In 2006, Latham hired 13 lateral partners, a group that included several prominent litigators and two corporate partners from O’Melveny & Myers who will be focusing on Latin America.
Emerging from the complex tangles of a worldwide merger between three firms in 2004, some wondered whether DLA Piper could integrate and succeed.
With double-digit gains in U.S. revenue, PPP (above $1 million for the first time) and RPL, the answer, at the end of 2006, is yes. Worldwide revenue also jumped 17 percent to $1.8 billion, and worldwide PPP was up 14 percent to $1.2 million � though worldwide RPL was more modest, rising 4 points to $560,000.
“The market continued to reward us for the ability to deliver global solutions,” said J. Terence O’Malley, co-managing partner of DLA Piper US. “The market is voting with its checkbook.”
The firm posted a strong year in M&A, ranking fourth in number of deals done in the United States, behind Jones Day; Latham & Watkins; and Skadden, Arps, Slate, Meagher & Flom, according to Bloomberg’s Mergers and Acquisitions Rankings. DLA ranked third globally.
O’Malley said the firm’s real estate practice had another strong year � advising on a slew of high-profile developments around the country � as did the firm’s IP lawyers, but added that it was more the sum and less the parts.
“When you get to this size there’s no one matter � it’s a cumulative effect,” said O’Malley.
The firm’s headcount grew 3 percent in the United States with the addition of a new office in Atlanta.
Without adding lawyers or shuffling the ranks of equity and non-equity partners, Morgan, Lewis & Bockius saw big gains in revenue, RPL and PPP.
“We had a lot of new clients and a lot of new business come in,” said Chairman Francis Milone. “We were very busy.”
One of the big pieces of business that rolled in was the high-profile engagement to represent Hewlett-Packard following the “pretexting” scandal that rocked the technology giant last year.
“The whole HP investigation was a very significant matter for us,” Milone said.
In another big case, Morgan, Lewis client LG. Philips was awarded damages of $53.5 million in a suit over its LCD technology patents.
All the activity amounted to a large 12 percent gain in RPL, bringing it up to $770,000, and an even larger 24 percent gain in PPP, which hit $1.2 million.
Milone said the results are nice, but not entirely the point.
“We really don’t manage ourselves to financial goals like PPP,” he said. “Our approach to the world is we try to develop relationships with clients, and if we’re good at that, we’ll be rewarded.”
The firm opened an office in Houston and boosted headcount by just 2 percent.
O’MELVENY & MYERS
O’Melveny & Myers maintained strong financial results, but saw significantly less growth than last year. Revenue was up 8 percent, but PPP and RPL were up just 1 percent. That’s because the firm wasn’t able to fire on all cylinders at the same time, said Chairman Arthur Culvahouse Jr.
“It seemed our East Coast and London transactional [lawyers] would get really busy while the rest of the firm’s transactional [practice] was slow,” Culvahouse said. “Then, you’d start moving talent and the reverse would be true.”
Many of the private equity groups that O’Melveny represents were in fund-raising mode, Culvahouse said, and a few deals the firm worked on in 2006 are just closing.
Overall, the firm improved on its realization and rates were higher, but they didn’t have the hours: “It would have been nice to have this year’s realization with last year’s hours,” he said.
On the transactional side, the firm represented the New York Stock Exchange Group’s board of directors in the pending merger with Euronet N.V. and Warner Brothers in the joint venture with CBS Corp. to form the television network CW.
Litigation was busy, as the firm represented Bank of America in the successful appeal of a billion-dollar California verdict in a class action over Social Security deposits. The firm also represented former Enron executive Jeffrey Skilling at trial.
PAUL, HASTINGS, JANOFSKY & WALKER
Paul, Hastings, Janofsky & Walker had a standout year among Los Angeles-based firms, with leaps in revenue and PPP that Chairman Seth Zachary attributed, in part, to stellar returns for its foreign offices.
“We invested in global platforms and reaped the benefits,” he said.
