Amid Merger Talks, Patton Boggs MP Touts Strategic Plan

, The Am Law Daily

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Ed Newberry
Patton Boggs managing partner Edward Newberry

Patton Boggs managing partner Edward Newberry told The Am Law Daily on Thursday that his firm's decision to conduct another round of layoffs and engage in preliminary merger talks with Locke Lord are 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.

Newberry, who assumed leadership of Patton Boggs in 2010 from former managing partner Stuart Pape, confirmed previous reports by Reuters that the firm is in the “due diligence” stage of discussions with Locke Lord. Patton Boggs partners were informed of the talks at an October partners meeting.

While no letter of intent has been signed, a memo written by Newberry this week updating Patton Boggs partners on a range of issues—which Reuters first reported on—notes that Wells Fargo, accounting firms Deloitte and PricewaterhouseCoopers, and legal consultant The Zeughauser Group have been retained to evaluate the merits of a union with Locke Lord.

In the memo, a copy of which was obtained by The Am Law Daily, Newberry noted that Deloitte is advising the firm on pensions and benefits issues, while PwC and Wells Fargo are conducting a financial analysis. Dallas-based Patton Boggs investment funds partner Jeff Cole and Washington, D.C.–based litigation partner Charles “Rick” Talisman, who was recently named the firm's general counsel, are leading the internal team conducting due diligence on the potential Locke Lord deal.

Newberry says that The Zeughauser Group—led by American Lawyer contributing editor Peter Zeughauser—worked with Patton Boggs earlier this year on crafting a strategic review of its operations. “They’re refreshingly direct, candid and aggressive,” Newberry says of the consulting firm.

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, recently beating out archrival Akin Gump Strauss Hauer & Feld to take the top spot with more than $106 million in lobbying-related income in 2012, according to affiliate publication The National Law Journal.

But a recent report by affiliate publication Corporate Counsel notes 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.

Patton Boggs has undergone two rounds of layoffs this year. The latest came Thursday, when the firm laid off 10 lawyers and 35 staffers, a move first reported by The Wall Street Journal. The 10 lawyers and another seven staffers being let go are from the firm's Newark office, which has been particularly hard hit this year. (The remaining 28 staffers will be culled from the firm's nine other offices.)

The Newark branch lost its former managing partner John McGahren in August to Morgan, Lewis & Bockius. McGahren is one of more than 40 partners to leave Patton Boggs since January—including a 12-partner group that departed this summer for Holland & Knight in Dallas—some of which the firm has said publicly were asked to leave.

McGahren, an environmental litigator, was part of a Patton Boggs team representing New York City and hundreds of contractors in a $625 million settlement with plaintiffs who worked at Ground Zero in the aftermath of the Sept. 11, 2001, terrorist attacks. Patton Boggs made more than $120 million in legal fees from its work on those cases, but lost out on additional revenue when they settled on the eve of trial.

Newberry acknowledges that the 9/11 litigation gave Patton Boggs a cushion at a time when many other Am Law 200 firms were laying off attorneys and staffers as the U.S. legal services market cratered amid the global economic downturn. Rather than worry about cuts the firm could have made in the past, Newberry—citing a report released this week by Citi Private Bank’s Law Firm Group—said Patton Boggs is focused on streamlining its operations to compete in a “difficult market for legal services” that’s plagued by an “oversupply of lawyers.”

Like many large firms hit hard by the worldwide recession, Patton Boggs has watched its gross revenue steadily slip from a high of $348.5 million in 2008, a year before the bottom fell out of the U.S. legal industry. Profits per partner also have dropped precipitously since 2010, while revenue per lawyer has mostly remained stable at roughly $660,000, according to Am Law 100 financial data.

Patton Boggs saw gross revenue fall 6.5 percent last year to $317.5 million, while profits per partner plummeted 15 percent to $735,000. The layoffs announced Thursday will save Patton Boggs about $5.5 million on top of the $14.7 million in savings the firm realized when it laid off 30 lawyers and 35 staffers in March.

