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Powell Goldstein to Merge With Bryan Cave
As firm approaches its 100th birthday, union means PoGo will eventually cede its name but it won't shed lawyers
Fulton County Daily Report
November 03, 2008
Atlanta-based Powell Goldstein has found a merger partner. On Jan. 1, the firm will become part of Bryan Cave, a 945-lawyer international firm with deep roots in St. Louis.
"This is a transformational event for us," said Powell Goldstein's chairman, James J. McAlpin Jr. "It propels us into a different league."
PoGo gives up its name in the deal and cedes leadership to the St. Louis, Mo., firm. (The firm will be Bryan Cave-Powell Goldstein for two years in Atlanta and simply Bryan Cave elsewhere.) In return, PoGo's lawyers gain an international and national platform that expands the depth and breadth of their practice groups -- increasing the firm's resources in areas such as intellectual property and broadening its core areas of banking, finance, real estate and litigation.
The firm has been increasingly hamstrung by its limited geographic reach as its local competitors have steadily added offices outside of the Southeast. PoGo had offices only in Atlanta and Washington, D.C., until 2006, when it opened a small Dallas outpost, followed by another in Charlotte, N.C., in January.
"In order to be in the game, even for work coming into the Southeast from international companies, you've got to have an international presence," said McAlpin.
Powell Goldstein's partnership voted unanimously to approve the deal Thursday afternoon and the Bryan Cave partners approved it by an overwhelming majority on Friday, following a week of electronic voting from the firm's 17 law offices.
The two firms' combined 2007 revenues are $602 million, which would place the merged firm right below King & Spalding on the Daily Report Dozen ranking of Atlanta-based firms -- and at number 45 on last year's Am Law 200 ranking.
With Powell Goldstein's 220 lawyers, Bryan Cave will have 1,165 lawyers, well above the head count at King & Spalding.
COMBINATION OR ACQUISITION?
The merger puts to rest months of speculation by the Atlanta legal community about PoGo's future. That PoGo was looking for a partner has been an open secret. The city's legal corps has watched with interest -- and buzzed with rumors -- for more than a year as the firm considered a variety of suitors.
What firm Powell Goldstein would pick has been an open question. Would it be a megafirm that would absorb the smaller firm, then strip it of its best assets and jettison the rest? Or would it be a firm that shared PoGo's middle market niche and likewise valued loyal, long-term relationships with partners and clients -- a key to PoGo's culture?
"We are compatible in the best aspects of our cultures -- collegiality, teamwork and diversity. They are people we feel comfortable with and are proud to call our partners," said McAlpin.
Several PoGo partners involved in the deal said they believe their firm's values and culture will remain intact, even as they become part of a much larger firm. Bryan Cave's intensive courtship, which began in July, has convinced them that the merger will benefit PoGo's practices and that the larger firm will value all of their clients.
"I really, really like these people," said W. Scott Sorrels, a 22-year PoGo veteran who's leading the integration of the two firms on the Atlanta side. "We've looked at other combinations, and keeping our culture is important to us. How you treat each other is important. We've found a firm with a [geographic and practice] fit and a culture that it wants to be proud of."
"[This firm] has been home, and it will continue to be home," he said.
Sorrels and other PoGo partners believe they'll be equal partners in the combined firm, even though it's not a merger of equals.
"Given the cultural fit of the institutions and the character of the leadership that we've met, I am firmly convinced that our people will have a tremendous amount more opportunity on Jan. 1 than they did on Dec. 31," said Sorrels. "It exceeds our expectations. It's like winning the Super Bowl and the World Series all in one."
The two firms' revenue per lawyer are commensurate. Bryan Cave's RPL last year was about $590,000 -- just $10,000 more than PoGo's. McAlpin acknowledged that the Midwestern firm's average profits per partner last year, at $690,000, were still much higher than PoGo's $550,000, but did not seem bothered by the disparity. "You might as well play tennis with a better tennis player," he said. (See comparison chart, "How They Stack Up")
Bryan Cave's chairman, Don G. Lents, said Powell Goldstein is a cultural fit for his firm as well. "Our strategic view of the world is based on the fact that we are a relationship-oriented firm, built around ... clients with whom we have longstanding relationships and represent in a variety of legal matters, instead of parachuting in on a big transaction or piece of litigation," he said.
