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On the verge of finalizing two of the largest mergers in its history, Reed Smith again reported big increases in several financial indicators in 2006, including a 14.4 percent increase in gross revenue. The firm also reported a double-digit increase in profits per equity partner (PPP). The firm’s revenues rose from about $563 million in 2005 to nearly $644 million in 2006, according to data provided to The Legal. Reed Smith’s revenue per lawyer (RPL) rose nearly 6 percent from $616,191 in 2005 to $652,271 in 2006 and its PPP rose 17.5 percent from $800,841 in 2005 to $940,918 in 2006. Frank D’Amore of Attorney Career Catalysts said the firm’s numbers are impressive. For firms of similar size, he said Reed Smith is “certainly not at the top, but they are rising.” The firm’s mergers with London-based Richards Butler and Chicago-based Sachnoff & Weaver go into effect in 2007, having no impact on the latest reported financials. While Reed Smith Chairman Gregory B. Jordan said the firm’s gross revenues will naturally make a big jump in 2007 because of the mergers, the growth in 2006 was due half in part to organic growth of attorneys and half in part to a focus on higher-end work. In 2005, Reed Smith had 913 full-time-equivalent lawyers, increasing that by 8 percent in 2006 to 987. It has been part of Jordan’s plan to focus the firm’s work on both higher-end clients and higher-end practices. The firm’s top 250 clients contributed over $400 million of the $644 million in gross revenues, Jordan said. While Jordan wouldn’t discuss any realization rates for the firm, saying just that it has consistently gone up as the firm focused on higher-end work, all of the dollar figures provided represent actual cash-collected dollars, he said. Jordan said the litigation practices had another really strong year, with life sciences litigation doing well. The corporate and transactional side was also much stronger in 2006, Jordan said. The firm has gravitated away from certain practice areas that don’t fit into its vision, such as business immigration work. Jordan said the firm moved away from that work in the United States, handling only a small amount of it in the United Kingdom. He said he was pleased with the firm’s 14 percent increase in gross revenues while the lawyer headcount only rose 8 percent. Overall, the firm lost one equity partner in 2006, moving from 214 to 213. The non-equity partner tier increased by 11.8 percent, going from 236 in 2005 to 264 in 2006. Jordan said the increase was part of the growth of several offices. The firm, for example, brought in several senior associates in New York from Wall Street firms and made them non-equity partners, he said. Reed Smith hasn’t made any concerted effort to use the tier more frequently, but, Jordan said, it is recognized as a recruiting tool. Claudia Barnes, managing director of BCG Attorney Search in California, said Reed Smith’s growth was surprising, but she anticipates that several firms will have big jumps in their financial performances. That is evidenced, she said, by the large bonuses that have been handed out for 2006. Ward Bower of Altman Weil agreed that several firms are set to have strong financial performances for 2006. He said Reed Smith’s numbers look good to him. Similar to Jordan, Bower pointed out the increase in gross revenues compared to a smaller increase in the total number of attorneys. Barnes said the most impressive thing to her about the firm’s financial performance is that it managed to increase its average compensation for all partners while increasing its non-equity partner tier. The firm’s average compensation rose 11.6 percent from $531,130 in 2005 to $593,039 in 2006. Barnes said that non-equity partners aren’t traditionally bringing with them books of business, and to add more of them and still increase average compensation is “impressive.” “The people that are bringing in the business are doing very, very well at it,” she said. D’Amore agreed that the equity partners are most likely bringing in that much more work, but he pointed out that the next few years for Reed Smith will be telling. The firm has had a few mergers over the last six years and will be completing two more this year. “The heavier lifting now comes over the next few years,” D’Amore said, adding that it is harder to grow PPP when growth is organic and not driven by mergers. He said Reed Smith’s PPP could have been affected by the fact that its equity partner tier remained relatively flat compared with its growth in total number of attorneys. As the number of attorneys increases with mergers, he said, it will be seen whether the firm’s PPP can also increase. Barnes pointed out that some other large firms who completed mergers recently found out afterward that the deals were more expensive than originally thought. Although the percentage increase in some of the firm’s numbers may not be as high next year, Jordan said he anticipates the improvements seen over the past six years to continue in the PPP and RPL categories. Because the two mergers that will factor into 2007′s financial results, Jordan said he expects to see gross revenues north of $900 million. While Reed Smith’s PPP increased nearly 18 percent, its RPL went up at a slower rate of nearly 6 percent. D’Amore said that usually shows that a firm was able to run more smoothly and with less overhead. Jordan’s time as chairman has spanned the last six years, as he first assumed the role in 2001. From right before the time he came on as chairman, the firm’s gross revenues have gone from $211 million in 2000 to $644 million in 2006. The RPL has gone from $375,000 in 2000 to $652,000 in 2006 and the PPP in 2000 was $315,000 compared with nearly $941,000 currently. “We basically have tripled the revenues and tripled the profits per partner over that six-year period,” Jordan said. The 2006 numbers came as particularly satisfying given that Jordan and director of strategic planning Michael B. Pollack spent so much time working on the completion of two large-scale mergers, Jordan said. Barnes said a firm’s chairman would “absolutely” have something to do with the type of financial performances seen by Reed Smith over the past few years. In looking toward the future, Jordan said he wants to focus on areas where the firm needs to be “bigger and stronger.” At the top of that list, he said, was Reed Smith’s New York office. That is why former Philadelphia office managing partner Robert A. Nicholas was sent to serve in that role in New York, Jordan said, adding that Nicholas was successful in growing the Philadelphia office to nearly 140 attorneys. Reed Smith is also “very serious about trying to do something meaningful in China,” Jordan said. Consolidations in the legal industry are going to continue, he said, and Reed Smith intends on being part of that trend.

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