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The merger between Buchanan Ingersoll and Klett Rooney Lieber & Schorling could vault the firm into the AmLaw 100 this year with Buchanan Ingersoll & Rooney showing a 40 percent increase in gross revenue during 2006 compared with Buchanan Ingersoll’s pre-merger numbers in 2005. The firm, which completed the large-scale merger in July, saw its revenue jump from $193.7 million in 2005 to $271.3 million in 2006. That figure is slightly more than the firm’s prediction of $265 million at the time of the merger. The increase in gross revenues was, in part, due to the 31 percent jump in the firm’s lawyer headcount, moving from 385 attorneys to 505 attorneys in 2006. The firm’s revenue per lawyer (RPL) and profits per equity partner (PPP) also increased. The RPL went up by 6.7 percent from $503,000 in 2005 to $537,000 in 2006. The PPP grew by 14 percent, from $457,000 in 2005 to $522,000 in 2006. The average compensation for all partners rose by 5.8 percent to $416,600 in 2006, from $393,600 in 2005. Bob Nourian, managing principal of legal search firm Coleman Nourian, said law firms in general are “operating on all eight cylinders” with a strong year in both litigation and transactional work. He said Buchanan Ingersoll’s numbers are in line with what will be seen as other firms report their numbers. “Buchanan had a tough ’03 and ’04, relatively speaking, and ’05 was a bounce-back year,” Nourian said, adding that 2006 showed a continuation of 2005. Firm Chief Executive Officer Thomas L. VanKirk said that while the majority of the increase in gross revenue was due to the merger, the firm also had strong organic growth in certain practice areas. He said the intellectual property practice, including IP litigation, had a very strong year. That was due, in part, to the 2005 addition of the 55-attorneys from Virginia-based Burns Doane Swecker & Mathis, he said. Other strong groups for the firm were in corporate finance out of Pittsburgh and complex litigation out of Philadelphia, he said. An overall strength in litigation and real estate were also players in the 2006 numbers, VanKirk said. Because of Buchanan Ingersoll’s focus on growth over the past two years, VanKirk said his firm has a greater national presence and a greater financial strength to become one of the top national firms. “I think that we are one of the five major players, not just in Pennsylvania, but in the mid-Atlantic area,” he said. Buchanan Ingersoll’s PPP and RPL were not the only numbers to see large increases. The number of equity partners rose by 19.4 percent, from 98 to 117, and the number of non-equity partners rose nearly 60 percent, from 57 to 91. One source familiar with the deal between the two firms said Klett Rooney did not have a non-equity shareholder tier. Of the 68 shareholders within Klett Rooney before the merger, the source said 23 or 24 were made equity shareholders within the new firm. The rest were given non-equity status, the source said. While many of the first- or second-year partners were put in a non-equity role, some of the more seasoned partners were also denied equity partner status, the source said. VanKirk said he thought the number of those who made equity shareholder was higher, but he said Klett Rooney did only have one shareholder tier, and the number who retained that status was in a range close to what the source had mentioned. The jump in non-equity partners was a combination of combining the partner tiers, of two firms and the increasing use by firms of the non-equity tier, VanKirk said. “All law firms are tightening their standards,” he said. “It is harder and harder in most large firms to become equity partner.” Bill Brennan of Altman Weil said there are generally two ways that midyear mergers can be incorporated into the financial performance of the combined law firm. The first, which is usually done in mergers between two large firms, retroactively includes the financial performance of the acquired firm to Jan. 1 as if the merger took place on that date. The second type of merger accounting would allow the firm being acquired to retain the work-in-progress and accounts receivables that it makes for the remainder of the year when it merged, he said. The firms would completely combine numbers beginning in the next fiscal year. That type of arrangement, which generally happens when a smaller firm is acquired, can be good for the smaller firm but have a negative effect on the larger firm’s numbers in the year of the merger, Brennan said. The smaller firm continues to collect on the work it had been doing while getting paid by the larger firm, he said. Paying the new attorneys during their “ramp-up” period – the generally three- to four-month time frame in which the new attorneys begin generating work for the new firm before generating revenues – could result in a decrease or smaller increase in RPL and PPP for the new firm, Brennan said. There could also be a ramp-down scenario, he said, in which firms gain revenue in the year of the merger because the acquired firm brought with it several large projects, but then show lower or static revenues the following year because that work dried up. VanKirk said the Klett Rooney and Burns Doane mergers – both completed midyear in 2006 and 2005 respectively – were done retroactively so that the financials reflected through the full year. The same was done when calculating the firm’s full-time equivalent lawyers for the year, VanKirk said. One thing that Buchanan Ingersoll did differently than many other large firms when merging, he said, was to pay for the mergers out of that year’s operating budget. Because of that, the firm expected that its increase in RPL and PPP might not have been as significant as in the prior year, he said. The Burns Doane group really helped the firm financially in 2006, a year after it merged into Buchanan Ingersoll, and VanKirk said he expects the labor and employment and government relations groups from Klett Rooney to do the same thing for the firm in 2007 and in later years. The number that is most significant to VanKirk is the increase in PPP over the past two years. The firm saw a 36 percent increase over two years, from $383,000 in 2004 to $522,000 in 2006. Buchanan Ingersoll also had growth in RPL even though it did not expect much, he said. “Despite the disruptive effects of a merger . . . we still had a very significant increase in what our revenues per lawyer were,” VanKirk said. It is part of the firm’s strategic plan, he said, to continue to grow the PPP and RPL to assist in recruiting efforts and raise profits. The firm isn’t currently looking at any prospective merger partners, but VanKirk said he is looking at several “significant, large practice groups” that he hopes to add within the first quarter of this year. They could come in the areas of real estate, corporate finance, litigation and intellectual property, he said.

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