Arnold & Porter offices in Washington, D.C. May 27, 2016. Photo by Mike Scarcella/THE NATIONAL LAW JOURNAL.
Arnold & Porter offices in Washington, D.C. May 27, 2016. Photo by Mike Scarcella/THE NATIONAL LAW JOURNAL. (Mike Scarcella)

Arnold & Porter and Kaye Scholer, two firms with declining revenue and profits last year, announced Thursday morning that they have agreed to combine by Jan. 1, 2017, and form Arnold & Porter Kaye Scholer.

The combined firm—the only union this year between Am Law 100 firms—will have about 1,000 lawyers across nine domestic and four international offices, the firms said. The union represents further consolidation among mid-size and large firms seeking to compete with global giants and to bulk up in critical and competitive legal markets.

Arnold & Porter Kaye Scholer will have about 400 lawyers in Washington, D.C., 325 lawyers in New York, 175 lawyers in three California offices and 60 lawyers in London, the two firms said. The combination also gives clients access to lawyers in Chicago, Denver, Houston and West Palm Beach, Florida, as well as overseas outposts in Brussels, Frankfurt and Shanghai.

Richard Alexander, chair of Arnold & Porter, will serve as head of the combined firm. He said in a statement that the union will create “substantial economies of scale that will accelerate our investments in talent and technologies and pursue innovation in the efficient delivery of legal services.”

Kaye Scholer’s managing partner Michael Solow said that his firm’s union with Arnold & Porter will result in service offerings in litigation, transactional and corporate governance matters “that are among the broadest and deepest in the two key U.S. legal markets—New York and Washington, D.C.”

Both firms, whose tie-up talks were reported earlier this year by Law.com, emerged from 2015 in weakened financial positions compared with previous years.

Arnold & Porter, a 665-lawyer firm and a traditional litigation and regulatory powerhouse inside-the-Beltway, has struggled to boost its brand beyond its powerbase, particularly in New York, even as firms from elsewhere have expanded into its home markets. The firm declined in both revenue and profits per partner last year.

Gross revenue fell by 6.4 percent, to $650 million, while profits per partner fell 12.6 percent, to $1.21 million. Arnold & Porter was one of only two Am Law 100 firms to have double-digit falls in both net income and profits per partner in 2015.

Kaye Scholer, which had about 370 attorneys at last census, is roughly half the size of Arnold & Porter. The New York-based firm reported a 1.3 percent drop in gross revenue last year, to $370 million. Profits per partner dipped 2.1 percent, to $1.38 million, while revenue per lawyer declined 2 percent, to $1 million, according to our previous reports.

Within the last two years, Arnold & Porter and Kaye Scholer have moved into new offices. Arnold & Porter moved its office last year in Washington, D.C., into a trophy-class new building. Kaye Scholer also signed a 20-year lease in 2014 to moved its New York headquarters to new digs at 250 West 55th Street.

In general, law firms, once they agree on the positive aspects of a combination, can take months to smooth out any liability issues, such as real estate leases, bank debt and obligations to former and retired partners. Any one of these issues or other conflicts can often derail a deal between two firms.

As reported by The American Lawyer in mid-October, the law firm merger front was quiet in the third quarter of 2016, but a spate of combinations announced within the last month suggests that year’s end could bring about the usual uptick in merger news. In October, Memphis-based Am Law 200 firm Baker, Donelson, Bearman, Caldwell & Berkowitz announced a combination with Baltimore-based Ober Kaler, while labor and employment giant Littler Mendelson absorbed a 170-lawyer Paris firm into its global operations.

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