

Compare and contrast

McDermott’s City office in 2010 was nearly double the size of O’Melveny but its ability – or lack of – to hold onto its lawyers for the long-term is virtually identical to its smaller US rival. Just 15 per cent of lawyers working in O’Melveny’s London office in 2010 remain with the firm today, compared to 11 per cent at McDermott. At O’Melveny, these are London head Jan Birtwell, who joined from Linklaters in 2005, and litigator David Foster who moved from Watson Farley & Williams in 2007. Funds counsel Angela Kwan Yuk Yung was formerly an associate at O’Melveny, while funds partner James Ford is now based in O’Melveny’s Hong Kong office.

High turnover can mark a new way of thinking as firms attempt to shake-up the status quo. Since 2010 there have been multiple attempts to revive outfits like Fried Frank Harris Shriver & Jacobson in London, as well as McDermott and Dechert, but these exits must come hand in hand with investment and corresponding headcount growth. Since 2010, O’Melveny’s lawyer numbers have declined from 57 to 41, while its current crop of three partners is more than half of what it was in 2010.  In comparison, Dechert’s number of employees has increased from 179 to 265 alongside an increase in partners from 39 to 45.

For firms that have not launched London revivals, then longevity is key. Nearly half of Covington & Burling’s London lawyers from 2010 are still with the firm, as are Milbank’s City contingent and Davis Polk’s. The latter two were just a little larger in lawyer headcount than O’Melveny in 2010 but have managed to hold onto key players since then including Milbank partners Suhrud Mehta and Julian Stait, and promote rising stars since like Davis Polk corporate partner Reuven Young. Continuity has been important in seeing through new London growth strategies.

A question of retention

As shown above, McDermott’s ability to keep hold of lawyers for long-term has not been unduly different from O’Melveny’s. However, the pair at least differ in terms of new partner retention. In O’Melveny’s recent accounts, the firm counts nine partners in London (although that number has since declined further to three); London head Jan Birtwell, litigator David Foster and corporate partner Andrew Weiler. Today it was announced that stalwart competition partner Christian Riis-Madsen (who has primarily been based in Brussels, as well as London) is to join Gibson Dunn & Crutcher. Birtwell, Foster and Riis Madsen are all veterans at O’Melveny, while Weiler is the only lateral partner to have joined since 2010 and who has remained with the firm in London. He joined in 2015 from White & Case.

In total, O’Melveny has added nine new partners to its UK LLP since 2010, although three of those are based in the US and are included for accounting purposes (these are current chief of operations George Demos and general counsel Martin Checov, as well as former transactions head Gary Singer, who left in 2014).

The remaining cohort have all left for new climes since 2010, the most recent exits being Eve Ellis, Daniel Quinn and Aleksander Bakic who joined Akin Gump. Ellis was a lateral partner hire in 2015 from Mishcon de Reya, while Bakic was promoted in 2017 and Quinn in 2013. Other swift exits were Lisbeth Savill, a media partner who joined from Olswang in 2012 and left for Latham & Watkins two years later, as well as private equity partner Dan Oates, who left for Fried Frank Harris Shriver & Jacobson a year after joining O’Melveny in 2015.

While McDermott Will & Emery too has had a chequered history in London, it has nevertheless kept hold of a far greater number of its lateral hires. Based on new appointments since 2010, McDermott has retained 54 per cent of its City-based partners compared to 11 per cent at O’Melveny. It has also added far more, hiring 39 in the last eight years compared to O’Melveny’s nine. It’s these relative levels of retention that has sidelined O’Melveny from London growth for nearly a decade.