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Over the last ten years, dozens of Am Law firms have scrambled to find merger partners. New practice areas, geographic advantages, economies of scale-the rationales for these couplings are endless. But does all the happy talk really translate into bigger clients, busier associates, and fatter K-1s? To find out, we assessed the fortunes of eight firms from this year’s Am Law 100 that engaged in name-changing mergers with similarly sized partners in the past decade. We scrutinized their performances based on post-merger growth in revenue per lawyer, profits per partner, and average compensation for all partners. Combinations with non-U.S. firms were not included, nor were mergers with fewer than three years of postmerger results to analyze. As a benchmark, we looked at the average growth of The Am Law 100 by revenue per lawyer, profits per partner, and compensation-all partners. For firms where data was available, we also compared the growth of the merged firms with that of their predecessors. A few firms stood out: Only Sidley Austin and DLA Piper’s U.S. offices grew their per-partner profits at faster rates postmerger than The Am Law 100 and beat the average PPP. Similarly, only Bingham McCutchen, DLA, Sidley, and Wilmer Cutler Pickering Hale and Dorr outgrew and outearned The Am Law 100 in terms of revenue per lawyer. Since consummating their respective mergers in 1999 and 2001, Nixon Peabody and Pillsbury Winthrop Shaw Pittman have seen profits per partner lag far behind those of The Am Law 100, both in growth rates and in dollar amounts. Moreover, behind the managing partner mantra of “two plus two equals five,” our focus on postmerger growth reveals that some component firms were actually growing faster before they merged. From 1997 to 2001, both Bingham Dana and McCutchen, Doyle, Brown & Enersen boasted average annual growth rates in per-partner profits greater than that of The Am Law 100; since the merger in 2002, the new firm has had slower growth. Should mergers that fared poorly according to these criteria be dismissed as failures? Probably not, say the consultants who bring the firms together and ease their integration. “There may be extenuating circumstances that are very important for the firms,” says Bradford Hildebrandt of Hildebrandt International, Inc., who helped plan and consummate several of the mergers we analyzed. “You have to ask where the component firms would be if they hadn’t merged; some would be nowhere near where they are now.” Paula Alvary of Boston-based Hoffman Alvary & Company LLC, who helped bring together Wilmer and Hale, says focusing narrowly on revenue and profit growth “may mask a firm that’s preparing itself for the long term and reward firms for milking short-term outcomes.” Brobeck, Phleger & Harrison, she notes, outgrew The Am Law 100 in gross revenue for five years straight before outright collapsing in 2003. But how many partners will sit tight for a quarter-century, or even a decade, waiting for their firm’s merger to bear fruit? “Your expectations should be very conservative for the first one or two years after a merger,” says Hildebrandt. “Between three and five years, we certainly like to start seeing some results.” Managing partners we contacted emphasized that their mergers helped them expand relationships with big clients and land new ones. Several regional players gained a national profile with international reach. Many of the subsequent mergers and acquisitions the firms undertook would have been impossible without an initial merger to set the stage. Few could have easily absorbed the expense of creating big offices in places like New York and Washington, D.C. The stories beginning on page 160 detail our findings, with the mergers we assessed arranged from the oldest to the most recent. To be fair, even those that failed to match the performance of The Am Law 100 remain among the top-grossing firms. But their performance suggests that sometimes two plus two really does equal just four-except when it equals three. Thelen Reid Brown Raysman & Steiner (Thelen, Marrin, Johnson & Bridges + Reid & Priest, July 1998) Thelen partners take pride in having worked on some impressive building projects, from the Grand Coulee Dam and the Golden Gate Bridge to airports and nuclear plants from South America to East Asia. But for current cochairman Stephen O’Neal, the merger in 1998 between San Francisco’s Thelen, Marrin, Johnson & Bridges and New York’s Reid & Priest was