Last week, The Am Law Daily spoke with Patton Boggs managing partner Edward Newberry about the potential merger his firm is discussing with Locke Lord.
For Patton Boggs—the 51-year-old Washington, D.C.–based powerhouse that is home to legendary lobbyist and name partner Thomas Hale Boggs Jr.—the talks come amid the rollout of a new strategic plan that has resulted in, among other things, the layoffs of more than 100 lawyers and staffers in a move designed to save roughly $20 million.
On Monday, The Am Law Daily interviewed Newberry’s counterpart on the other side of the negotiating table, Locke Lord managing partner Jerry Clements, for her take on what all parties insist are still preliminary talks about a potential combination.
As it happens, this week marks the 50th anniversary of a day that Clements will never forget, although her memories are more personal than most Americans. As a nine-year-old girl, Clements handed a yellow rose plucked from the garden of her family’s Fort Worth home to President John F. Kennedy as he left a breakfast reception at the Texas Hotel on Nov. 22, 1963, just hours before he was assassinated.
Speaking by phone from Locke Lord’s Austin office, Clements says she was approached this summer about a potential deal with Patton Boggs, a firm she praises for its “well-known brand” in the government relations and regulatory arena, while highlighting her own firm’s expertise in the areas of energy, insurance and litigation.
Clements declines to comment on Patton Boggs’ recent business moves or its “internal strategies.” She did, however, echo Newberry’s position that while the two firms have not signed a letter of intent, they are conducting due diligence on a variety of fronts related to a possible merger.
Clements notes that PricewaterhouseCoopers—one of two accounting firms hired by Patton Boggs to conduct a financial analysis of a merger—is a longtime adviser to Locke Lord. Without going into detail, she adds that the Patton Boggs discussions represent just one of several “interesting opportunities” Locke Lord is presently considering.
Unlike Patton Boggs, Clements says that Locke Lord has not retained outside advisers to assess the viability of a combination. That’s largely because her firm is well-versed in the business, financial and legal intricacies involving in completing such deals, several of which Locke Lord has been through over the past decade.
Some legal industry observers say a merger between Locke Lord and Patton Boggs—which, at roughly 500 full-time equivalent lawyers apiece, are similarly sized—makes sense if only because it could vault them into the growing ranks of global legal giants.
“Mergers have become a very credible option for midsize firms,” says Tony Williams—a former managing partner of Magic Circle firm Clifford Chance and the founder of London-based Jomati Consultants—speaking generally about how opening new offices and making lateral hires often isn’t enough for firms looking to bulk up in a hurry.
Indeed, as the high-end legal services market continues to consolidate in a year that legal consultancy Altman Weil states is on track to be a record-breaker for law firm mergers—Dentons and McKenna Long & Aldridge are pursuing a tie-up under the Swiss verein structure and the last firm on The American Lawyer’s Global 100 list, Pillsbury Winthrop Shaw Pittman, is discussing a potential combination with Orrick, Herrington & Sutcliffe—a close look at Patton Boggs and Locke Lord suggests there are reasons beyond mere size for both firms to consider joining forces.
Interviews with more than a dozen current and former Locke Lord and Patton Boggs partners and on-the-record discussions with Clements and Newberry reveal some of the benefits both firms might find in a merger, as well as some of the potential pitfalls they face as they vet client conflicts, align real estate obligations and negotiate the leadership and compensation structure of a merged firm.
LOCKE LORD’S AMBITIONS
For Locke Lord, a 520-lawyer firm that adopted its current name in September 2011, combining with Patton Boggs would be the latest in a series of combinations that have brought about both geographic and financial growth.
The expansion began in 1999, when legacy firm Locke Liddell & Sapp was formed following the union of Dallas-based Locke Purnell Rain Harrell and Houston-based Liddell, Sapp, Zivley, Hill & LaBoon. At the time, it was the largest law firm merger in U.S. history.
