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Pepper Hamilton reported a 10 percent increase in gross revenue and a 5 percent increase in profits per equity partner last year, according to data provided to The Legal Intelligencer of Philadelphia, a sister publication of Legal Times. Perhaps even more telling, the firm increased its financial results while maintaining close to the same number of attorneys and increasing the number of equity partners. As rumors have been floating around about a possible merger between Pepper Hamilton and Rochester, N.Y.-based Nixon Peabody, one national recruiter said the improved financials make the firm an attractive merger prospect. The firm’s gross revenue increased 10.5 percent, from $209.3 million in 2004 to $231.2 million in 2005. The average revenue per lawyer increased 9 percent, moving from $547,900 in 2004 to $597,700 in 2005. The number of equity partners at Pepper Hamilton rose from 113 in 2004 to 123 in 2005, an almost 9 percent increase. The number of non-equity partners decreased by 10, going from 55 in 2004 to 45 in 2005, an 18.1 percent drop. Firm executive partner Robert Heideck said the increase in equity partners and the decrease in non-equity partners were “generally” due to moving those non-equity partners to equity status. Profits per equity partner rose 5 percent, up from $595,000 in 2004 to $626,000 in 2005. The average profits per all partners grew by more than 11 percent, going from $480,500 in 2004 to $535,500 in 2005. In 2003 the firm reported the average compensation for all partners to be $394,200. Dan Binstock, managing director of BCG Attorney Search‘s Washington, D.C., office, said improving its financials will give the firm more negotiating power when merger talks begin. “The fact that they’ve got good financials, it puts them in a better position to be choosy and picky and proactive, rather than reactive,” Binstock said. Heideck said that although Pepper Hamilton talks to merger candidates “all the time,” the firm does not confirm or deny whether it is in talks with any one firm at any specific time. But a source in the legal community confirmed that Pepper Hamilton is in talks with Nixon Peabody. Binstock said a firm with consistently improving financials has much more leverage when negotiating things such as management culture and the firm name. “I think a firm like Pepper Hamilton is in a good position to be selective,” Binstock said. “They don’t have to merge unless it’s a good opportunity.” A STAKE IN PHILLY Nixon Peabody is a larger firm than Pepper Hamilton, reporting on its Web site that it has more than 600 attorneys. Nixon Peabody was ranked 62 on the latest AmLaw 100, The American Lawyer‘s ranking of the nation’s top-grossing law firms. Pepper Hamilton finished 96 on last year’s AmLaw 100. The firm closed out fiscal year 2005 on Dec. 31 with 402 full-time equivalent lawyers, of which 168 were partners. That is the same number of partners reported last year and eight more attorneys in general. Binstock said that Philadelphia is an “untapped resource” when it comes to merger possibilities, with few national firms having offices in the city. He said the city’s large quantity of pharmaceutical work and lower hourly rates make for an attractive market. According to Binstock, a merger between the two firms would give Pepper Hamilton a stronger presence in the nation’s capital and a new presence in Boston, while giving Nixon Peabody a more significant group of attorneys in Philadelphia. Nixon Peabody has about 100 attorneys in Washington and 200 in Boston. Heideck attributed the firm’s improved financials to a concerted effort, begun a few years ago, to improve the economic focus of the firm. He said that although 2005 saw improvements across the board, the firm’s corporate work in pharmaceutical defense and its securities work with private equity were particularly strong. A few years ago, Heideck said, the firm began focusing on revenue per lawyer as the benchmark of its success. For 2005 the firm’s revenue-per-lawyer goal was $575,000, which it surpassed. Heideck cautioned that the firm calculates revenue per lawyer differently than it does for the AmLaw survey. The firm uses the total number of attorneys at the end of the fiscal year, rather than by the end of August, which is AmLaw’s requirement. Although Pepper Hamilton looks at profits per equity partner, Heideck said the firm does not place as much emphasis on the number as many others do. He said some firms have made a commitment to keeping the number of equity partners to no more than 20 percent of the overall number of lawyers firmwide. When using 402 as the firm’s attorney total for 2005, the equity partners at Pepper Hamilton make up 30.5 percent of the total attorneys. “We would just like to continue to maintain a steady growth,” Heideck said.
Gina Passarella is a reporter for The Legal Intelligencer , an ALM publication based in Philadelphia in which this article first appeared.

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