Bankrupt Group of the Year: Davis Polk

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Here’s the Secret to Davis Polk’s Banner 2020—and 2021 So Far

Davis Polk may have just turned in the best single-year financial performance in modern history.

That’s not an official statistic, but I hope you’ll excuse me. It’s hard to find examples of firms that have grown revenue by more than 20% and profits by more than 40% without a merger or a contingency fee victory—precisely what Davis Polk did. There are signs through the first quarter that the results might not be a one-off blip. We’ll get to that. First, a recap of how Davis Polk pulled off the most impressive 2020 among Big Law firms.

The firm grew revenue by more than 22% to nearly $1.8 billion, The American Lawyer reported. Even more incredibly, it saw profits per equity partner spike by more than 40% to $6.35 million. Part of the outsized PPP increase is explained by the firm’s equity partner tier shrinking by 2.5% to 156 partners. Davis Polk is now the second most profitable firm by PPP, behind only Wachtell, Lipton, Rosen & Katz. The firm increased profit per partner from 2019 to 2020 by $1.8 million—which is the total PPP for nearly half of the AmLaw 100 last year.

The firm accomplished this growth with virtually the same number of lawyers as it had in 2019—980 compared with 975. That means a Davis Polk lawyer on average generated $325,000 more in revenue in 2020 than in 2019, and $270,000 more in profits, according to AmLaw data. Law firms were able to increase billing rates last year, but that kind of growth is only possible with a corresponding increase in hours.

Even after factoring in a 6% increase in rates (roughly the industry average last year), a partner who billed 2,000 hours at $2,000 an hour in 2019 would have had to bill 40 more hours at $2,120 to generate an additional $325,000 in 2020. For an associate who billed 2,000 hours at $750 in 2019, it would take nearly 300 more hours of work at $795 to bill an extra $325,000. The math is generous. It assumes a 100% realization rate.

Couple Davis Polk’s results with the firm’s newfound willingness to pay lateral partners above its former lockstep rates, and there could be a serious new bidder in the market for top legal talent. The firm declined an interview request for this column.

Davis Polk & Wardwell LLP

A standout team of highly reputed bankruptcy and restructuring attorneys primarily advising clients on the creditor side, including notable experience acting for bondholder groups. Offers impressive capabilities on advisory and transactional assignments, as well as top-quality representation in multijurisdictional matters, with burgeoning strength in oil and gas-related issues. Excels in debtor-in-possession financings, distressed M&A, and strategic planning and advisory work for major financial institutions.

According to one commentator: “It’s a wonderful team; they’re really crushing it.”
“The team as a whole has significant bench strength. They are very well connected in the space, and are very well kept up to speed on matters in the industry. They move quickly and smartly,” comments an interviewee, adding: “They have the ability to put a commercial and common sense overlay onto the legal analysis, and they are strong negotiators and advocates for clients.” Continued to advise Purdue Pharma on its voluntary Chapter 11 restructuring, which was filed with the intent to resolve thousands of global civil actions.

Bankruptcy and Restructuring

The essential task of bankruptcy and restructuring lawyers is to avoid a client’s bankruptcy. The term ‘bankruptcy’ itself is a technical term that refers to when financially distressed companies, unable to restructure on their own, file for Chapter 11 to undergo a court-supervised restructuring.

In order to avoid this scenario, a company must successfully “restructure its debt to keep the company together and retain its value,” chair of Davis Polk’s restructuring group Don Bernstein explains. But the path to financial viability – through court or not – can be convoluted. The legal know-how required and the multitude and variety of actors involved make bankruptcy and restructuring a rather complex practice.

Bankruptcy and restructuring attorneys must be adept at transactional work and litigation across a range of areas like M&A, securities, banking, labor and employment, environment, tax and IP.

Troubled companies will first attempt out-of-court restructuring, or corporate reorganization, in which they try to reach an agreement with their creditors. This has become an increasingly important stage. “Traditional Chapter 11 cases can be expensive, inefficient and harmful to the business,” according to Jay Goffman, former global co-head of Skadden’s corporate restructuring group. “This means it’s important to advise companies on how to avoid Chapter 11 or shorten their time in Chapter 11 and similar insolvency proceedings, rather than convincing them to do it.”

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