one of the most important projects the firm has undertaken. “It was definitely a seminal event for our careers and the history of the firm,” says O’Neal. At the time, it was also the largest bicoastal merger yet undertaken and it lacked an established playbook. Thelen’s construction, litigation, tax, and labor practices seemed a logical match for Reid’s project finance and energy utilities lawyers, but fitting the parts together smoothly was a struggle. The firm strained for years to integrate and cross-sell practice groups, and even unifying phone systems proved daunting. For years after the merger, Thelen was criticized for failing to expand its niche beyond major builders and utilities. “Anytime you do a combination of that magnitude it takes time for the full benefits to come to fruition,” O’Neal admits. The challenges have taken their toll. A swarm of New York partners fled Thelen beginning in 2005. Growth in revenue per lawyer was flat several times since the merger, and the firm now ranks only seventy-third in RPL among top-100 firms-lower than it did in 1998. Following a big contingency fee and a spike in revenue in 2005, Thelen briefly dropped off The Am Law 100 in 2006. The firm’s uneven growth and a spate of deequitizations left the average Thelen partner in 2007 with barely half the compensation of his Am Law 100 peers. To shore up its New York office and further broaden its practices beyond the electric power sector, Thelen merged again in 2006, with New York’s Brown Raysman Millstein Felder & Steiner. O’Neal says that merger and expansions into London and Shanghai were spurred by the same principle that brought Thelen and Reid together a decade ago-consolidating the firm’s position in key markets. The markets, unfortunately, don’t always cooperate: The firm laid off more than 100 associates and staff this spring. Nixon Peabody (Nixon, Hargrave, Devans & Doyle + Peabody & Brown, July 1999) Outgoing chairman Harry Trueheart says the deal that created Nixon Peabody in 1999 wasn’t a do-or-die merger. “This didn’t arise out of hunger on either firm’s part,” Trueheart insists. The reality is that Nixon’s hometown of Rochester, New York, was in an economic slump, its businesses increasingly owned by out-of-towners, and the firm was largely a regional player, with token offices in Manhattan and Washington, D.C. Boston’s Peabody & Brown, meanwhile, had strong syndication and real estate practices but could no longer count itself among the city’s most elite firms. Trueheart says that increasing geographic scope and sheer size were driving forces behind the merger, but he notes that the combination added depth to several practice areas that the predecessor firms lacked. At the same time that it doubled the size of Nixon Peabody’s D.C. office and consolidated its presence throughout the Northeast, the merger also boosted the firm’s real estate, technology, and intellectual property practices. That paved the way for the firm’s expansion into California and the high-tech market beginning in 2001. “The merger gave us a strong platform for future growth,” says incoming chairman Richard Langan, Jr. “Without the initial merger, we would have lacked the scale to make the other combinations make sense to us.” On the downside, the firm was left to deal with twice the real estate in Washington that it required-an added expense that took close to a year to unwind. The costs of integrating both practices and technical systems were far greater than the firm had anticipated. “Realizing the benefit of an expansion takes a little time,” concedes Langan. “But it’s certain that without the additional capabilities, we’d have fallen into a lesser role.” Whatever the alternatives, the firm’s fortunes have been mixed. Though Nixon Peabody ranks sixty-fourth among The Am Law 100 in gross revenue, the firm was one of the 15 worst performers in 2007 in both profits per partner and average partner compensation. Annual growth in revenue per lawyer marginally outpaced that of The Am Law 100, but per-partner profits growth lagged behind. And as the chart above shows, the average Nixon Peabody partner in 2007 still earns less than the average Am Law 100 partner earned when the firms merged nine years ago. DLA Piper US (Piper & Marbury + Rudnick & Wolfe, October 1999) In 1999 the leaders of Baltimore’s Piper & Marbury and Chicago’s Rudnick & Wolfe gazed into their respective tea leaves and shuddered. At least one Chicago client informed Piper point-blank that it would look elsewhere if the firm couldn’t improve its reach. “We came to the conclusion that firms like ours were going to have a very tough time if we didn’t change in a material way,” says firm CEO Francis Burch, Jr., formerly Piper’s chair. And change the firm certainly has. Piper Rudnick picked up Washington, D.C.