Biglaw, Law Firm Mergers, Partner Issues

Two New York And D.C. Powerhouses, Arnold & Porter And Kaye Scholer, Agree To Merge

A leading litigation shop in New York joins forces with one of Washington's most storied firms.

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merger meeting conference room handshake shaking handsIt’s official. This morning, Arnold & Porter and Kaye Scholer announced their plan to merge and become Arnold & Porter Kaye Scholer, effective January 1, 2017.

The merger talks recently moved to a higher level, as reported yesterday by the New York Law Journal and Big Law Business, but they are not new. The firms have been exploring possibilities for about a year, according to Law.com. Back in May, one of our own sources at A&P shared this information with us:

[W]e have been looking for a merger partner for two years and Kaye Scholer, as well as Proskauer, were both targets at some point. This year we have ramped up our efforts to merge with a firm that has a strong corporate practice, but have not been successful. The possibility of a merger with KS has caused a great deal of controversy with the New York partners especially, who do not think that KS is at the same level as A&P.

Is that fair? Here our how the firms compare on various metrics:

Longevity: A&P was founded in 1946, and KS was founded in 1917.

Prestige: A&P is #25 on the Vault 100, while KS is #70.

Size: A&P has around 665 lawyers, while KS has about 370.

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So one can see where the A&P partners are coming from. Kaye Scholer might be older, but Arnold & Porter is more prestigious and larger. Some might say it also has a more storied history. Arnold & Porter was founded by Thurman Arnold, a former D.C. Circuit judge and Yale Law School professor, and Abe Fortas, who went on to become a Supreme Court justice (although he ultimately left SCOTUS amid controversy and disgrace). The other name partner, Paul Porter, was a former chairman of the Federal Communications Commission. So one can see the DNA for A&P’s strong litigation and regulatory practices in these three résumés.

More from our Arnold & Porter source:

The managing partner and chairman have spent time attempting to calm NY partners by giving non-answers to their questions. They are attempting to assure the partners that they are still in the early stages, but it is definitely true that each firm has shown the other financials.

Ah yes, financials. History is nice, but money makes the Biglaw world go round. Here’s how the firms stack up, per the NYLJ:

Both firms 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, 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.

Kaye Scholer reported a 1.3 percent drop in gross revenue in 2015, 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.

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So on paper they look like a decent match. A&P’s revenue per lawyer and profits per partner are a little lower than KS’s, but they are in the same ballpark financially.

The merger also has definite geographic appeal:

A combination between Kaye Scholer and Arnold & Porter could create a deep bench of lawyers in both Washington, D.C.—Arnold & Porter’s largest office—and New York, the headquarters of Kaye Scholer.

In contrast to each other, Kaye Scholer now only has 22 lawyers in Washington, D.C., while Arnold & Porter has fewer than 100 in New York. Through a merger, each would gain hundreds more in the two competitive legal markets.

As the legal landscape evolves, we will probably see more mergers along these lines, as firms of moderate size and revenue join forces to compete with the biggest Biglaw players. Some firms merge out of necessity, simply in order to survive, but other firms merge in order to thrive.

Of course, the line between surviving and thriving will get thinner as time goes on. The firms that don’t figure out how to thrive, in an increasingly global and technologically advanced legal marketplace, simply won’t survive. It’s getting harder and harder to just trundle along as a medium-sized firm based largely out of a single city.

Best of luck to Arnold & Porter Kaye Scholer. The moniker is a mouthful, but hopefully a big name will spell big success.

UPDATE (11:20 a.m.): More about the combined entity, from the press release:

Arnold & Porter LLP and Kaye Scholer LLP today announced the two firms have agreed to combine effective January 1, 2017 to become Arnold & Porter Kaye Scholer LLP. This strategic combination brings together renowned regulatory expertise, sophisticated litigation and transactional practitioners and leading multidisciplinary practices in the life sciences and financial services industries.

Arnold & Porter Kaye Scholer LLP will have approximately 1,000 lawyers across nine domestic and four international offices. In its largest offices, the firm will have approximately 400 lawyers in Washington, DC, 325 lawyers in New York, 175 lawyers in three California offices and 60 lawyers in London. The combination also gives clients access to lawyers in domestic offices in Chicago, Denver, Houston and West Palm Beach; and international offices in Brussels, Frankfurt and Shanghai.

Sizable headcount and a solid geographic footprint. We’ll be interested in seeing how Arnold & Porter Kaye Scholer evolves and expands in the years ahead.

UPDATE (12:02 p.m.): Some constituencies at both firms are nervous about the merger:

  • Associates in the New York office of A&P are thinking that “a combo of us moving to the KS offices and their larger size in NY will basically result in us becoming KS here, while the rest of the firm will not be impacted much.”
  • Support staff are generally nervous and uncertain about their futures; mergers often bring cuts to administrative personnel to reduce duplication.
  • There are rumors of some Kaye Scholer partners either leaving the firm or being demoted to counsel.

UPDATE (12:41 p.m.): A Kaye Scholer source tells us that the firm announced the merger on its website before officially telling associates, which didn’t go over well with some.

UPDATE (2:43 p.m.): An Arnold & Porter source explains the problem with the timing of the announcement:

While it’s true that the firms announced the merger on their websites before they officially told associates, that wasn’t the firms’ plan. They had called an associates meeting for 1 p.m. ET, with plans to publicly announce thereafter. But then the WSJ published its story on the merger (after the associates meeting was announced but before it had occurred). At that point, the firms really had no choice but to issue their press releases. I haven’t encountered any associates here who feel slighted by the timing.

Note, by the way, the statement in the Wall Street Journal piece that “no significant layoffs or changes to the partnership structure are expected.” (But I’d wait and see on that; sometimes firms wait a few months for the dust to settle before making changes.)

If you have information to share about the merger and what it might mean, please email us or text us (646-820-8477).

Law Firms Arnold & Porter, Kaye Scholer Set to Combine [Wall Street Journal]
Kaye Scholer, Arnold & Porter Agree To Merge [New York Law Journal]
Kaye Scholer and Arnold & Porter Talks Heat Up [Big Law Business]
SYNERGY: Arnold & Porter and Kaye Scholer Announce Combination [Kaye Scholer (press release)]

Earlier: Troubled Biglaw Firm Searches For Merger Partner

DBL square headshotDavid Lat is the founder and managing editor of Above the Law and the author of Supreme Ambitions: A Novel. He previously worked as a federal prosecutor in Newark, New Jersey; a litigation associate at Wachtell, Lipton, Rosen & Katz, in New York; and a law clerk to Judge Diarmuid F. O’Scannlain of the U.S. Court of Appeals for the Ninth Circuit. You can connect with David on Twitter (@DavidLat), LinkedIn, and Facebook, and you can reach him by email at dlat@abovethelaw.com.

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