Asia and London were its two fastest-growing regions � London revenue was up 84 percent to $21 million. All 18 offices were profitable, with 15 showing double-digit growth, Zachary said. In 2006, the firm added a Chicago office.
The firm’s strong performance was fueled by an “absolutely fantastic” year in its corporate practice and strong IP litigation, Zachary said. It represented UBS in the largest debt sale in Indonesia history� a $1 billion high-yield bond offering; represented Pirelli in a $700 million offering on the London Stock Exchange; and represented Cequel III in its purchase of cable systems from Cox Communications for $4.5 billion.
In IP, the firm represented Align Technologies in litigation against OrthoClear in a case involving 11 patents and trade secret claims. The effort kept attorneys in nine of the firm’s offices busy.
The firm’s priority in upcoming years will be to grow New York and London as well as seeking opportunities in the San Francisco Bay Area.
GIBSON, DUNN & CRUTCHER
Gibson, Dunn attributed its results to a strong year for corporate in the United States and Europe, as well as “extraordinarily” strong litigation and arbitration in Europe, a practice the firm created just 18 months ago, said Managing Partner Kenneth Doran.
The appellate group also had one of its strongest years, with five cases in front of the U.S. Supreme Court. The white-collar and corporate investment group was busy in many of the stock options backdating cases, which compensated for what otherwise would have been a reduction in securities litigation.
Along with a number of matters representing Wal-Mart, Gibson’s key work in 2006 included representing Intel in its ongoing antitrust case against AMD; KPMG in connection with matters such as tax sheltering; and Investcorp, a private equity group, in connection with M&A deals in the United States and Europe.
The firm hired a higher number of key laterals than in previous years, including an eight-lawyer group for its Paris office that will focus on M&A.
MORRISON & FOERSTER
For Morrison & Foerster, it was a year of doing a lot more with what it already had.
Adding just a handful of lawyers, the firm managed to boost revenue and RPL by more than 10 percent.
“It reflects the demand for services, and everyone around here has been very busy,” MoFo Chairman Keith Wetmore said. “We had capacity for our existing team to work a little harder, so we wanted to make sure that everyone’s plate was full before adding more lawyers.”
MoFo cashed in on the big M&A year, advising on 144 deals valued at $67.8 billion. The firm was also ranked No. 1 in M&A advisory work in Japan, according to Bloomberg law firm rankings.
On the litigation side, IP continued to be hot, as did securities � especially profitable due to backdating scandals.
“The options pricing matters are both burdensome for our clients, but very demanding of legal services,” Wetmore said. “We moved very early and got more as time went on � we are working on dozens and dozens of matters.”
After drastically cutting the equity partner ranks in 2005, the firm saw a 10 percent swell in 2006. Even with the additional equity partners, PPP climbed 8 percent to $1.1 million.
A year of substantial growth helped Bingham McCutchen hike revenue 16 percent.
The firm completed a merger with 140-lawyer Washington, D.C., firm Swidler Berlin at the beginning of the year, more than tripling the size of its office there. Later, the firm opened its first China office in Hong Kong. The growth boosted the firm’s headcount 10 percent to 825.
“It was a good year because it was an investment year,” said Chairman Jay Zimmerman.
But it wasn’t just investment in new offices; the firm increased its equity partner ranks by 25 � a 22 percent jump � which resulted in little growth to the firm’s $1.2 million PPP.
“It’s another part of our investment � bringing along laterals and young partners that are valuable to the firm,” Zimmerman said. “If we hadn’t increased equity partners, we would’ve had a nice increase in PPP.”
Although last year proved more profitable for corporate lawyers and less so for the bankruptcy bar, Zimmerman said the firm’s bankruptcy practice was in full swing. In a huge restructuring deal, the firm continued to represent the Chapter 11 trustee of Refco Capital Markets, a case that involved more than $1 billion.
