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LOS ANGELES-O’Melveny & Myers recently reported flat profits per equity partner in 2006 due to a marked slowdown in big private-equity deals. The flat profits are a setback for O’Melveny, which has shifted its focus heavily to high-dollar private-equity deals since acquiring New York boutique O’Sullivan nearly five years ago. Last year, the firm, which has its largest office in Los Angeles, lost about a dozen partners who specialized in private-equity deals, restructuring and other transactional work. Arthur B. Culvahouse, the chairman of O’Melveny, said he expected profits to rebound but admitted that 2006 was a “lumpy year.” “A lot of the flatness was due to the fact that we had a fair amount of unbilled time and some larger transactions that didn’t close during the fiscal year,” he said. O’Melveny has more than 1,000 lawyers in 13 offices worldwide. The firm reported 2006 revenue of $869 million and profits of about $1.6 million per partner, about the same as the previous year. In 2005, O’Melveny’s profits soared by 23.3%. The core practice Since acquiring O’Sullivan, whose 88 lawyers brought clients including Apollo Management L.P. and the former JP Morgan Partners, O’Melveny has been focused on big private-equity deals, Culvahouse said. “Since 2002, that has been our goal and aspiration: to grow private equity as a core practice all across the firm,” he said. Culvahouse attributed the flat growth in 2006 to several private-equity clients with new funds. “In 2006, we had a couple of clients who were in a fundraising mode, more so than a deal-doing mode,” he said. He noted that several of the firm’s big private-equity deals, or those valued at more than $500 million, failed to close before the end of the year. Those deals are more complex and involve more parties, he said. For instance, the firm represented one of its biggest private-equity clients, Apollo, in several billion-dollar deals last year, including a $17.1 billion offer with Texas Pacific Group to buy Harrah’s Entertainment Inc. that has yet to close. The firm’s emphasis on big private-equity deals prompted about a dozen partners to leave last year. “There is a laser-like focus on being a New York or London-based superprofitable, high-end firm,” said Dan Hatch, head of the Southern California partner practice for Major, Lindsey & Africa, of O’Melveny. “They have been successful, but with a cost.” Big defections In April, John Suydam, the former chairman of O’Sullivan who was serving as co-chairman of O’Melveny’s transactions department, left to become chief legal and administrative officer at Apollo. Suydam said the move had nothing to do with his experience at O’Melveny. He said Apollo “had a need because they were expanding their business dramatically.” The firm also lost partner Adam Weinstein, who became the co-manager of the New York private-equity mergers and acquisitions group for Akin Gump Strauss Hauer & Feld. Three other O’Melveny partners, Stewart Kagan, Rosa Testani and David D’Urso, joined Akin last year. None of the four returned calls seeking a comment. Other partners, in finance, restructuring and Latin American corporate work, left the firm last year. Culvahouse said some of those partners have been replaced with private-equity specialists Gregory Ezring and Monica Thurmond, two “much higher profile, independent, higher stature finance partners” who joined in May from Latham & Watkins. But he said the firm is actively recruiting. He also acknowledged one anticipated additional cost last year: Former Enron Corp. President Jeffrey Skilling, who was represented in the criminal trial last year by O’Melveny partner Daniel Petrocelli, still owes the firm about $20 million in unpaid legal bills.

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