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What a difference a merger makes. The old, conservative Thompson & Knight took a deep plunge in July 1999 and agreed to its first-ever merger, joining with Brown, Parker & Leahy of Houston. A larger and stronger presence in Houston has been on Thompson & Knight’s wish list since 1996. The link with Brown Parker let the firm meet that goal with a big splash. And only months after that merger, the benefits of the combination are paying off for Thompson & Knight — the firm’s gross revenues increased by 31.9 percent and net income improved by 31.5 percent in 1999. Those percentage increases were better than the increases earned by all other firms on the Texas 25 list except for Dallas-based Jenkens & Gilchrist. But there’s more to the story. While Thompson & Knight scored a coup by picking up the highly courted Brown Parker, all the firm’s financial good fortune can’t be attributed solely to the benefits of a giant footprint in Texas’ largest city and 20 percent more lawyers. Some of it reflects fulfilled goals in Thompson & Knight’s strategic plan, which has been revised at least once a year since 1996. “The merger was part of it, but not a real big issue. It’s a large change based upon a number of things we’ve done over the last two or three years,” says Timothy McCormick, a member of the firm’s management committee. “We’re trying to be real strong at what we’re good at,” says James “Jimmy” Irish, managing partner of the 310-lawyer firm. At the time of the merger with Brown Parker, Irish predicted Thompson & Knight’s revenues would hit $100 million for 1999. He wasn’t far off — it was $99.8 million for the year, an increase of $31.9 percent from the $75.6 million in 1998. (It’s up 62.5 percent since 1994.) Net income in 1999 was $32.7 million, up $7.8 million, or 31.5 percent. The strength of the booming economy partly explains Thompson & Knight’s strong, in-the-black financial performance. But Irish and McCormick, the partner who oversees the firm’s strategic plan, say the firm has also had success in meeting some of its goals. As Irish puts it, some long-term investments are starting to pay off. The firm has been able to build strength in some high-demand areas, such as intellectual property and in international oil and gas work, says Irish. Estate planning has been another growth area for the firm. While the 113- year-old firm has always represented wealthy people from North Texas, the firm is starting to pick up some dot-com clients in Dallas and Austin who have money from soaring stock options. The bankruptcy practice has been “hot as a pistol,” and the firm also had a lot of labor-and-employment work in 1999 and business litigation, Irish says. The firm can’t attribute its healthy 1999 to litigation taken on a contingent-fee basis; Irish says the firm invested more in contingent-fee work during the year than it was paid. But in August 1999, as the Brown Parker lawyers were assimilating into the firm, McCormick says the partners met and revised the firm’s strategic plan again. This time the focus was on short-term goals. One immediate goal is to add real estate lawyers in Houston and Austin and lawyers in the promising international oil and gas section headed by partner Andrew Derman, who joined the firm two years ago. The firm also is targeting the intellectual property area. McCormick says the firm is doing well on that front in Austin and Dallas, but needs to build the section in Houston. He concedes it can be difficult to add IP lawyers because they are in such demand, but says he believes the firm can attract some because the firm’s culture doesn’t require lawyers to work long hours. Irish says the firm expects partners to bill a minimum of 1,700 hours a year, which is a relatively low level for large Texas firms. Of course, that affects profitability � profits per partner at Thompson & Knight were $345,000 in 1999. While that number was up $45,000, or 14.9 percent, from the previous year, it’s a far cry from the $500,000 or more earned by the average partner in eight of 25 firms on Texas Lawyer’s Annual Report on Firm Finance. Revenue per lawyer at Thompson & Knight was also on the lower end of the chart. The average of $358,000 brought in by each lawyer at Thompson & Knight was well below the $533,000 RPL for Houston’s Vinson & Elkins, the top Texas-based full-service firm on the RPL chart. One way to improve that statistic is to increase leverage. Thompson & Knight, which has traditionally maintained low leverage partly because of its shorter-than-average partnership track, is working on that problem, Irish says. Currently, the ratio is about one associate for each equity partner. Adding non-equity partners to the equation reduces it even further to a ratio of about .65:1. Another short-term goal is to beef up the Houston office to at least 100 lawyers by the end of 2001. McCormick says the firm reached a long-sought critical mass in Houston after the Brown, Parker deal, but wants to build on that size. But it won’t be through another large transaction, McCormick says, but by adding smaller groups. The firm got a start on that goal on June 1 when it added seven lawyers from Houston corporate boutique Snell & Smith, including partners Richard Snell, James W. Smith Jr., Christopher Schaeper and John Unger. In January, the firm added three partners from the Austin office of Arnold, White & Durkee who decided not to stay with the firm as it merged with Washington, D.C.’s Howrey & Simon. The lawyers, Amber Hatfield, William Raman and Charles Huston, represent emerging high-tech companies. Hatfield, an IP litigator, says that while she was aware the firm had a good year in 1999, that wasn’t why she decided to join it. “It’s an old firm, I figured … it would be financially stable,” she notes. But Hatfield was attracted to the firm because its lawyers were willing to be creative. Although she mostly bills on an hourly basis, she says she likes the fact that transactional lawyers at the firm find alternative ways to bills clients. That works well in the New economy, she says. NYC HERE WE COME Irish says the firm typically does best in bad times, due in part to its bankruptcy and litigation practices, so the improved numbers in 1999 are particularly satisfying. But McCormick suggests that the firm’s strategic planning, which began in earnest in 1996, is falling into place. That year, the firm targeted Houston. The firm spent about 18 months evaluating several growth strategies, but ultimately concluded a larger transaction made the most sense if the lawyers fit into the firm’s culture By March 1998, the firm started negotiating with Brown Parker lawyers, but the deal took 18 months to complete. Talks were even called off at one point after a conflict arose. Dallas Parker, the former name partner in Brown Parker, and Irish agree the cross-selling benefits of the merger is reaping business, although both declined to talk in detail about new work or clients. Parker, a corporate lawyer, says it makes a big difference, when going after work, to be able to say the firm has more than 60 corporate lawyers instead of 10. While the Houston office is known as Thompson Knight Brown Parker & Leahy, Parker says that dual moniker will probably change to Thompson & Knight “sooner rather than later.” In an effort to make the two parts more cohesive, Irish says the firm’s finances were integrated back to Jan. 1, 1999. What else is on the horizon for Thompson & Knight? Actually its expansion into a market far from the view from the firm’s headquarters in downtown Dallas — New York City. Irish and McCormick say the firm has hired a consultant to work the New York market and identify some groups or firms interesting in helping Thompson & Knight open a New York office. Irish says the firm is interested in New York because the financial markets are on the East Coast. It may or may not pan out, he admits. The firm has looked at Washington, D.C., before, with no luck. Irish doesn’t want to just pick up any group in New York; he doesn’t want to dilute the quality of the firm’s lawyers. “We’re not wed to Texas. We’re certainly looking at a New York office,” Irish says. “That’s a long shot to be a player up there.”

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