Clements counts as a mentor Harriet Miers, a Locke Lord litigation and public policy partner, former Locke Purnell and Locke Liddell managing partner and onetime U.S. Supreme Court nominee. In 2006, Clements took the helm at Locke Liddell. One year into her reign, she helped orchestrate a merger with Lord, Bissell & Brook, an old line Chicago firm known for its insurance group cofounded in 1914 by former U.S. Secretary of the Interior Harold Ickes. (As noted by The Am Law Daily last year, the merger went live a day after Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae grabbed headlines by unveiling what proved to be their ill-fated union.)
While Locke Lord has not completed another merger of similar size since then, the firm has grown in other ways and has stayed active in talking with other members of The Am Law 100.
In 2010, for example, five former Locke Lord partners say the firm came close to voting on a merger with Nixon Peabody. The potential combination collapsed as the result of a leadership change at Nixon Peabody that December. (Nixon Peabody CEO and managing partner Andrew Glincher did not return a request for comment.)
Three more ex-partners say Locke Lord was also keen on picking up practice groups from Salans—particularly its Asian operations—prior to the European firm’s three-way merger with SNR Denton and Canadian firm Fraser Milner Casgrain that created Dentons earlier this year.
Last week marked the two-year anniversary of Locke Lord heading to London through its hire of seven Salans partners. Restructuring partner David Grant, who this month took the lead on U.K. bankruptcy proceedings for video rental chain Blockbuster, and former Salans global managing partner Roger Abrahams were among those who came aboard. Abrahams now serves as a consultant to Locke Lord, where he is involved in the firm’s lateral hiring and push to expand internationally, according to two former partners.
Since recruiting the Salans group, Locke Lord’s London base has grown to more than 30 lawyers thanks to an aggressive hiring strategy that brought on Berwin Leighton Paisner real estate finance partner Ayesha Hasan, Mayer Brown reinsurance litigation partner Ian McKenna, Steptoe & Johnson insurance partners Damian Cleary and Gavin Coull, and former Dewey & LeBoeuf labor and employment partner Sara Linton, who now heads Locke Lord’s U.K. employment group.
The London launch came a year after Locke Lord opened in Hong Kong, an outpost the firm bolstered earlier this year by entering into an association with local firm Cheung & Lee, according to sibling publication The Asian Lawyer. Locke Lord’s Hong Kong base subsequently added five more lawyers from firms like K&L Gates, Loeb & Loeb, and Squire Sanders.
Hiring groups of laterals has been a Locke Lord strategy in other cities. In 2009, the firm opened a San Francisco office after absorbing most of crumbling IP boutique Morgan & Finnegan just months before the firm filed for bankruptcy. In 2011, Locke Lord added a dozen lawyers in Sacramento from Bullivant Houser Bailey.
The merger between Lord Bissell and Locke Liddell also resulted in the forced departure of some partners, with one running into serious financial troubles and another claiming in a suit filed against Locke Lord that he was pressured to vote in favor of a union. (The docket in that case shows it has been dismissed.)
Those issues aside, most of the roughly half-dozen former Locke Lord partners interviewed for this story praised Clements’ leadership in melding the operations and cultures of both legacy firms. These former partners note that minimizing geographic overlap was a key factor in ensuring the success of the Locke Liddell and Lord Bissell merger.
Clements acknowledges that geographic considerations are also playing a role in Locke Lord’s current talks with Patton Boggs. Newberry said last week that his firm’s strategic plan calls for expansion in places like California, London, New York and Texas—all places where Locke Lord already has outposts. Should the two firms combine, they would have duplicate offices in just three cities: Dallas, New York, and Washington, D.C.
One former partner notes that bulking up in two of those cities would be in line with Locke Lord’s ultimate goal.
“Locke Lord wants to become an international firm, and I think the mindset among firm leaders is that it has to get bigger in order to compete in today’s environment,” says this ex-partner. “Having a significant presence in New York and D.C. goes toward building that critical mass.”
Locke Lord’s current D.C. office, which it opened back in 2005, is modest, while its New York base is slightly larger than that of Patton Boggs. (The latter also as an outpost in Newark, which lost its local managing partner to Morgan, Lewis & Bockius in August and has been hit hard by layoffs.)
