Peter J. Kalis of K&L Gates
Dallas-based Hughes & Luce is in merger negotiations with Kirkpatrick & Lockhart Preston Gates Ellis, with plans calling for a possible combination of the firms by the end of the year.
The firms announced the talks, which began in the early spring, on Thursday.
"It could be a really wonderful opportunity for our clients, our lawyers, and really, our whole firm," Edward Coultas, managing partner of 150-lawyer Hughes & Luce, says. "It's just a question about providing better service to our clients."
Peter Kalis, chairman and managing partner of 1,400-lawyer K&L Gates, says Texas is an important source of business for his firm and a region where the firm wants to expand beyond its 35-lawyer office in Dallas. Add those factors to Hughes & Luce's "premier reputation," and there is an "enormous amount of enthusiasm" for the deal within K&L Gates, Kalis says.
If the firms are able to negotiate a deal, the partners in each firm are expected to vote on the merger in November.
Coultas says talks began when Robert Wolin, K&L Gates' administrative partner in Dallas, approached Mark Shank, Hughes & Luce's hiring partner.
"He just wanted to have a cup of coffee and visited about what we are doing, and it started at that point. We're really at the starting pages of looking at it," Coultas says.
However, the talks have progressed enough, Coultas says, that the firm's management told the partners about the prospective deal at a partners' meeting on July 19 and informed associates and staff the next day.
Coultas says the firms went public with the talks to stave off the rumor mill.
"Once you put anything out among two lawyers, it's out," Coultas says.
Kalis, who lives in Pittsburgh, says K&L Gates also has informed its lawyers and staff about the talks with the 34-year-old Hughes & Luce.
The negotiations are sufficiently serious and promising that it makes sense to "conduct our discussion publicly ... rather than skulking around behind closed doors and keeping secrets, or trying to keep secrets, from our partners, our associates and our staff," he says. "We would not put this in the public domain frivolously."
K&L Gates has 1,400 lawyers in 22 offices worldwide -- 17 of those in the United States including Dallas -- while Hughes & Luce has 150 lawyers in Dallas, Austin and Fort Worth. A merger would create a firm of about 1,550 lawyers. K&L Gates' international offices are in London, Berlin, Hong Kong, Beijing and Taipei, Taiwan. Kalis says K&L Gates is an international firm without a headquarters office.
K&L Gates' national and international reach is a big attraction for Hughes & Luce, Coultas says. Clients often have need for lawyers in New York, Washington, D.C., or on the West Coast, and a combination with K&L Gates would provide Hughes & Luce clients with that resource.
Kalis says a merger with Hughes & Luce will help K&L Gates plug in some holes in its network of offices.
"K&L Gates is underinvested in the Sunbelt ... if you look at the demographics movement, not just of people but of corporate decision-markers. This is an extraordinarily ripe market opportunity," he says.
"We are as enthusiastic as we can be about Texas," he says.
Coultas notes that the firms share some clients, although he declines to name them. He says that while the firms have just started due diligence, a "surface" look at client lists doesn't indicate any major conflicts. He also says it's too early to say how the practice areas of the firms will mesh or how the deal will provide cross-selling opportunities.
Hughes & Luce clients, according to Texas Lawyer's list of the 100 largest firms in Texas, published in April, include San Antonio's AT&T Inc., Dell Inc. of Round Rock, Plano-based Electronic Data Systems Corp., Wells Fargo Foothill Inc. of Los Angeles and Wal-Mart Stores Inc. of Bentonville, Ark.
K&L Gates clients include Microsoft Corp. of Redmond, Wash., United Technologies Corp. of Hartford, Conn., Wilmington, Del.'s E.I. du Pont de Nemours & Co., Bank of America Corp. of Charlotte, N.C., and New York-based CBS Broadcasting Corp.
A potential deal with Hughes & Luce would be the second big-firm merger for K&L Gates within a year. On Jan. 1, Kirkpatrick & Lockhart Nicholson Graham merged with Preston Gates & Ellis to form K&L Gates.
In 2001, Pittsburgh-based Kirkpatrick & Lockhart moved into Dallas by merging with Wolin, Ridley & Miller, a 14-lawyer firm. All of the lawyers from that firm joined Kirkpatrick & Lockhart in Dallas.
In 2006, at Hughes & Luce, profits per partner averaged $574,000 and revenue per lawyer averaged $527,000, according to Texas Lawyer's Annual Report on Firm Finance, published in April.
The financials were higher at Kirkpatrick & Lockhart in 2006, according to the Am Law 100 report published by The American Lawyer, a Texas Lawyer affiliate. PPP averaged $780,000 and RPL averaged $605,000. At Preston Gates, PPP averaged $500,000 and RPL came in at $535,000 on average, according to the AmLaw 200 report.
If the deal goes through, Hughes & Luce wouldn't be the only large Texas firm to boost its size dramatically by merging with a large out-of-state firm. In May, Houston- and Dallas-based Locke Liddell & Sapp announced it would merge with Chicago-based Lord, Bissell & Brook to form a 700-lawyer firm named Locke Lord Bissell & Liddell. The deal is expected to close by Aug. 1.
Coultas says Hughes & Luce isn't considering a merger with K&L Gates simply to grow larger at a time when other large Texas firms are getting bigger and bigger.
"A firm can stay a firm of 150 lawyers in Texas and do very well," he says. "There's no question about that. We've done that. If the talks go nowhere, we will continue to do that."