Powell Goldstein will give Bryan Cave an entree into the Southeast, where it does not have a presence. Add complementary practices to the mix, a Washington, D.C., office that will double in size, plus a presence in Charlotte and Texas -- where Bryan Cave, which has an energy practice, would like to be -- and an interesting possibility becomes a deal. (See graphic, "Location, Location, Location")
Deals have dwindled for law firms' clients as the economy worsens, and Lents, a transactional lawyer, acknowledged that the current economic moment is not the most propitious for a major acquisition, but said his firm has the resources to act for the long term.
"It's important not to simply hunker down and wait out the down part of the cycle, but to strengthen the firm in its ability to deliver services to clients. We budget for and anticipate additions to the firm on a long-term basis," said Lents, who's spent his 34-year career at Bryan Cave. "It's part of the partners' obligation to our firm to leave it stronger than we found it."
Some Bryan Cave partners, like their partners-to-be from PoGo, prefer to characterize the deal as a combination, not an acquisition -- even though their firm will absorb the smaller one.
"It's a combination, not a slash-and-burn acquisition," said Kenneth L. Henderson, the Bryan Cave partner who's overseeing the integration. Henderson was a member of the 170-lawyer New York firm Robinson Silverman, Pearce, Aronsohn & Berman that Bryan Cave acquired six years ago in its last major acquisition.
Several PoGo partners said almost all of the Robinson Silverman lawyers still are at Bryan Cave -- a major reason they are comfortable with the merger.
Henderson acknowledged that he and his partners at Robinson Silverman initially worried that Bryan Cave would pick off what it wanted from their firm and get rid of the rest -- but said those concerns were quickly assuaged.
"The idea was to combine and move forward together. They did not cull. Bryan Cave did not go down a list and point at this person and that person and start throwing people out the window," he said.
The same goes for PoGo, said Henderson, who was also the integration point person for the earlier deal -- but for Robinson Silverman. (Lents oversaw Bryan Cave's side of the integration.)
"Our core values and approach are similar to theirs," said Henderson, who grew up in Griffin, Ga. "We think Powell Goldstein is a great base from which to continue growth in Atlanta -- and other markets. I think you will see some lateral hiring there."
SLIP-SLIDING AWAY
McAlpin, 50, has spent his legal career at Powell Goldstein. When he became his firm's chairman in the spring of 2004, he vowed to restore it to its former position as one of the city's top law firms.
A decade earlier, PoGo had been the fourth-largest firm in the Daily Report Dozen revenue ranking of Atlanta-based firms -- behind King & Spalding in the top spot, then Sutherland and Alston & Bird.
But by the end of 2003, as McAlpin prepared to become PoGo's leader, the firm had slipped to spot seven. The three firms trailing PoGo in the Daily Report's 1994 revenue rankings -- Kilpatrick & Cody, Troutman Sanders and Long Aldridge & Norman -- each executed significant regional mergers in the intervening decade that vaulted them over PoGo on the list.
McAlpin made a number of moves to get PoGo back into fighting trim. The firm started to winnow less productive partners to beef up its profits and revenue-per-lawyer, while bringing in several rainmaking lateral partners in 2005 and 2006, including high-profile plaintiffs litigator L. Lin Wood, who was adding companies to his client roster of famous people.
PoGo also augmented its Atlanta and Washington, D.C., offices with the Dallas and Charlotte offices, both focused on loan servicers in real estate capital markets.
McAlpin increased billable-hour expectations, slashed expenses and slimmed down the firm's name -- from Powell, Goldstein, Frazer & Murphy -- as the firm continued its efforts to turn its established reputation in the Atlanta market into a regional brand.
But there were setbacks as well. PoGo suffered a big blow in 2002 when it lost its entire 33-lawyer international trade group to Sidley Austin in Washington, D.C.