Clements says she wants Locke Lord to expand in D.C. and New York, which she calls the “two largest and most challenging” markets to grow.
Lord Lord’s deep roots in energy-rich Texas are another attractive option for Patton Boggs, which has publicly expressed an interest in opening an office in Houston and expanding its presence in the Lone Star State. Just this month, Locke Lord nabbed a lead role advising Tulsa-based NGL Energy Partners on its $890 million acquisition of The Gavilon Group’s energy business. Other key Locke Lord energy industry clients include Kinder Morgan, Southern Union and Texas Pacific Group.
During Clements’ tenure at the top of Locke Lord—she was reelected managing partner in 2011—the firm has enjoyed a period of financial stability, something that few Am Law 100 firms can claim over the past few years as the U.S. legal services market has contracted in the aftermath of the global economic downturn.
Locke Lord’s gross revenues remained mostly flat from 2008 through 2010, before jumping to $416 million in 2011 and $425.5 million last year, according to The American Lawyer’s annual Am Law 100 reporting. Profits per partner have risen from $955,000 in 2008 to roughly $1.1 million in 2012, while Am Law 100 data shows that revenue per lawyer has also increased during that time from $730,000 to $830,000. Locke Lord’s equity partnership has grown from 136 in 2008 to 151 last year.
PATTON BOGGS’ FUTURE
While Locke Lord’s finances have remained relatively stable in recent years, Patton Boggs’ have wobbled a bit. Despite it public policy prowess, the latter saw its profits per partner plunge 15 percent to $735,000 in 2012, while gross revenue fell another 6.5 percent to $317.5 million, according to Am Law 100 data.
In reporting on D.C.’s highest-grossing law offices earlier this year, sibling publication The National Law Journal noted that Patton Boggs had experienced the sharpest decline among the 25 firms it surveyed, with the portion of the firm’s revenue generated in the nation’s capital dipping 7 percent to $207 million in 2012. That means nearly two-thirds of the firm’s revenue last year was tied to D.C., with about half of that connected to lobbying work, according to The NLJ.
Indeed, Patton Boggs remains a market leader in the lobbying arena, with Newberry, Tommy Boggs, and partners Micah Green and Kevin O’Neill recently making The Hill’s list of top Beltway lobbyists. Also making the list are senior counsel Trent Lott and John Breaux of the Breaux Lott Leadership Group, which Patton Boggs acquired in 2010. (As Roll Call reported earlier this year, Newberry himself has had to cut back his lobbying work since taking on a more administrative role as firm leader.)
Patton Boggs has been hit with some losses in its public policy group. Former legislative and public affairs partner Jonathan Yarowsky left in July to chair the same practice at Wilmer Cutler Pickering Hale and Dorr, according to sibling publication The Blog of Legal Times. Politico noted last month that since moving to Wilmer, Yarowsky had picked up three new lobbying clients: the American Association for Justice, the Association of American Railroads, and the Business Software Alliance.
As lucrative as lobbying has historically been for Patton Boggs, lobbying revenues have slipped this year, and the firm has been forthright about its efforts to reinvent itself. Patton Boggs’ lobbying clients have occasionally created other kinds of headaches.
In July, Patton Boggs cut its ties to Ecuador, a South American nation that has been embroiled in a long-running dispute with oil giant Chevron that recently spilled into federal court in Manhattan. Burford Capital, a third-party litigation fund that has settled with Chevron after claiming it was defrauded by plaintiffs in a suit against the company, is now helping the energy giant in its counterclaim against Patton Boggs, which has accused Burford of betrayal in court documents.
Newberry, who took control of Patton Boggs three years ago from former managing partner Stuart Pape, told The Am Law Daily last week that the Chevron case hasn’t had the negative impact on the firm’s energy transactional group that many might have expected.
While he acknowledged that the Chevron dispute had resulted in the loss of some client matters, Newberry touted the firm’s work for sovereign wealth funds in the Middle East, which he says could create some fruitful syngergies with Locke Lord’s Texas-based energy clients. (Newberry added that 40 percent of Patton Boggs’ annual income is from litigation, 35 percent from corporate transactions and 25 percent from public policy work.)
