The news of the K&L Gates / Middletons merger, which looks a lot like the acquisition of Middletons by K&L Gates, got us thinking about the value of law firms. It’s quite apropos given that Middletons is based in Australia, home of the world’s first publicly traded law firm.
As we mentioned in yesterday’s Morning Docket, the American Lawyer recently set out to determine the world’s most valuable law firms. How did Am Law go about doing this, and which leading law firms sit atop their rankings?
Here’s how Am Law explains its methodology:
Our procedure is based on the classic investment-banking technique of developing cash flow multiples to value companies. We started with each firm’s net, made deductions by assigning equity partners with a notional salary, then applied a multiple that varied depending on the firm’s size, its average growth rates in revenue and profits, and its brand strength [see "A Firm Valuation Glossary"]. We then used this formula to calculate values for our Global 100 list of the world’s highest-grossing law firms.
Am Law came up with two rankings: rankings by value, in terms of the total value of the firm, rankings by value per partner, in terms of the total value divided by the number of equity partners. Here are the top ten most valuable firms ranked by total value (click to enlarge):
Kirkland, Latham, Skadden, Allen & Overy, Gibson Dunn — the names generally make sense. They combine size, which spells big revenues and big profits, with strong international brand recognition. Under the Am Law methodology, K&E is worth almost $4 billion, and Latham isn’t far behind, at $3.8
And here are the top ten most valuable firms ranked by value per partner (click to enlarge):
Quinn Emanuel, Kirkland, Sullivan & Cromwell, Wachtell Lipton, Paul Weiss — again, the names here accord with conventional wisdom (which, to be honest, goes a long way towards making rankings that have “legitimacy” in the eyes of readers). Taken as a group, the firms on the “most value per partner” list are smaller, more prestigious, and more profitable than the firms on the “most total value” list. Quinn tops the list with a whopping $17.7 million in value per partner; Kirkland takes second, with just shy of $13 million in “VPP.”
Check out the full rankings here. What do you see that surprises you? Even though the exercise is somewhat academic, since U.S. law firms are not open to ownership by non-lawyers, these numbers should be of great interest to partners, legal recruiters, law firm consultants, and divorce lawyers.
Taking Stock: The art of law firm valuation: How much is your firm worth? [American Lawyer]
The Valuation Calculation [American Lawyer]
The priciest partnerships [The Economist]
Kirkland Tops List of Most Valuable Law Firms [WSJ Law Blog]