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Philadelphia lawyers who regularly enjoy The Deal with their morning lattes received a rude awakening Monday. They practice in “the worst legal market in America,” according to a column printed in the national publication. The reporter, David Marcus, reached that conclusion after scanning the recently released Am Law 100 and 200 statistics, which show that of the 10 firms labeled by the survey as Philadelphia firms, the average profits per equity partner is $431,000. That figure is much lower than the averages for the 32 New York firms on the list ($1.37 million), the 17 Washington, D.C.-based firms ($846,000) or the nine Boston firms ($697,000). Marcus surmises that Philadelphia is hindered by being situated between Washington and New York and by not having any native investment banks of any size or many indigenous commercial banks upon which they can depend for referrals. The column also takes a shot at the five local firms that he labels “growth happy” — Blank Rome, Duane Morris, Drinker Biddle & Reath, Ballard Spahr Andrews & Ingersoll and Cozen O’Connor — all of whom have increased head count since 1999 by 49 percent or more. By contrast, he said the five other firms — Pepper Hamilton, Wolf Block Schorr & Solis-Cohen, Saul Ewing, Fox Rothschild and Schnader Harrison Segal & Lewis — have been much more conservative, growing by 21 percent or less. The article in The Deal, which is affiliated with American Lawyer Media, says that profits at the growth-happy five have risen 42 percent since 1999; their less adventurous competitors have seen profits rise by 53 percent. More importantly, the article said that none of the 10 has profits per partner that would impress lawyers in Washington, New York or Boston, which means none of the Philadelphia firms are likely to be appealing as a potential merger partner. According to William Brennan, a law firm consultant from Newtown Square’s Altman Weil, being sandwiched between the two most formidable legal markets in the country does hinder Philadelphia. But the disparity is not as great as the article states. Brennan said the article does not include statistics from the two largest indigenous Philadelphia law firms — Morgan Lewis & Bockius and Dechert — because they are considered national firms by the Am Law 200. With Dechert’s equity partner profits at $1 million and Morgan Lewis’ at $825,000, their inclusion would clearly increase the city’s average profits. But Brennan said if statistics from national firms with New York offices were factored into the New York partner profit numbers, it would actually have a negative affect. That city’s most profitable firms, Wachtell Lipton Rosen & Katz and Skadden Arps Slate Meagher & Flom, are listed as New York firms and not national firms. Even so, New York’s profit numbers dwarf those in Philadelphia. “But when looking at Washington and New York, that’s an unfair comparison for Philadelphia,” Brennan said. “Philadelphia is the sixth largest market and compared to a city like Detroit — the eighth largest market — it’s more profitable.” Brennan admits that Philadelphia is no longer a banking or corporate client center and its population growth rate is much slower than other large cities. But he said the biggest difference is billing rates. According to Altman Weil’s survey on law firm economics, the average billing rate for equity partners at responding Philadelphia firms was $329 per hour, compared to $469 in Washington, $460 in New York, $374 in Chicago and $367 in San Francisco. But Brennan said that the survey found that it is also much more affordable to practice in Philadelphia than other large cities. The average overhead per lawyer at responding Philadelphia firms was $178,000, compared to $220,000 in Washington and $198,000 in San Francisco. “What I think that tells us is that there is a silver lining to that story [from The Deal],” Brennan said. “Philadelphia lawyers are as good as lawyers in New York or Washington. They are basically interchangeable in terms of quality from my experience and they provide their clients with a much better value while not spending as much on overhead.” Blank Rome managing partner Fred Blume said he does not accept the premise of the article in The Deal. With that being said, Blank Rome management envisions a future in which its New York and Washington offices rival Philadelphia in size. Translation: the firm does not plan significant growth in its hometown. “Is Philadelphia as good of a legal market as other major cities?” Blume said. “I’d say no because of the lack of financial institutions. But it’s hardly a bad legal market. I think the city has strong client bases in several industries such as pharma, health care and financial services. “I would also say that … comparing our firms without Morgan and Dechert to New York’s firms with Skadden, Wachtell and Cravath [Swaine & Moore] is like comparing apples to oranges. Secondly, the 10 firms mentioned in the article have a wide range of profit numbers, goals and structures. They really aren’t comparable to one another.” Blume said that while his firm has grown by 71 percent over the past five years — largely due to acquisitions of New York’s 80-attorney Tenzer Greenblatt and Washington’s 45-attorney Dyer Ellis & Joseph — the firm has a clear, methodical strategic plan that does not include growth for growth’s sake. “If you’re going into the Chicago market, I don’t think you are going to put yourself on the map there by adding five or six or even 10 lawyers,” Blume said. “We wouldn’t go into a city like Chicago without 50 to 70 lawyers. The problem there is that because of consolidation, there aren’t many of those firms left. But we believe that it is important to acquire big groups — preferably an entire firm — because we place a high value on establishing common cultural values. And that’s tough when you are acquiring a bunch of smaller groups over time.” Blume said that he believes Blank Rome would be an attractive merger partner to a profitable firm from another major market. “Philadelphia is a strength, but we can also pitch our New York and Washington offices,” Blume said. “We have a pretty good track record with our mergers there. And not everyone wants to be absorbed by Skadden.” Duane Morris chairman Sheldon Bonovitz, whose firm has grown by 97 percent with a flat growth rate in Philadelphia, said he agrees with the main thrust of the column. But he said calling Philadelphia the worst legal market in the country is merely an exaggeration designed to prove a point. “I think there are more good law firms here than there is good business opportunity,” Bonovitz said. “I can’t say it’s the worst legal market but it’s not a good one. The banks have moved to Delaware because the city’s [tax structure] is inhospitable to businesses. For [the city legal community's status to] change, I think we need a dynamic economic change in the city, and I don’t see that coming any time soon.” But Bonovitz differed with the article’s view on how Philadelphia firms resort to mergers and acquisitions to counter their economic travails. He said only the largest of New York’s firms seem immune to the need to broaden their geographic platforms as a means to enhance profitability. He specifically pointed to the merger earlier this year between Boston’s Hale & Dorr and Washington’s Wilmer Cutler as an example. “Virtually no city is immune to it,” Bonovitz said. “Even the big Washington firms are now doing it. Yes, Philadelphia does not provide the best platform. But we don’t make the leap [into acquisitions] willy-nilly. We do demonstrate discipline and evaluate everything thoroughly before moving ahead.” Pepper Hamilton chairman Barry Abelson said he is bullish on Philadelphia as an economic market. He said the venture capital and pharmaceutical client base is solid and that there are some regional investment bankers doing well here. But there is one part of the article he finds intriguing; the possibility of reducing some of the oversaturation of large law firms in Philadelphia through an in-city merger. The article argues that because Philadelphia’s large firms are in such a “weakened state,” they would not be able to manage a merger of equals with a firm from another major market. So instead, the article states that Philadelphia, because of its flat client base and large number of big firms, might be a good place to produce the first in-market merger. The formula in the article calls for combining two firms, reducing head count, cutting costs and in the process, rationalizing the need for all of the branch offices. The end result would be to create a more efficient and profitable law firm. Brennan agrees that an in-market merger could work in Philadelphia, but not for the reasons stated in the article. “Merging is not a strategy in itself; it’s a way to achieve a strategy,” Brennan said. “A strategic plan should dictate any kind of merger or acquisition. It’s possible that what [the article says] is right and a merger could work. But you don’t do a merger to reduce expenses and eliminate redundancies. You do a merger because there is some kind of revenue synergy that you can cross-sell to clients. And I actually think that the branch office strategy can and has worked for Philadelphia firms, so I’m not sure what is meant by rationalizing branch offices.”

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