In a year that legal consultancy Altman Weil reports is on track to break records for law firm mergers, a close look at the proposed combination of 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 partners and former partners at both firms — and on-the-record discussions with Locke Lord managing partner Jerry Clements and Edward Newberry, her counterpart at Patton Boggs — revealed some of the benefits both firms might find in a merger.
Speaking by telephone from Locke Lord’s Austin office, Clements said she was approached during the summer about a potential deal with Patton Boggs, a firm she praised for its “well-known brand” in the government-relations and regulatory arena, while highlighting her own firm’s expertise in energy, insurance and litigation.
Newberry, meanwhile, described his firm’s decision to undergo layoffs and engage in preliminary merger talks with Locke Lord as part of a broader strategy that also includes revamping the firm’s long-standing “eat what you kill” compensation system and a push to expand in California, New York, Texas and abroad.
“We want to get leaner and meaner,” he said. “I think we’re making some tough decisions while some of our competitors get weaker.”
Clements declined to comment on Patton Boggs’ business moves or its “internal strategies.” She did, however, echo Newberry’s position that, although the firms have not signed a letter of intent, they were conducting due diligence related to a possible merger.
The talks come as Dentons and McKenna Long & Aldridge pursue a tie-up and Pillsbury Winthrop Shaw Pittman discusses a potential combination with Orrick, Herrington & Sutcliffe. According to Altman Weil, as of October the legal industry was on its way to surpassing the record 70 mergers reached in 2008.
Some legal industry observers said a merger between Locke Lord and Patton Boggs — at roughly 500 full-time equivalent lawyers apiece — 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,” said Tony Williams, former managing partner of Clifford Chance and founder of Jomati Consultants in London. He said that opening new offices and making lateral hires often isn’t enough for firms that want to bulk up in a hurry.
Founded in 1962, Patton Boggs is the home of name partner and legendary lobbyist Thomas Hale Boggs Jr., who was once responsible for 20 percent of the firm’s annual gross revenue. Patton Boggs continues to have one of the country’s leading public policy practices among large law firms, with more than $106 million in lobbying-related income in 2012, according to an NLJ survey.
But a recent report by NLJ affiliate Corporate Counsel noted that federal lobbying spending has hit its lowest levels since 2010. That’s led some lobbying firms like Patton Boggs to focus on broadening their domestic and global footprint. And expansion can be costly.
Meanwhile, Patton Boggs saw gross revenue fall by 6.5 percent last year to $317.5 million, while profits per partner fell by 15 percent to $735,000. It was the sharpest decline among the 25 law firms with the highest-grossing Washington offices, with the portion of the firm’s revenue generated in the nation’s capital dipping by 7 percent to $207 million in 2012. That means nearly two-thirds of the firm’s revenue last year was tied to the District of Columbia, with about half of that connected to lobbying work. Two rounds of layoffs announced this year will save the firm some $20.2 million.
Locke Lord’s gross revenues remained mostly flat from 2008 through 2010, before increasing to $416 million in 2011 and $425.5 million last year.
For Locke Lord, which adopted its name in September 2011, combining with Patton Boggs would be the latest in a series of combinations. 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’s Liddell, Sapp, Zivley, Hill & LaBoon. At the time, it was the largest law firm merger in U.S. history.
One year after Clement took the reins in 2006, she helped orchestrate a merger with Lord, Bissell & Brook, an old-line Chicago firm. Since then, Locke Lord has established overseas presences in Hong King and London and domestically in San Francisco and Sacramento.
Patton Boggs’ strategic plan calls for expansion in places such as California, London, New York and Texas, Newberry said — 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.
“Locke Lord wants to become an international firm, and I think the mind-set among firm leaders is that it has to get bigger in order to compete in today’s environment,” an ex-partner said. “Having a significant presence in New York and D.C. goes toward building that critical mass.” Meanwhile, Locke Lord’s deep roots in energy-rich Texas are an attraction for Patton Boggs.
Meanwhile, Locke Lord hopes to expand into the Middle East, where Patton Boggs maintains offices in Abu Dhabi and Dubai, United Arab Emirates; Doha, Qatar; and Riyadh, Saudi Arabia. “Acquiring an existing, established practice” is probably the best path for Locke Lord to take toward that end, Clements said.
Clements said her firm was following a dispute between Chevron Corp. and Patton Boggs over the firm’s attempt to collect a huge environmental judgment over pollution in Ecuador. 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 company in its counterclaim against Patton Boggs. Clements cited the matter’s potential liabilities and “reputational aspects.”
She said 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 time frame for that,” she said. “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.”
Brian Baxter reports for NLJ affiliate The American Lawyer. Contact him at email@example.com. Sarah Randazzo and Matthew Huisman contributed to this report.