It suffered another in the spring of 2007, when it lost one of its biggest institutional clients, Northside Hospital, and six partners to McKenna Long & Aldridge, which handles the hospital's lobbying work. The defection was led by James C. Rawls, who had spent his entire 33-year career at PoGo.
Northside had been a linchpin for the firm's health care practice, which subsequently began to unravel. Last fall, two of the firm's Atlanta health care partners decamped for King & Spalding, which just last year made health care a strategic focus. Another partner hopped to Arnall Golden Gregory, which has an established health care practice. Those losses were followed by the departure of four more health care partners and several tax partners from the firm's Washington, D.C., office at the beginning of this year.
The loss of a major chunk of the health care practice, a core strength, was a big blow for PoGo. Some PoGo watchers wondered if it would be a mortal blow.
Meanwhile there was a steady trickle of partners leaving for pastures they perceived as greener. By 2007, the trickle was becoming a steady stream, and the firm continued to shrink. Since January, PoGo's head count has dropped from 256 lawyers to 220 lawyers, according to a headcount provided by the firm. Its Washington, D.C., office has contracted by more than a third, from 66 lawyers to 36 lawyers at present. Before the loss of the trade group six years ago, that office had 110 lawyers.
PoGo's revenue has almost doubled since 1993 -- from $69 million then to $133 million last year. But the Daily Report Dozen's perennially top-ranked firm, King & Spalding, more than quintupled its revenue in the same time span -- from $114.5 million in 1993 to a whopping $615 million in 2007.
By last year, PoGo had slipped another spot in the rankings, behind Ogletree, Deakins, Nash, Smoak & Stewart, which had been steadily adding to its own empire over the years to become the country's third-largest labor and employment firm.
GROW OR FADE AWAY
To be competitive in the rapidly consolidating legal market, McAlpin said, his firm knew it had to expand beyond its existing markets, increase the depth of its practices and broaden the services it could offer clients.
In fall 2006 the firm put together a strategic plan -- with the idea of adding a regional firm of commensurate size to become a major Southeastern player. The partnership recognized the need to "become more profitable to position ourselves for a strategic expansion," he said. Adding strong partners and shedding weak ones was a move to beef up the bottom line.
The firm's average profits per partner shot up $91,000 last year as a result of the cuts, to $550,000, and revenue per lawyer leapt $79,000 to $580,000. "That put us in a different league of firms -- and gave us the opportunity to talk to firms like Bryan Cave," said McAlpin.
Bryan Cave initially contacted PoGo in January. The firm's Washington, D.C., chief and expansion partner, Rodney F. Page, called PoGo's Washington managing partner, Alan K. Parver.
Nothing came of the call. "At the time we were otherwise occupied," said McAlpin.
Towards the end of last year, Powell Goldstein had begun serious merger talks with Womble Carlyle Sandridge & Rice -- a top North Carolina firm with a sizeable Atlanta office. The deal was expected to close in January, but it fell through at the last minute.
McAlpin declined to confirm Womble as PoGo's merger suitor, but acknowledged that he "seriously investigated the possibility of becoming a strong Southeastern firm."
"As a result of discussions with one firm," he added, "we decided that we needed to think beyond the Southeastern region."
The firm's goal was no longer to be a Southeastern powerhouse -- the vision with the Womble merger. Now PoGo was looking for an international firm with as little of a Southeastern presence as possible.
"If we were to become part of a larger firm to fulfill that objective [of expanding], then we wanted to become part of a larger firm with a truly national and international presence. This year, we focused only on firms that fit that profile."
THE COURTSHIP BEGINS
PoGo finally started talking to Bryan Cave in July, while also having some "fairly serious conversations with a couple of other firms with the same profile," said McAlpin.
Bigger was better, the partnership had decided, but McAlpin was eyeing his prospective suitors carefully. He wanted PoGo to be treated as "an established 100-year-old firm with a reputation for quality."
"We don't want to be just another pin on the map for a firm looking for its next expansion. We want to feel as if our firm and people ... play an important role in the overall combined firm," he said.