-based Verner, Lipfert, Bernhard, McPherson and Hand in 2002 and then merged with San Diego’s Gray Cary Ware & Freidenrich and London’s DLA in 2005. From the union of two very regional firms in 1999, DLA Piper’s U.S. operation grew to be the eleventh-largest firm in the country by gross revenue, with 1,367 lawyers taking in more than $1.1 billion in 2007. The new firm’s profile helped drive dramatically increased business with clients like Jones Lang LaSalle Incorporated (then LaSalle Partners), Marriott, Inc., and United Parcel Service, Inc. While subsequent mergers fed that growth, it was the Piper Rudnick merger that set the stage. “Piper Rudnick was the launching point,” says Burch. The firm has yet to come back down to earth. It has quadruple the number of lawyers of either of its original predecessors. Per-partner profits kept up double-digit growth for five of the last eight years and are up nearly 150 percent since 1999. DLA significantly outpaced The Am Law 100 in average year-on-year growth in revenue per lawyer, profits per partner, and average partner compensation postmerger. And, as the chart shows, the firm grew fast enough in eight years to finally beat the Am Law 100 average in revenue per lawyer in 2007 (it has yet to catch up in profits). But, for many partners, there’s a downside to DLA’s serial mergers. While Burch insists that the firm has lost few important partners over the years, he acknowledges that the pace of change isn’t for everyone. Despite net growth, since late 2005, more than 50 partners have decamped. “We’re very explicit about the social contract; if you have the will and the ability, we will support your efforts to evolve,” Burch says. “We’ve had very good success in improving the gene pool every year.” Pillsbury Winthrop Shaw Pittman (Pillsbury Madison & Sutro + Winthrop, Stimson, Putnam & Roberts, January 2001) Mary Cranston took the reins at San Francisco’s Pillsbury Madison & Sutro in 1998 with mighty aspirations: a revitalized firm, a New York breakout, and an increased mass of lawyers to drive momentum. The 2001 merger with New York’s Winthrop, Stimson seemed like just the ticket-a cross-continental union of two former icons that promised to revive their fortunes and create a top-20 firm. After eight years and another big merger in 2005-with Washington, D.C.’s Shaw Pittman-Cranston is no longer chair, but Pillsbury is arguably still chasing the same vision. The firm now ranks forty-sixth in gross revenue among The Am Law 100, down from twenty-sixth in 2001. Head count has swung wildly as lawyers came and left and partners decamped or were deequitized. Not only is the firm still shy of 800 lawyers, it has actually shrunk since the merger, from 733 in 2001 to 727 in 2007. By many accounts, the firm’s New York office never made the splash-or the kinds of profits-Cranston envisioned. The firm as a whole saw one year of negative growth in profits per partner postmerger, and revenue per lawyer slipped in two separate years. By both measures, Pillsbury Winthrop failed to keep pace with the average yearly growth of The Am Law 100 since the merger. James Rishwain, Jr., chair of the firm since 2006, says that the growing pains were worth it, noting that the last two years were the firm’s strongest since Pillsbury and Winthrop first came together. Pillsbury has been reaping rewards from a growing energy practice based in Houston, where Rishwain expects continued gains in 2008. He has high hopes that the London office will keep growing and buttress the firm’s transactional practice in New York-and perhaps lead to an entry into the Middle East. “These were three regional firms in the 1990s, and we’re now a powerhouse,” says Rishwain. But a glance at average partner compensation in the chart shows that banner growth in 2006 and 2007 barely corrected for a poor showing in 2005. And, despite a 16 percent increase in revenue per lawyer between 2005 and 2006, Pillsbury has lagged behind The Am Law 100 in RPL every year since 2004. Still, Rishwain refuses to blame the turbulence on the 1998 merger. “We have no legacy issues whatsoever,” he says. “I cannot imagine a Pillsbury without a Winthrop.” Sidley Austin (Sidley & Austin + Brown & Wood May 2001) It