Troutman Sanders and Pepper Hamilton signs.

Pepper Hamilton and Troutman Sanders have officially agreed to merge, the firms announced Thursday, creating a new 1,100-lawyer giant with offices in 23 locations. The combination will take effect April 1.

The American Lawyer reported in November that the two firms had been in merger talks for months. Partners at both Troutman and Pepper voted to approve the deal Wednesday.

The combined firm will be named Troutman Pepper Hamilton Sanders.

"We want to make sure our clients recognize the name and continue to see the goodwill these names have established over the years," Troutman Sanders managing partner Steve Lewis said in an interview. "We also recognize that in today's world, law firms will have a street name too. For us, we thought it made great sense for that to be Troutman Pepper."

Lewis will be chair and CEO of the combined firm. Tom Gallagher, chair of the executive committee at Philadelphia-based Pepper Hamilton, will be the new firm's vice chair.

Tom Cole, managing partner of Pepper Hamilton, will be managing partner of Troutman Pepper. And Andrea Farley, who chairs Troutman Sanders' partner compensation committee, will hold that same role at Troutman Pepper.

Lewis noted that both firms underwent leadership transitions not long ago to prepare for the next generation. "I think it was the natural evolution that those in place would stay involved in the same or different capacities," he said.

The two firms got serious about pursuing a merger over the summer, Gallagher and Lewis both said.

Noting that "lawyers are generally skeptical to begin with," Lewis said, leadership from both firms went in expecting a merger was unlikely to work out. "But at every meeting we got the exact opposite feel," he said.

He also noted that Atlanta-born Troutman Sanders has completed several other significant combinations. It merged with 150-lawyer Virginia-based Mays & Valentine in 2001, brought on the 90-lawyer New York office of now-defunct Jenkens & Gilchrist in 2005, and combined with 100-lawyer D.C. boutique Ross, Dixon & Bell in 2009.

Lewis said that in each of those combinations, Troutman Sanders gained a strong foothold in a key market. That's "a great thing for a firm," he said, and he expects the same will happen with the latest merger, which is also much larger in scope than the previous three.

Troutman, which was No. 68 on the 2019 Am Law 100 with revenue of $521.5 million, has about 650 lawyers in 12 U.S. offices. Pepper Hamilton, which was No. 105 on the 2019 Am Law 200, has about 450 lawyers in 14 offices and reported gross revenue of $334 million last year.

Together, the two firms project they'll generate gross revenue of more than $900 million post-merger, earning a ranking in the top 50 of the Am Law 100. Gallagher said that is based on their 2019 performance.

Both firms have large offices in New York and Washington, D.C., and they both have an office in Orange County. Their other locations do not overlap. While Pepper Hamilton brings to the table an established presence in the Philadelphia region, the Northeast and Detroit, Troutman Sanders has longtime roots in the Southeast that Pepper was previously lacking, as well as Chicago and Portland, Oregon.

The firms have some practice overlap and clients in common. One major client they share is Johnson & Johnson, Gallagher said. Both firms' leaders said their rates and compensation structures were similar.

Asked about each firm's practice strengths, they noted Pepper's health science and private equity practices, and Troutman's energy, real estate, financial services and insurance practices.

Courting Mergers

The last time Pepper Hamilton was engaged in merger talks that became public, the discussions were with Pittsburgh-born international firm Reed Smith. Gallagher said Pepper Hamilton has "had fairly preliminary conversations with plenty of firms, including Reed Smith, over many, many years."

After the talks with Reed Smith broke off, Pepper reported steep declines in gross revenue and profits per equity partner for 2016. Since then, the firm has been working to improve its financial performance with a "laser-focus" on improving revenue per lawyer, Gallagher and Cole said.

"It's ended up with increasing our RPL every year for the past couple years. We finished this [past] year with what will be the highest RPL in the firm's history," Gallagher said.

Troutman has also been considering mergers with other large U.S. firms. Last year it entertained merger discussions with Dallas-based Winstead, but those talks broke off in July 2018 due to obstacles such as law firm billing rates and preferred client mix, according to Texas Lawyer.

Pepper Hamilton is the second Philadelphia-based Am Law 200 firm to announce a major merger planned for 2020. Drinker Biddle & Reath announced in December that it will be merging with Midwest-based Faegre Baker Daniels in February.

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