McAlpin said he first met with Lents and Page in July. The Bryan Cave chairman and his expansion point man flew to Atlanta and everyone got better acquainted over dinner at Veni Vidi Vici, across the street from PoGo's offices in One Atlantic Center.
Within six weeks, said McAlpin, he and his partners had met more than 70 of Bryan Cave's partners. That so many of Bryan Cave's key partners took the time to meet with PoGo's people scored big points with McAlpin. "I was impressed by their approach and their people," he said. The discussions continued over a series of meetings in New York and Atlanta and the PoGo partners started giving the deal serious thought.
McAlpin said that he and his partners liked that their St. Louis suitor had a national footprint that included offices in New York, Washington, D.C., Chicago, Los Angeles and Phoenix -- but no office in the Southeast.
Bryan Cave's 26-year-old London office, plus additional offices in Europe and Asia also were selling points. The firm has law offices in Shanghai and Hong Kong plus trade outposts in six other Asian locales. As part of Bryan Cave, PoGo's lawyers would be able to handle their clients' matters over large parts of the U.S. and the world, without having to engage local counsel.
When the two firms started their due diligence, they discovered several overlapping clients, McAlpin said, including Bank of America and Capmark Financial Group Inc., a real estate investor, lender and mortgage servicer. The firms found only one unresolvable client conflict among their top 300 clients, he said, but declined to name the company.
The two firms' rates are comparable, he said, so PoGo will not have to raise rates for its clients by joining the larger firm. "There will be no sticker shock for our clients," he said with satisfaction.
McAlpin liked that Bryan Cave's clients were a mix of big fish and little fish. "Their business model is not centered only on the highest end legal work," he said. "They work for the biggest companies as well as middle and upper-middle market companies -- which are our bread and butter at Powell Goldstein."
But the Midwestern firm's clients are headquartered worldwide, he said, while PoGo's clients are much closer to home.
PoGo's corporate practice focuses on middle market companies with $50 million to $5 billion in revenue that are mostly in the Southeast, said its leader, Thomas R. McNeill. Many are in smaller towns such as Dalton, Ga., Columbia, S.C., and Huntsville, Ala.
"The beauty of this is that those are the type of clients the combined firm is looking to serve," he said, explaining that a lot of the companies are bigger fish that "happen to be in a smaller town."
PoGo's litigation head, C. Scott Greene, said he had two main concerns when he heard of Bryan Cave's interest in his firm: How committed was it to the Atlanta market and the Southeast -- and would a firm that already had 400 litigators "really welcome another 70 into the firm?"
He said Lents and Page made it clear from the get-go that the only reason they weren't already in the Southeast was because they hadn't figured out the right way to get into Atlanta, the region's capital city. Opening a small satellite office like other national firms did not appeal to them, said Greene.
Bryan Cave has given him the message that "the more litigators, the better," he added.
POGO'S PLACE AT THE TABLE
McAlpin said that PoGo will not have to shed any lawyers or staff to make the deal happen. "All of our employees will move over," he said, adding that it was Bryan Cave that specified that condition in the first draft of the term sheet -- another gesture that bolstered the PoGo partners' confidence.
PoGo's chairman declined to say if all of his firm's partners would become partners at Bryan Cave. "I'm not going to comment on the structure of the combined partnership just as I would not comment on that of Powell Goldstein," said McAlpin.
Three of Powell Goldstein's lawyers -- McAlpin, Robin R. Green and Rick Miller -- will join Bryan Cave's executive committee. McNeill will continue as the Atlanta managing partner -- but now for Bryan Cave -- and will join the firm's management committee. McAlpin and Miller also will be on Bryan Cave's compensation committee. "We will have a seat at the table almost as much as anyone else, given our size," McNeill said.
ROOM FOR SLOW BUT STEADY PRACTICES?
Several PoGo partners who handle practices that produce steady work but not big fees believe Bryan Cave will be a good place for them, despite its large size and extensive footprint.