may lack for romance, but the 2001 merger that created Sidley Austin Brown & Wood represents a now-familiar tale of law firm courtship: a Midwesterner hoping to break into New York meets an East Coast finance whiz looking for a bigger piece of the action outside Manhattan. What distinguishes Sidley is that the gamble seems to have paid off and the marriage remains strong. By the account of Charles Douglas, chairman of Sidley’s management committee, Chicago-based Sidley & Austin’s litigation, bankruptcy, and general corporate practices meshed almost seamlessly with Brown & Wood’s strong capital markets and banking practices in New York. “The day we merged, we had virtually no conflicts,” Douglas remembers. “We lost nothing and we had a much stronger practice all the way down the list.” Looking back at the growth of Sidley & Austin and Brown & Wood between 1997 and 2001, it’s clear that the merger led to a reversal of fortunes of a very welcome kind. Both firms were barely keeping pace with The Am Law 100 in terms of annual growth in per-lawyer revenue and profits. By both measures, the new firm has had better annual growth on average than its predecessors. Just after merging in 2001, Sidley was also still lagging behind the Am Law 100 average in per-lawyer revenue and profits, but the firm has marginally outperformed the averages every year since. Sidley’s New York office is now among the city’s largest. The merger and subsequent additions have developed a stable of litigators and an even stronger capital markets group to back up the securitization practice inherited from Brown & Wood. Douglas notes that the two firms had nearly identical per-lawyer revenues and profits when they merged, reducing friction. “You really didn’t have any upheaval,” he says. The firm also had great timing. Brown & Wood’s languishing securitization practice premerger took off spectacularly in the boom that began soon after the firms joined, driving up revenues. However, some of the impressive increase in profits evident in the chart arguably came at a price: the culling of older, less-profitable partners, and the attention-grabbing lawsuit that followed. Katten Muchin Rosenman (Katten Muchin Zavis + Rosenman & Colin, March 2002) Like Sidley & Austin and Brown & Wood, Katten Muchin Zavis and Rosenman & Colin followed a well-trod merger path between the Windy City and the Big Apple five years ago. Coming into 2002, Chicago’s Katten had only a nominal New York office. “It was a mail drop-two people and a water cooler,” says national managing partner Vincent Sergi. On the other side, Rosenman & Colin was gathering dust as an old-line real estate and financial services firm with deep New York roots. “It got to the point where our New York clients were saying, ‘We need to see you more often,’ ” remembers Sergi, who has been with Katten since its formation in 1974. Sergi believed that Katten, drawing on its own national strength in real estate, could rebuild the once-great practice at Rosenman. “We knew we could build the real estate group in New York with that platform, and also be able to hit the ground running with financial services, hedge funds, futures, broker-dealer, and structured products, where both firms were strong,” Sergi says. Rosenman, for its part, would immediately gain the resources to reenergize existing practices and have greater access to markets beyond New York. Rosenman’s music industry practice and Katten’s Hollywood practice promised to mesh nicely. With the Katten name relatively unknown in New York, the merged firm launched as KMZ Rosenman in the spring of 2002. While the merged firm hasn’t had nearly the kind of traction in New York as the much-larger Sidley, Sergi pronounces the union a success. Despite frustrations about a changed culture on the part of some former Rosenman partners, a handful of defections by partners from both firms, and another rebranding, Katten Muchin Rosenman has established itself as a respected contender in New York-particularly its general corporate, real estate, and hedge fund practices. Per-lawyer revenue at Katten has grown slower year-on-year than the Am Law 100 average. Growth in profits per partner and average compensation was stronger but came at the expense of an equity partnership that is smaller in 2007 than it was four years ago. The firm now ranks lower in both revenue per lawyer and profits per partner than Katten Muchin Zavis did a decade ago. Bingham McCutchen (Bingham Dana + McCutchen, Doyle, Brown & Enersen, July 2002) When