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 scrutinised their performances based on post-merger growth in revenue per lawyer (RPL), profits per partner and average compensation for all partners. Combinations with non-US firms were not included, nor were mergers with fewer than three years of post-merger results to analyse. As a benchmark, we looked at the average growth of The Am Law 100 by RPL, 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
Moreover, behind the managing partner mantra of “two plus two equals five”, our focus on post-merger 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 PEP 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 Inter-national, who helped plan and consummate several of the mergers we analysed. “You have to ask where the component firms would be if they had not merged; some would be nowhere near where they are now.”
Paula Alvary of Boston-based Hoffman Alvary & Company, who helped bring together Wilmer and Hale, says focusing narrowly on revenue and profit growth “may mask a firm that is 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 emphasised 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
Here we look more closely at five of the mergers featured in The American Lawyer, including those practices with a significant track record in
DLA Piper
(Piper & Marbury and Rudnick & Wolfe, October 1999)
In 1999, the leaders of
And change the firm certainly has. Piper Rudnick picked up Washington DC-based Verner, Lipfert, Bernhard, McPherson and Hand in 2002 and then merged with
The firm has yet to come back down to earth. It has quadruple the number of lawyers of either of its original predecessors. PEP kept up double-digit growth for five of the last eight years and is up nearly 150% since 1999. DLA Piper significantly outpaced The Am Law 100 in average year-on-year growth in RPL, PEP and average partner compensation post-merger. And, as the chart shows, the firm grew fast enough in eight years to finally beat the Am Law 100 average in RPL in 2007 (it has yet to catch up in profits).
But, for many partners, there’s a downside to DLA Piper’s serial mergers. While Burch insists that the firm has lost few important partners over the years, he acknowledges that the pace of change is not for everyone. Despite net growth, since late 2005 more than 50 partners have decamped.
“We are very explicit about the social contract; if you have the will and the ability, we will support your efforts to evolve,” Burch says. “We have had very good success in improving the gene pool every year.”
Pillsbury Winthrop Shaw Pittman
(Pillsbury Madison & Sutro and
Mary Cranston took the reins at
After eight years and another big merger in 2005 with
By many accounts, the firm’s
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
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% increase in RPL 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
Sidley
(Sidley & Austin and 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
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,”
Looking back at the growth of Sidley & Austin and Brown & Wood between 1997 and 2001, it is 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 RPL 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 RPL and profits, but the firm has marginally outperformed the averages every year since.
Sidley’s
The firm also had great timing. Brown & Wood’s languishing securitisation practice pre-merger took off spectacularly in the boom that began soon after the firms joined, driving up revenues. However, some of the impressive increase in profits arguably came at a price: the culling of older, less-profitable partners, and the attention-grabbing lawsuit that followed.
Bingham McCutchen
(Bingham Dana and 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% of the firm — and to establish a foothold on the West Coast. McCutchen, based in
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
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. The combined firm now has PEP roughly equal to The Am Law 100 average.
But whereas both predecessor firms watched growth in PEP outpace that of The Am Law 100 in the four years prior to the merger, Bingham McCutchen has since lagged behind.
While Bingham’s PEP growth has tapered off since 2005, 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 have ever had.”
Wilmer Cutler
(Wilmer Cutler &
The merger between Washington DC-based litigation and regulatory giant Wilmer and
“Every merger has its own period of adolescence,” says WilmerHale co-managing partner William Lee. And WilmerHale’s adolescence has been characteristically awkward, particularly when judged by unforgiving measures like PEP 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, says Lee. The firm’s average yearly growth in PEP and compensation for all partners has been far below The Am Law 100 average since 2004.
While WilmerHale ranks seventeenth this year in gross revenue, the firm barely broke the million-dollar mark in PEP, ranking it fifty-sixth among top 100 firms.
To be fair, WilmerHale’s is the youngest of the mergers we considered. The firm has consistently boasted a higher RPL than The Am Law 100 average (the firm now ranks twenty-second in RPL). Lee says WilmerHale 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, WilmerHale is the only all-equity partnership.
Lee is also quick to point out that the firm devotes about 6% 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 other than 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 are deluding ourselves,” Lee says, “but we feel pretty good about where we are.”
AmLaw100June2008