Bryan Cave has "no formal minimum floor" for how much a lawyer must bill a client annually, said Lents. As firms expand, along with their overheads, establishing annual billing minimums has become common practice at big law firms.
"I'm not prone to change so I didn't come lightly to the idea that we needed this [merger]," said Walter G. Moeling IV, another career PoGo lawyer, who has spent almost 40 years patiently building PoGo's community banking practice. Over the years it has become one of the firm's marquee practices.
The 15-lawyer group, which Moeling co-leads with Kathryn L. Knudson, handles the day-to-day legal needs of between 300 and 350 banks that are generally too small to have an internal legal department, he said. Most have less than $10 billion in assets, he noted.
Moeling said his group produces slow and steady returns from small annual billings to numerous clients, instead of big fees from a few lucrative ones. Even so, it's been a solid contributor to the firm over the years, he said, because of the size and longevity of its client base, adding that it also feeds work to another 40 or 50 lawyers at the firm.
The practice is driven by referrals, so its lifeblood is client service, said Moeling. For that reason, when he's considering a lawyer for the practice, he looks for someone who really likes community banks.
"What could be better than representing the closest profession to Norman Rockwell that you can ask for?" he said. "These are really nice people. They run community banks because they really care about their community. It's about more than making money. They say 'thank you.'
"If [a candidate has] a solidly New York attitude of 'What are those little things down there? Only billing $10,000 a client [annually] is not economical,'" said Moeling, it's not a match.
He thinks Bryan Cave can be a match because the firm has a large financial institutions practice, but no community bank group. Moeling said his group likely will be its own team at Bryan Cave, adding that he's interested in drawing on the St. Louis firm's expertise to serve larger banks, which offer products like debit and credit cards that are beyond the range of community banks.
Robin Green's team representing lenders and servicers of commercial mortgage-backed securities, like Moeling's, is a steady producer, rather than a high-dollar practice.
Green launched PoGo's Dallas office two years ago, when she brought her 10-lawyer team to the firm from Akin, Gump, Strauss, Hauer & Feld. The team left Akin Gump, a firm similar in size to Bryan Cave, because it was no longer interested in "non-rate sensitive work," she said. Those practices were becoming "more support practices for central practices, based on the profitability of the work."
By contrast, the practice was able to more than double in size in the first 18 months at PoGo, Green said.
Green doesn't think her practice will be marginalized at Bryan Cave because she believes the firm shares PoGo's client-service philosophy. If the larger firm were to shed PoGo's lower-revenue practices by cutting deeply into its head count, she added, "Bryan Cave will have achieved nothing."
DON'T LOOK BACK
Powell Goldstein will mark its 100th birthday when the merger goes into effect in January. At that time, the firm's Atlanta headquarters will become the largest local office of any of the city's international firms, including those of Jones Day and Paul Hastings Janofsky & Walker, currently the largest.
The new Bryan Cave office will be called Bryan Cave Powell Goldstein locally for the two years, said McAlpin. With 158 lawyers and professionals, the Atlanta office will also become Bryan Cave's second-largest office, in a close tie with its 154-lawyer New York office, according to the firms' Web sites.
The expanded Washington, D.C., office, with about 100 lawyers, will be led by Page, the Bryan Cave expansion partner and Washington, D.C., managing partner. PoGo's D.C. chief, Alan K. Parver, said he will happily return to practicing law full-time in January.
So will McAlpin. His mission of restoring PoGo to its former prominence has been accomplished, he said, even if not in exactly the way he'd envisioned when he became his firm's leader almost five years ago.
"We've achieved our goal," he said with satisfaction. "I believe this will do it. It makes us competitive with anyone in this marketplace in terms of product quality, depth and breadth of practice areas and geographic reach."
The Atlanta office will expand, McAlpin said. "We have the opportunity to recruit people who share our appreciation of collegiality and teamwork, whom we may not have been able to recruit before because of our platform," he said.
Meanwhile, McAlpin's practice awaits him. "I'm looking forward to it," he said cheerfully.
"Don [Lents] runs the show now," he added, with a smile that seemed faintly relieved.
