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Philadelphia-based Pepper Hamilton increased its gross revenue during 2006 by 12 percent, but saw slower growth in its revenue per lawyer and profits per equity partner than it did during the previous two years. The increases did come, however, despite growth in the firm’s equity partner tier and no change in its non-equity partner group. The firm’s gross revenue grew from $231 million in 2005 to $259 million in 2006. The revenue per lawyer (RPL) saw a 7 percent jump from $597,500 to $639,000 in 2006, and the profits per equity partner (PPP) increased 3.4 percent from $626,000 in 2005 to $647,000 in 2006. The average compensation for all partners increased by 4.4 percent from $535,500 to $559,000. Between 2003 and 2004, the firm saw a 20 percent jump in RPL and a 9 percent jump between 2004 and 2005. The PPP grew by 20 percent between 2003 and 2004 and another 5 percent between 2004 and 2005. With a 4.7 percent increase in the total numbers of attorneys to 405 in 2006, Pepper Hamilton increased its equity partner tier by 6.5 percent from 123 in 2005 to 131 in 2006. The non-equity partner tier remained the same at 45 attorneys. Pepper Hamilton Executive Partner Robert E. Heideck said the firm would have had a higher PPP if it had not consistently increased the number of equity partners over the past few years. The PPP is not a number, however, that the firm is focused on, Heideck said. While other firms have been decreasing their equity partner ranks, Heideck said his firm is not run that way. “We’re not going to focus the management of our firm or our partner complement merely to have a higher number in one of the AmLaw categories,” he said. Pepper Hamilton is most focused on its RPL, which Heideck said has a smaller percentage increase as the base becomes larger. He said the firm’s RPL is right where they wanted it for 2006, and the firm is aiming for a $50,000 increase on that average for 2007. Bill Brennan of Altman Weil said all law firms are doing well, but the rich are getting richer. The consultant firm compared the rate of increase for RPL among the AmLaw 100 firms that had been on the list for more than one year. Altman Weil split the AmLaw 100 firms by their RPL performance in 2004, with one group reporting $600,000 or above in RPL and the other group reporting below $600,000. Brennan said RPL reported for those firms in 2005 showed that the category of firms with RPL $600,000 and above had a rate of increase more than double that of the firms who started out at a lower RPL. Firms who had $600,000 or more in RPL had an average increase of $58,000 for their 2005 RPL while the firms that started with an RPL lower than $600,000 had an average increase of $27,000, Brennan said. Altman Weil plans on repeating that study once the AmLaw 100 for 2007 is released in a few months. Brennan said it is fairly easy for firms to compute where they want to be in the next year when it comes to financial performance. For RPL, he said a firm has to look at the number of lawyers it anticipates; the number of billable hours those lawyers should bill based on what they’ve done for the past three years; their billing rates based on their clientele and practice area; expenses; and realization rates. These factors can help firms gauge what sort of increase in RPL they can anticipate for the following year, he said. If a firm meets its RPL goals, Heideck said, its PPP would increase too. The key determining factors in large law firm profitability, Brennan said, are getting billing rates to the highest price the market will bear and getting the realization rate as high as possible. For Pepper Hamilton, Heideck said the firm had a strong year in all of its litigation practices as well as its corporate securities and tax practices. He said the firm is still in a growth mode and has added about 15 lateral partners and of counsel attorneys in the last three months. While the firm’s attorney count grew by 4.6 percent over the course of the year, the firm grew 8 percent larger when comparing January 2006 to January 2007, Heideck said. Pepper Hamilton tried its hand at a merger in 2006, participating in talks with at least one firm, Rochester, N.Y.-based Nixon Peabody. A merger between the two firms would have given Pepper Hamilton substantial growth in its Washington, D.C., office and a new presence in Boston. When those talks failed, the firm didn’t give up on its interest in Boston. Pepper Hamilton opened an office there in October with the addition of Leonard Schneidman from Foley Hoag. Heideck said then that he hopes to have 20 attorneys there by the middle of this year. Pepper Hamilton would be interested in a merger, Heideck said, that would add significant practice area depth, but the firm is also looking to grow organically. Heideck said he wants to grow the intellectual property, tax, corporate and securities and general commercial litigation practices within the firm. Pepper Hamilton is looking to build in its Boston and New York offices and has been adding attorneys in its Washington and Philadelphia offices, he said. In March, the firm created an alliance with Washington energy consulting firm The Abraham Group, started by former U.S. Secretary of Energy Spencer Abraham. Heideck said that alliance has not yet had a significant impact on the firm’s bottom line, but it has created significant marketing opportunities and some business opportunities in 2006. He said he anticipates the alliance to have a strong impact on the firm’s 2007 numbers.

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