Banking and finance lawyers also did well last year, though work for antitrust lawyers slowed some, Zimmerman said.
ORRICK, HERRINGTON & SUTCLIFFE
Aided by prolific expansion in 2006, Orrick, Herrington & Sutcliffe’s revenue skyrocketed 20 percent to $666 million, with RPL up a more modest 4 percent.
The firm opened new offices in Beijing and Shanghai staffed by lawyers from the now-defunct Coudert Brothers and gobbled up French firm Rambaud Martel to double the size of its Paris office. The growth brought the firm’s headcount to 839 � 16 percent more than in 2005.
The new lawyers brought in revenue, but the new offices brought in more bills.
“Our revenues are great, but we would have been more ahead without those investments,” said Orrick’s Ralph Baxter Jr. Still, PPP was up more than 15 percent to $1.4 million � in part because a dip in equity partners and a jump in non-equity partners, though Baxter said there was nothing unusual to account for the changes.
Orrick had reached an agreement to merge with New York’s Dewey Ballantine, but the deal fell apart in January.
Meanwhile, Orrick continued to dominate the bond market and was ranked number one by The Bond Buyer as the busiest bond counsel in 2006. The firm was identified as bond counsel on 439 deals worth $31.4 billion last year.
Capital markets lawyers and litigators were also busy at the firm.
“On the litigation side, the robust practice areas were IP, securities and product liability and mass tort,” Baxter said.
While management was busy hammering out merger agreements with U.K. firm Richards Butler and Chicago’s Sachnoff & Weaver (both take effect this year), Reed Smith lawyers churned out a big 14 percent gain in revenue.
“I think it’s a direct reflection of our strategy, which is to grow the firm in key markets, increase the size and strength of relationships with corporate clients, and do more high value work for those clients,” said Gregory Jordan, the firm’s chairman.
That included advising on some big M&A deals last year, including Mellon Financial Corp.’s $16.5 billion acquisition by Bank of New York, which closed in December. Jordan said class actions against some major banking clients, like Bank of America and Wachovia, as well as product liability suits, kept litigators busy.
Reed Smith’s PPP soared 17 percent to $940,000, partly due to a slight decrease in the equity partner ranks and a double-digit uptick in non-equity partners. RPL climbed 6 percent to $650,000.
PILLSBURY WINTHROP SHAW PITTMAN
After drops in RPL and PPP in 2005, Pillsbury Winthrop Shaw Pittman rebounded in 2006, raising RPL 16 percent to $770,000 and PPP 14 percent to $875,000.
“These numbers are well on track with the goal the firm recently set to reach $1 million in PPEPin 2008,” said Chairman James Rishwain Jr.
The firm managed to increase PPP even as it reported 50 more equity partners. Rishwain said much of that shift only occurred on paper: As the value of the firm’s points increased, that pushed more partners over the threshold for qualifying as equity partners.
Revenue was flat, climbing just 1 percent, and headcount dropped precipitously by 111, which included the loss of nearly 40 partners.
“We are indeed a leaner firm than we were a year ago � but that has made us more nimble and efficient and allowed us to draw more effectively on our talented partners and market-leading practices, which is why, despite fewer lawyers, our revenues exceeded what we earned last year, and profits rose considerably,” Rishwain said.
The firm kept busy with the backdating scandals as well as the increased deal flow last year. The firm’s energy and real estate practices also did well, Rishwain said, including advising the Mark Winkler Co. in selling off its entire real estate portfolio valued at $2.3 billion. The firm also added a new China office.
Heller Ehrman posted moderately strong growth in revenue with a 7 percent gain, but its PPP soared 17 percent, crossing the million-dollar threshold for the first time.
Though the rise in PPP was aided by a 9 percent decrease in equity partners and a 19 percent increase in non-equity partners, Chairman Matthew Larrabee said it was just the result of some partners retiring and others moving on.
The firm benefited from the hot M&A market � revenue from deal activity was up 30 to 40 percent, according to Steven Tonsfeldt, who heads the firm’s corporate and M&A practices.
