Jeff Haidet (John Disney/Staff)
Last year was a busy one for McKen­na Long & Aldridge.
The firm added 18 lateral partners and managing directors, opened new offices in Seoul, northern Virginia and Miami—and then in the fall came to the brink of merging with global megafirm Dentons, only to scuttle the deal at the last minute.
“2013 was really hectic for us. We had a lot going on,” said the firm’s chairman, Jeff Haidet. “There was a lot of growth and exciting opportunities.”
All of that activity did not add to the top and bottom lines. Revenue dropped $4 million or 1.2 percent to $341 million—but that followed a whopping $65.5 million revenue increase in 2012. McKenna’s March 2012 merger with California firm Luce, Forward, Hamilton & Scripps, a roughly 150-lawyer firm, accounted for much of that year’s 23.4 percent revenue increase.
Haidet said McKenna had the same level of work last year but did not collect some fees it had planned to book in 2013 until this year. Like most law firms, McKenna operates on a cash-basis accounting system.
Net income dropped $11 million—a 12.2 percent decrease—to $79 million, which Haidet attributed to adding 15 lateral partners, plus three managing directors in the government affairs practice. The 60- to 90-day lag until the firm could collect on the new recruits’ billings cut into profit, he said. At McKenna—like other firms—laterals come in as nonequity partners and are made equity partners after a year. “You are paying them from day one but you don’t start collecting until day 60,” he said.
Haidet predicted that the lateral additions will pay off in 2014.
McKenna added a net of 26 nonequity partners for a total of 176 and shed nine equity partners for 88. Average head count for the year increased by nine lawyers to 518.
The biggest news for McKenna last year was the deal that didn’t happen—a merger with global megafirm Dentons, which was formed in March 2013 from a three-way tie-up between British, Canadian and American firms. A combination with Dentons, which has about 2,600 lawyers and professionals, would have created one of the largest law firms in the world.
McKenna and Dentons began talking about a combination in late summer. After several delays, McKenna put the proposed tie-up before its partnership for a vote on Nov. 26—but called a halt to the voting by midday because of too much opposition. The firm’s board announced that it had decided not to go through with the merger.
Haidet said Dentons approached McKenna about the deal. “It was not on our list, but when they approached us I thought we needed to look at it. They’ve built an impressive global firm from scratch and it was an opportunity for us to think about if we wanted to become global.”
Haidet said he’s known Dentons’ global chairman, Joe Andrew, and global CEO, Elliott Portnoy, for years. Both came from Sonnenschein, Nath & Rosenthal, the Chicago-based firm in the three-way combination that formed Dentons. “So we have relationships with each other.”
Haidet said the merger would have increased McKenna’s size in California, expanded its New York and Chicago offices, given it entrée into Texas and added what he called the best cross-border Canada practice in the United States.
But the deal also would have required McKenna to merge with the U.S. entity of Dentons, which is structured as a Swiss verein, and give up its name.
Losing the McKenna Long & Aldridge name was “a bigger issue than we all appreciated until it could become a reality,” Haidet said. “I think it is not an insignificant point. In a partnership, there is a lot of emotional attachment to each other and the firm name.”
“Our partners were not quite ready for that move,” he said, adding that the firm is still integrating its 2012 merger with Luce Forward. “Whether we want to make that [global] move in the future—we’re actually talking about that right now.”
McKenna’s partnership agreement requires a two-thirds vote in favor of a combination by its equity partnership, based on equity points. Haidet confirmed that a majority of the partnership approved the combination but said the firm called it off anyway.
“Making a big move like this requires more than a majority. We want to move together,” he said. “There were enough people who had anxiety about it that we did not want to do it. … I told our partners that we came into this discussion together and we’re going to come out of it together.”
“It was a good discussion. They’re a great firm and we think a lot of them. We’ve remained good friends with each other,” Haidet said of Dentons.
McKenna added two new practices and three offices before the fall merger talks, for a total of 15 offices. It picked up an aviation litigation and government contracts practice—five partners and seven associates—from Virginia boutique Dombroff Gilmore Jaques & French, which disbanded. That added offices in McLean, Va., and Miami.
South Korea gave McKenna the green-light last March to open a foreign legal consultant office in Seoul, and the firm is applying to China for permission to open a representative office in Shanghai.
In June, McKenna added an SEC practice in Washington with three partners from Venable: Nancy Grunberg, Treazure Johnson and George Kostolampros—something it had wanted for quite a while, Haidet said. “It’s an area that we see is, and will continue to be, quite robust in coming years with government enforcement activity,” he said.
McKenna added corporate partners in New York and Orange County, Calif. In March, Anthony Williams, a former chairman of Coudert Brothers, joined the corporate practice in New York from DLA Piper. Bond lawyer Jon Ballan joined from Mintz Levin to lead the New York public finance team and Dick Sigal joined the New York public finance practice from Hawkins Delafield & Wood.
Haidet said the firm reorganized its support staff last year to take a more team-oriented approach. “That was a big undertaking which took a lot of time. We are in phase two of that,” he said.
McKenna is representing UnitedHealthcare in a suit against Georgia’s Department of Community Health, triggered by the state’s decision last year to pull its health insurance contract for more than 650,000 state employees from UHC and Cigna and award it to Blue Cross and Blue Shield of Georgia, effective Jan. 1.
In a major municipal matter, McKenna partner Mark Kaufman led a team of lawyers who staved off bankruptcy for the city of Harrisburg, Pa., which was mired in more than $600 million in debt—the majority from an ill-advised trash incinerator project. Kaufman crafted a debt restructuring plan on behalf of state-appointed receiver William Lynch that won approval from city officials and a Commonwealth Court of Pennsylvania judge and was carried out by the end of December.