Arent Fox office in Washington, D.C. (Photo: Michael A. Scarcella/ ALM)

Washington, D.C.-based  Arent Fox grew its revenue by double digits while seeing a healthy boost in profits in 2019—the first full year of its combination with a smaller Boston firm.

Then the 2020 pandemic hit, shuttering about a quarter of the U.S. economy. Arent Fox, like many other firms, has made cost-cutting moves, such as 25% pay cuts for associates and staff and 60% reduction in equity partner distributions, according to Above the Law.

A firm spokesman said in a statement that in response to the economic slowdown, the firm made a "temporary pay cut for all attorneys, professionals, and staff."

The firm's leadership "recognizes that the biggest financial risk to a law firm is underreacting," the statement said. "Our goal is to put Arent Fox in a strong position so that we can continue to provide critical, first-rate service to our clients as we help them navigate" challenges from the crisis.

The firm's experience underlines how quickly the economic fallout of the pandemic has stricken the industry—even Am Law 200 firms with healthy profit margins. Arent Fox's profit margins dipped slightly in 2019 but were above 30%.

The firm's gross revenue shot up by 15.4% to $326 million in 2019, when its combination with 55-lawyer firm Posternak Blankstein & Lund became effective. The Posternak firm's legacy revenue was about $29 million, the firm said last month, while the combination generated an additional $3 million in work in the first year.

Revenue per lawyer, at $847,000, was flat amid a 15% increase in head count to 385 attorneys. Even with the head count bump, the firm's equity tier stayed flat at 96 partners, making profits per equity partner grow 7.5% to $1.042 million.

In an interview on March 11—before quarantine orders and court shutdowns across the country—the firm's leaders sounded optimistic based on last year's performance. Chair Mark Katz said all the firm's departments outperformed the firm's budget in 2019. Managing partner Cristina Carvalho said the firm's Boston office immediately started working with firm as a whole, "and even though it was year one, there was a lot of collaboration."

The Posternak firm's bench of real estate translational and corporate lawyers, including venture capital and early company formation, was a "perfect match" for Arent Fox's regulatory expertise, Carvalho said.

One example of the client work the combined firm generated was working for a biotech company in Massachusetts, Tevard Biosciences. With Arent Fox's existing Food and Drug Administration expertise, the combined firm could also offer corporate advice from Boston, Carvalho said.

Among other matters last year, the firm's corporate department represented District Photo in Apollo's acquisition of Snapfish and its merger into Shutterfly, and its government contracts lawyers guided longtime client Unisys through a $1.2 billion sale of its Federal business to SAIC.

The Posternak merger exceeded the firms' projections in terms of hours billed and other measures, such as successful lateral recruitment, Katz said. The merger had gone so well that Arent Fox leaders were considering other locations. Last month, Katz expressed an interest in the Chicago market, noting it "it would be a logical step" to have a presence there.

But even last month, Katz acknowledged, "all the forward guidance we have is on hold at the moment." He added, "We put out a budget at the beginning of the year that we expect revenue to be X, and this year it's anyone's guess."

"The impact of the virus is going to hit everyone, so we just have to what 2020 is in store for us," Katz said.

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