“On the corporate side, the deal activity is up,” Larrabee said. “On the litigation side, the securities practice and the IP practice went through the roof.”
The firm won several big IP cases last year, including a $112 million verdict for Texas Instruments in a patent dispute. The firm was also working on around 25 backdating-related matters.
The firm saw little growth to headcount, but that will change, Larrabee said.
“We’re poised for growth now that the business is a lot stronger,” he said.
WILSON SONSINI GOODRICH & ROSATI
Silicon Valley stalwart Wilson Sonsini Goodrich & Rosati saw its profit per equity partner jump 30 percent to $1.28 million, thanks partly to counting 35 fewer equity partners. The 582-attorney firm decided to adhere to The American Lawyer’s definition of an equity partner this year, causing its number of attorneys in that category to fall. The firm had not previously reported having any nonequity partners; now it has 31.
The firm’s gross revenue rose 12 percent to $460 million, and revenue per lawyer climbed 5 percent to $790,000.
Wilson Chief Executive John Roos attributed the firm’s growth to strong mergers and acquisitions activity and other corporate work. But the rebounding Valley tech economy benefited all the firm’s departments, he said.
“It really was one of those years where it was positive across the board,” he said.
Roos expects 2007 will be a good year for initial public offerings, long a Wilson strength.
Cooley Godward’s PPP grew by a healthy 10 percent, cresting $1 million for the first time, while revenue jumped 12 percent to $335 million. RPL rose 6 percent at the firm. (In October, Cooley merged with New York-based Kronish Lieb Weiner & Hellman; 2006 results reflect Cooley’s performance without Kronish.)
As with many Silicon Valley firms, corporate work provided a major kick.
“We had a very, very nice productive year,” said Mark Pitchford, Cooley’s chief operating officer. “The VC fund formation group was inundated � just extremely busy throughout the year. The IP litigators were extremely busy. There was trial work � lots of dispute work.”
Pitchford expects IPO activity to be a strong source of revenue in 2007 and anticipates mergers and acquisition activity will remain brisk.
“It sizes up as a year that looks a lot like ’06, but that’s a good thing because ’06 was a good year for us in many ways,” he said.
Cooley had 436 attorneys before the merger and now counts more than 580.
SHEPPARD, MULLIN, RICHTER & HAMPTON
Sheppard, Mullin topped the $300 million marker for the first time last year though its RPL was nearly flat � something Managing Partner Guy Halgren attributed to a leveling off of billing rates.
Profits per partner exploded and are now over $1 million, but mostly due to a change in the firm’s compensation structure. The firm said it is now guaranteeing a larger portion of income for many partners previously deemed equity partners. As a result, the firm reported 79 equity partners in 2006, down from 128 the year before. Under the methodology used by The Recorder and The American Lawyer, partners whose income is more than 50 percent guaranteed are considered nonequity partners.
The affected partners “should make the same amount, and it’s possible they’ll make more,” said Halgren. “We drew a line where we felt there would be a natural transition to non-equity from equity.”
The change puts the firm “on more equal footing” with other firms that have changed their equity definitions or compensation systems in recent years. It required a partnership vote: “We had a good, vigorous discussion but the partners voted very strongly in favor of it.”
Backing out the increase attributable to the change, profits per partner were up about 4 percent, Halgren said. Profits were dampened by capital investments in office space and technology.
Though bankruptcy was slow, corporate and IP were strong. IP’s success was, in part, a result of the robust Del Mar Heights office, the center of the firm’s IP practice, Halgren said. The office moved down the street and doubled space last year.
Lateral hiring was down in 2006: “We didn’t open a new office this year, so we didn’t have a new office to staff,” Halgren explained.
Sheppard, Mullin is planning on opening a China office soon, having received the OK from the government there. “Certainly the biggest investment in the next year will be opening in China,” Halgren said.