Bingham Dana and McCutchen, Doyle, Brown & Enersen entered into merger talks in the fall of 2001, Boston-based Bingham was eager to expand its litigation department-then less than 20 percent of the firm-and to establish a foothold on the West Coast. McCutchen, based in San Francisco, had a strong litigation practice centered on antitrust, high tech, and intellectual property and was looking for an East Coast partner after negotiations with Piper Marbury Rudnick & Wolfe fell through. Like DLA Piper, Bingham has established itself as something of a serial merger artist since its first big combination, acquiring Riordan & McKinzie in 2003 and Swidler Berlin in 2006. While that makes a targeted assessment of the merger with McCutchen difficult, it underscores how vital an initial merger can be for sparking a major growth spurt. “The merger put us in the market for a whole different kind of large litigation case,” says Bingham chairman Jay Zimmerman, who notes that the California presence allowed Bingham to offer preexisting clients like Merrill Lynch & Co. Inc. an expanded reach. The firm now ranks thirty-second in RPL, far ahead of where McCutchen, in particular, had been before the merger. Profits are another story, however. As the chart makes clear, the combined firm now has profits per partner roughly equal to the Am Law 100 average. But whereas both predecessor firms watched growth in profits per partner outpace that of The Am Law 100 in the four years prior to the merger, Bingham McCutchen has since lagged behind. The chart below illustrates how Bingham’s PPP growth has tapered off since 2005, while the average Am Law 100 firm kept up explosive growth. A big boost in profits, at least, might have consoled former McCutchen partners who have lamented the shift away from their old firm’s laid-back culture. Zimmerman points to the countercyclical nature of Bingham’s litigation and restructuring practices and says the numbers might appear very different looking back from, say, 2009. “Unlike for many firms, the second half of 2007 was better than the first,” he says. “And the first couple of months of 2008 have been the best we’ve ever had.” Wilmer Cutler Pickering Hale and Dorr (Wilmer, Cutler & Pickering + Hale and Dorr, June 2004) The merger between Washington, D.C.-based litigation and regulatory giant Wilmer and Boston’s litigation and intellectual property leader Hale and Dorr produced a firm with a stellar reputation for both securities enforcement and high-tech IP litigation, with a major appellate practice to boot. What it has not produced, at least so far, is the kind of growth in profitability experienced by many of the firms we surveyed. “Every merger has its own period of adolescence,” says Wilmer Hale co-managing partner William Lee. And Wilmer’s adolescence has been characteristically awkward, particularly when judged by unforgiving measures like per-partner profits against an Am Law 100 cohort that mostly saw astronomical growth over the last four years. Expenses grew faster than revenues for the first two years after the merger, Lee says. The firm’s average yearly growth in per-partner profits and compensation for all partners has been far below the Am Law 100 average since 2004. While Wilmer ranks seventeenth this year in gross revenue, the firm barely broke the million-dollar mark in profits per partner, ranking it fifty-sixth among top-100 firms. To be fair, Wilmer’s is the youngest of the mergers we considered. The firm has consistently boasted a higher revenue per lawyer than the Am Law 100 average (the firm now ranks twenty-second in RPL). Lee says Wilmer has promoted about 70 new partners since the merger, far more than have moved on or retired. Clearly, the firm’s partnership structure also feeds into its relatively poor showing. Alone among the firms we considered, Wilmer is the only all-equity partnership. Lee is also quick to point out that the firm devotes about 6 percent of its time to pro bono work every year, further affecting the bottom line. “We know what all of that means when you translate it into numbers, and we watch the numbers like anyone running a billion-dollar business does,” says Lee. “But some of the mergers are done for no reason but for additional revenue, and I think that might be a good short-term decision that may not be best in the long term.” “Maybe we’re deluding ourselves,” Lee says, “but we feel pretty good about where we are.” E-mail: [email protected].

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