Paul Hastings Bucks Post-Boom Slog as Revenue Hits $1.8 Billion

Welcome back to the Big Law Business column. I’m Roy Strom, and today we look at Paul Hastings’ financial results from 2023. Sign up to receive this column in your Inbox on Thursday mornings.

Paul Hastings revenue climbed around 9% last year to more than $1.8 billion, fueled by growth in demand as the firm avoided a post-2021 hangover that gripped many rivals.

The demand for lawyers’ time rose by nearly 4% in 2023, significantly above the anemic .2% demand growth that top 50 firms logged, according to Wells Fargo & Co.'s legal specialty group. Profits grew more than 10%.

“We gained a ton of market share across a lot of practices,” firm chair Frank Lopez said in an interview. “Even in a soft economy you can build demand if you take enough market share.”

Lopez and managing partner Sherrese Smith have pushed revenue growth through an ambitious hiring strategy. The firm made waves in the Big Law market by taking lawyers from rivals such as Kirkland & Ellis, Latham & Watkins, Weil Gotshal & Manges, Cahill Gordon & Reindel, and White & Case.

The largest hire came in 2022, when more than 40 restructuring lawyers joined from since failed Stroock & Stroock & Lavan. That group has gone on to win work in Chapter 11 cases, including for the unsecured creditors of WeWork Inc. and the official creditors’ committee in the FTX Group Inc. matter, for which it collected more than $33 million in fees so far.

The firm’s strategy has focused on identifying portions of work that it’s not getting from existing clients and then hiring top-tier lawyers who can help win those assignments, Lopez said.

“It starts with us, not the lateral,” Lopez said. “We are looking at our existing client base and portfolio of practices and trying to find where there are opportunities.”

Revenue Growth

The strategy is paying off. Paul Hastings revenue has increased by about 15% since 2021, compared to the 9.3% average of the 50 largest firms, according to Wells Fargo. The value of a single share, or unit, for Paul Hastings’ equity partners has risen nearly 50% over the past three years, the firm said.

Paul Hastings’ average annual growth rate from 2020 to 2023 (more than 11%), doubles the trend from the previous three-year period (5.5% average annual growth). The firm’s 20% revenue growth from 2020 to 2021 stood out even as booming transactional markets lifted most firms to record financial heights.

“Our financial success is the core of our strategy,” Lopez said. “You can have a philosophical strategy, but if you don’t have a strong financial trajectory and balance sheet, it’s very hard to execute on it. And for our partners it’s very stabilizing to be at a place that has had financial success in a softer market.”

Diversification has been key during a period that’s seen some transactional markets stagnate or fall dormant. Out of 20 practice groups at Paul Hastings, Lopez said none delivered more than 12% of the firm’s revenue in recent years.

Last year, the firm’s countercyclical practices, including restructuring and commercial litigation were “incredibly strong,” Lopez said. Other “cycle agnostic” practices, such as IP litigation and advising on infrastructure projects around the energy transition, were busy. And despite a slow market for deals, the firm’s finance and capital markets practices saw growth, he said.

A group of high-profit firms that focus on M&A and capital markets work saw revenue and profits decline in 2022, failing to build on what some called an outlier year.

Lopez’s Role

Lopez, a New York-based capital markets partner, joined Paul Hastings in 2019 from Proskauer. He made an unusually fast rise to the firm’s chair position, which he was tapped for in October 2021 before officially taking over a year later. Smith, a Washington-based partner who previously served as the vice chair of the data privacy and cybersecurity practice, was named managing partner at the same time.

Lopez is maintaining the firm’s goal for each of its 20 practice groups to be leaders in their markets. But as the firm prepares for the next transaction cycle, he is keen to add to its private equity, M&A, finance, capital markets, investment funds and litigation practices.

He said he views most of the firm’s practices as relatively young, describing them as “in stage two, three, four, or five in a 10-stage lifecycle.” He’s competing with firms that in most cases have had decades of success in their markets and enjoy greater market share.

But he views Paul Hastings’ relative youth and ambition as strengths.

“We want to compete and we want to win,” Lopez said. “There’s a common denominator across every team in our firm. They really want to continue to build market share in a very team-oriented way.”

Worth Your Time

On M&A Lawyers: With buyers and sellers challenged to agree on pricing in M&A deals, lawyers have seen use of a provision known as an earnout skyrocket, Mahira Dayal reports. The tool allows buyers to pay an adjusted price at a later date if certain milestones are hit.

On WeWork: Find a controversial billionaire, and it seems Quinn Emanuel partner Alex Spiro isn’t far away. The lawyer known for representing Elon Musk is now advising WeWork Inc. founder Adam Neumann in his bid to buy back the company out of bankruptcy, Justin Wise reports.

On Lawyer Fees: Big Law bankruptcy fees are reaching north of $2,500 an hour, Evan Ochsner reports, in a deep dive into how rates have grown in recent years.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.