QUINN EMANUEL URQUHART OLIVER & HEDGES
It was a career year for Quinn Emanuel, with PPP leaping 28 percent to $2.4 million, and gross revenue jumping 54 percent to $298 million. Revenue per lawyer rose 29 percent to $1.02 million. The litigation-only firm, which has 292 attorneys, saw high activity across the board, according to co-founder John Quinn.
“I can’t say that there’s one practice going stronger than another,” he said. “Within the world of business litigation where we live and work, it seems like every practice area has been extremely busy.”
One of the firm’s biggest revenue boosters was a contingency payout from client Freedom Wireless, which was awarded $128 million in a patent dispute in 2005.
Compensation to non-equity partners rose more than 300 percent over 2005, and Quinn said that was because several highly paid lateral partners joined the firm this past year.
THELEN REID & PRIEST
For the firm now known as Thelen Reid Brown Raysman & Steiner � following a December merger between San Francisco’s Thelen Reid & Priest and New York’s Brown Raysman Millstein Felder & Steiner � 2006 was not a banner year.
Revenue plummeted by 13 percent and RPL dropped 6 percent to $665,000. The declines stem in part from a one-time $24 million contingency fee the firm received the previous year.
“We knew that some of the numbers would be down because of a significant contingency in 2005,” said Stephen O’Neal, chairman of the old firm and co-chairman of the combined firm. “We made our budget this year.”
The firm also slashed its equity partner ranks by 35 � a 33 percent decrease � which helped keep PPP at the same level it was last year: $850,000.
The reason was “to make sure that folks that are contributing the most to the productivity of the firm share the most in it,” O’Neal said. “Any time you move toward a merger there’s a certain amount of cleaning up to do.”
The combined firm reported revenue of $357.5 million, with RPL of $630,000 PPP of $820,000. Combined headcount is 566.
Aside from the New York expansion, the firm opened offices in China and London.
Labor and employment firm Littler Mendelson grew from 404 attorneys to 444 in 2006, with revenue up 20 percent to $240 million.
Firm President and Managing Partner Marko Mrkonich said the growth didn’t help per-partner profits because the firm also boosted the number of equity partners by 20 percent, from 145 in 2005 to 172. “The average shareholder year-to-year has seen a 10 to 20 percent average increase in their own profits,” he said. “But because the people we add tend to be promoted from within, that drives down the average.”
Asked what areas grew at Littler, Mrkonich named international employment law and trade secret and unfair competition. Class and collective actions brought in the most revenue, Mrkonich said, adding that the firm had about 250 such cases.
The firm opened a visa and immigration center staffed with paralegals in Bangalore to complement its new Shanghai office, also opened in 2006.
MANATT, PHELPS & PHILLIPS
Manatt’s performance was steady across the board, with revenue up 8 percent, RPL up 8 percent, and PPP up 6 percent.
Like many other firms, Manatt attributed the performance to strength in M&A, capital markets and intellectual property litigation.
Work in the real estate arena was also particularly strong, said William Quicksilver, the firm’s chief executive officer and managing partner.
This year, the firm is going to focus on its key markets with no plans to expand to new offices, he said.
“We’re going to focus on building out our capacities in litigation and transaction,” he said. “There’s a continuing competition for both clients and talent, and I expect that to continue.”
IRELL & MANELLA
At Irell, it was a good year for transactional work, including its burgeoning niche of art law. In 2006, the firm’s transactional group handled work totaling more than $4 billion.
Among the highlights: representing Los Vegas gaming company Pinnacle Entertainment on deals totaling more than $900 million and serving Viacom/Paramount Pictures as a co-counsel on transactions totaling $2.5 billion, including its acquisition of DreamWorks SKG.
A notable representation was the firm’s work representing the heirs of the Bloch-Bauer family on the sale of Gustav Klimt paintings that had been seized by the Nazis during World War II. All told, the art law group worked on art sales totaling $575 million.
