Design: Roberto Jimenez. Photo: Shutterstock

The majority of the Am Law 200 firms founded in Pennsylvania fall into one of two categories: firms that have grown head count by more than 15% in the last five years, and firms that negotiated a major merger last year.

What data are you using to stand out in a crowded market? Get the interactive Am Law 200 Data exclusively with Legal Compass.

One of those combinations—Philadelphia-based Pepper Hamilton's tie-up with Atlanta-born Troutman Sanders—would have closed in April, but was delayed because of the coronavirus pandemic. Another was Drinker Biddle & Reath's merger with Minneapolis-based Faegre Baker Daniels, which became official Feb. 1, creating a firm with 1,300 professionals in 22 offices. And the third was Duane Morris, which acquired midsize New York firm Satterlee Stephens, also Feb. 1.

These three Philadelphia firms went into their combinations with different 2019 stories to tell.

Pepper Hamilton saw revenue growth of 4.5% and continued a three-year streak of revenue per lawyer growth—that metric had been a focus for Pepper as it prepared for an eventual combination and sought a merger partner, firm management said.

Drinker Biddle experienced a down year in 2019, going into its merger with Faegre. As gross revenue declined by 4.1% and profits per equity partner took an 11.6% dive, the firm dropped 11 places down the Am Law 100.

And Duane Morris, while it courted Satterlee Stephens, surpassed the half-billion-dollar mark for gross revenue, and delivered profits per equity partner of more than $1 million for the second time.

None of the three firms grew head count significantly in the five years leading up to their recent combinations—Drinker and Pepper actually became leaner. Still, consultant Tom Clay of Altman Weil says, the period following a merger is a time for any large firm to continue trimming the fat. And given the economy, that's all the more true, both for firms that recently merged and those that did so in the past five years.

"The ones who have grown pretty substantially have to look at things in a very different lens than they did before, when they developed this strategy," Clay says. "All firms are going to finally have to take a hard look at profits and profit margins, as opposed to just looking at gross volume."

Still, among Pennsylvania-born firms in the Am Law 200, the greatest revenue growth in 2019 was at some of the largest firms by head count and revenue. Three of the four locally founded Am Law 50 firms—Morgan, Lewis & Bockius; Reed Smith; and Dechert—posted revenue increases of more than 6%. All four showed improvement in RPL and PEP, with RPL growing by more than 5% at Morgan Lewis, Dechert and K&L Gates.

What data are you leveraging to sell strategy internally? Get the interactive Am Law 200 Data exclusively with Legal Compass.

The per-lawyer and per-partner metrics were less striking among the five Pennsylvania-based firms in the Second Hundred. For all except Pepper Hamilton, PEP growth was in the low single digits. Nearly all experienced RPL growth in the low single digits or worse—it was nearly flat at Saul Ewing Arnstein & Lehr, while Eckert Seamans Cherin & Mellott saw a slight decline. Marshall Dennehey Warner Coleman & Goggin was the exception, with 6.1% RPL growth.

As the per-lawyer metrics suggest, these five firms don't just have smaller head counts than their Am Law 50 neighbors. These Second Hundred stalwarts have stuck to a domestic expansion plan, in most cases concentrated along the East Coast.

But a bigger footprint with more lawyers is not an advantage on its own, Clay cautions, especially not in a bad economy. He says firms with a huge cadre of lawyers but low earnings per lawyer "are the ones that are going to suffer the most if this thing goes on much longer."

"Being bigger is not a safety net," Clay says. "It's just not."