“We want to get leaner and meaner,” said Newberry, noting the recent expiration of the financial severance packages the firm agreed to earlier this year. “I think we’re making some tough decisions while some of our competitors get weaker.”

Patton Boggs is hardly the only member of The Am Law 200 to slash its payroll this year. Arent Fox; Day Pitney; Dickstein Shapiro; Fried, Frank, Harris, Shriver & Jacobson; K&L Gates; Jones Day; Orrick, Herrington & Sutcliffe; Paul Hastings; Pillsbury Winthrop Shaw Pittman; and Wilson Sonsini Goodrich & Rosati have all conducted layoffs. (Orrick and Pillsbury are now engaged in their own merger talks.)

A merger, Newberry said, is one of several options available to Patton Boggs as it seeks to grow. In his mind, New York and D.C. are the “two legal capitals” of the U.S. legal services industry. And with Patton Boggs—which Newberry describes as residing at the “nexus of government, law and business”—already a Beltway powerhouse, a beefed-up New York presence is high on the firm's agenda.

Patton Boggs opened in New York and Newark in 2006 with the addition of 30 lawyers from Latham & Watkins, including current toxic torts and product liability practice chair James Tyrrell Jr., who took the lead in the 9/11 litigation. Neither office has ever gained real traction—Patton Boggs subleased space in New York last year to Zuckerman Spaeder—and the end of the 9/11 cases started a stream of defections from the two offices. Now, Newberry said, Patton Boggs is taking steps to reverse that trend.

Along those lines, Patton Boggs was one of several firms looking at a potential deal with Dewey & LeBoeuf ahead of that firm's eventual implosion. While a full-on merger never came to pass, Patton Boggs eventually took on a handful of partners from the now-defunct Dewey, including John Nonna, an insurance expert and former member of the U.S. Olympic fencing team who became managing partner of Patton Boggs’ New York office earlier this year.

In another sign of Patton Boggs' commitment to New York, Newberry cites the firm's launch late last month of a public finance practice with the addition of four lawyers from Edwards Wildman Palmer, including New York partner Alphonso Tindall Jr. While Newberry declines to comment about potential merger candidates in Manhattan, he says Patton Boggs is keeping its options open.

California, which boasts the world’s eighth-largest economy, Texas, home to a booming energy industry, and London are three other markets the strategic plan envisions the firm making inroads. Newberry said Patton Boggs has long wanted to open an office in Houston, as well as establish a base in London. A London office would likely benefit his firm’s four Middle East offices, given that much of the transactional work generated in the region requires English law expertise. (Patton Boggs picked up Dewey’s Riyadh office last year and has outposts in Abu Dhabi, Doha and Dubai.)

As it happens, Locke Lord, which has deep roots in Texas, has offices in Houston, Los Angeles and London. Locke Lord also opened a shop in Hong Kong two years ago, although Newberry sounds skeptical about jumping into the Asian market too quickly in light of the difficulty some large U.S. firms have encountered in the region.

A Locke Lord spokeswoman told The Am Law Daily that the firm never confirms or denies speculation about possible lateral hires or mergers.

One issue that has long hampered Patton Boggs in previous efforts to find a merger partner is its compensation structure. Newberry said the firm's strategic plan creates a partner pay scheme that accounts for a range of factors, rather than the more formulaic approach it took in the past under which only 15 percent of partner draws were discretionary.

Patton Boggs will now have multiple partner tiers. The key to making the new program work, Newberry said, is establishing a culture that encourages partners to share credit for work and to cross-sell their practices. Newberry said the plan was first put forth back in May at the firm's annual partnership meeting in Williamsburg, Va., and received the approval of 95 percent of the partnership at their meeting in D.C. last month.

The American Lawyer reported earlier this year that Patton Boggs ranked ninth on a list of partner pay spreads at Am Law 200 firms, with the lowest-paid partner making only 1/18th of its highest-paid partner.

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