The activity amounted to a healthy 10 percent increase in RPL, bringing that number to $1.05 million, as well as a 12 percent gain in PPP.
MUNGER, TOLLES & OLSON
For Munger, Tolles, 2006 was a “tremendous year” for the IP litigation team, one of the major clients being memory chip designer Rambus Inc., said Bart Williams, the firm’s co-managing partner.
As a result, revenue was up 14 percent, RPL jumped a whopping 19 percent, past the million-dollar mark, and PPP was also up 12 percent.
While “slow growth” is the firm’s motto � there were no lateral partner hires last year� it is looking to further develop its San Francisco office by expanding the white-collar practice there.
LEWIS BRISBOIS BISGAARD & SMITH
Los Angeles-based Lewis Brisbois Bisgaard & Smith saw gross revenues of about $174 million, an 11 percent increase over 2005. Timothy Graves, Los Angeles office managing partner, said that all practice areas were busy, particularly products liability, insurance coverage and bad faith, directors and officers coverage and litigation, and employment work. Graves added that the biggest increase in revenue came from intellectual property, medical malpractice, managed care and elder matters.
The firm continued its national expansion last year, opening a new office in Lafayette, La., with six attorneys to handle Katrina and other hurricane-related litigation, giving the firm 12 offices and more than 500 attorneys.
SEDGWICK, DETERT, ARNOLD & MORAN
Though litigation shop Sedgwick, Detert, Arnold & Moran saw fewer cases go to trial than ever before, the firm still saw a 10 percent bump in its revenues.
That’s because Sedgwick’s caseload grew more than ever, with a good deal of work coming from pharmaceutical giant Merck and its ongoing litigation over the controversial painkiller Vioxx.
“Trying cases is more expensive than settling them,” said Sedgwick Chairman Kevin Dunne. “But the number of cases we handled expanded significantly.”
The firm saw moderate growth with the addition of new offices in Houston, Austin and Bermuda, bringing total headcount from 346 to 365.
TOWNSEND AND TOWNSEND AND CREW
Intellectual property specialists Townsend and Townsend and Crew had an “extraordinary” year, said Chairman James Gilliland. The firm’s PPP was $1,440,000, a 6 percent increase over 2005, and revenue per lawyer rose by the same percentage to $940,000. Gross revenue jumped 17 percent.
“We achieved once-in-a-lifetime results two years in a row,” he said. “In 2005 we had a large contingency recovery in a case against Intel, and in 2006 we had a large contingency recovery in a case against Microsoft.”
The firm represented California consumers and several counties and cities in the state in two cases against Microsoft, which resulted in a settlement valued at $1.2 billion.
Gilliland said he didn’t expect 2007 revenue to come close to last year’s because the firm is not expecting contingency fee payouts of the same magnitude this year.
“2007 is likely to be back in the range of normalcy,” he said, with revenue per lawyer coming in at between $600,000 and $700,000.
FENWICK & WEST
Despite a big year in the Valley, Palo Alto’s Fenwick & West reported only moderate growth in 2006. Revenue was up 5 percent while RPL was up just 2 percent.
Managing Partner Gordon Davidson said deal flow was “strong for the fourth consecutive year.” But a hot deal economy is a mixed blessing for a firm like Fenwick, which is known for representing emerging companies. Davidson says when so many clients are being acquired, it’s a challenge finding new ones.
On the plus side, Fenwick litigators were busy with special investigations, mostly for companies ordering up inquiries into their stock option practices. Patent litigation was strong in 2006 as was the firm’s tax practice.
Fenwick also kept busy � but without benefit to the bottom line � in pro bono representation of the ACLU in a suit over AT&T’s decision to turn over millions of call records to the National Security Agency.
In 2007, Davidson says he expects the firm to be busy with options backdating matters, and an active IPO market.
Recorder staff writers Zusha Elinson, Kellie Schmitt, Petra Pasternak and Jessie Seyfer contributed to this report.
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