And though the firm has hit a rough patch of late, none of the layoffs at Patton Boggs have affected its public policy practice. Several former Patton Boggs say that the D.C.-based group will be the driving force in any potential merger, and that the desires of Boggs—who has stepped back from the firm in recent years—and other leading partners will play a major role in whether or not it decides to merge.
A PATH FORWARD?
Locke Lord’s Clements says her firm is following the Chevron matter—she cites its potential liabilities and “reputational aspects”—as part of the due diligence related to a possible Patton Boggs merger. “We’re certainly watching it closely,” she adds. (Patton Boggs is awaiting a federal judge’s ruling on whether Chevron’s counterclaim against the firm can proceed.)
Clements says growth in the Middle East—Patton Boggs has offices in Abu Dhabi, Doha, Dubai and Riyadh—has indeed been on Locke Lord’s agenda, but that the firm has resisted opening an office in the region because of a feeling it was late to the market. Instead, Clements says “acquiring an existing, established practice” is probably the best path for Locke Lord to take.
Patton Boggs handles work for the nascent governments of Iraq and Libya, as well as the Syrian opposition. Such clients could offset Locke Lord’s recent loss of its $1 million-a-year lobbying contract for the Pakistani government following the departure of Benazir Bhutto’s widower, Asif Ali Zardari, as president upon the completion of his five-year term in September. (Last year Mark Siegel, a partner with lobbying arm Locke Lord Strategies, won an Emmy Award for his work producing a documentary on Bhutto, who was assassinated in December 2007.)
Clements describes the loss of the Pakistan work as part of the cyclical nature of lobbying. “When government’s change, they change their lawyers,” Clements says. “We have good lawyers at Locke Lord Strategies who I’m confident can replace that business.”
As for whether that business is replaced in the context of a merger with Patton Boggs, two leaders of rival Am Law 100 firms speaking on the condition of anonymity tell The Am Law Daily they see such a deal as likely.
Given that both firms are comparably sized, they are likely to find it challenging to overcome disparities in gross revenue, profits per partner and revenue per lawyer. Stuart TenHoor, a D.C.-based legal recruiter and consultant, says the best way to bridge such gaps in a merger is through deequitizing partners. It is unclear whether these negotiations have gotten far enough for that option to come up.
Clements declines to comment on such matters, but says the primary criteria she considers when evaluating a potential merger is if it benefits her firm’s clients and whether a common culture and philosophy can be adopted after a combination.
The Swiss verein, the mechanism of choice for many large international firm mergers these days, is not something that Clements supports. “I think it’s counterintuitive to integration and crafting a common culture,” she says. “At Locke Lord we have a level playing field that’s a true partnership, and that’s what we would want [in any merger].”
Clements says there is no deadline for wrapping up the Patton Boggs talks. Her job, as she sees it, is to make sure Locke Lord’s partners are comfortable with any transaction.
“If we recommend a merger to the partnership, it will be after our due diligence has been completed. There’s no timeframe for that,” she adds. “We’ve done three big deals since 1986, and [mergers] are complicated transactions that need to be taken seriously. When done right, they can be enormously beneficial.”
One question to be answered should a marriage come to pass is what the resulting firm will be called. Though the talks are too tentative for Newberry or Clements to play this particular parlor game, a search of the WhoIs.com Internet domain registry offers some possibilities. A South Korean buyer bought the rights to pattonboggslockelord.com on Nov. 15, while a Virginia buyer picked up lockeboggs.com and lordboggs.com on Oct. 16. (Other combinations of the two firms’ names remain available.)
One former Patton Boggs partner, who acknowledges the firm’s recent struggles, says he hopes—and believes—that it will survive as a standalone entity. He fondly recalls that in all his years at the firm, if someone on an airplane seated next to him asked where he worked, his response was always understood.
“Whenever I said, ‘Patton Boggs,’ not once did anyone say, ‘Who are those guys?’” he says. “I always felt very good about that.”
Additional reporting by Sara Randazzo and Matthew Huisman.