In Pursuit of Merger, Pepper Hamilton Delivered Another Year of RPL Gains
The firm reversed a gross revenue slide and boosted profits per equity partner 13.6% as it prepared for a transformational merger with Troutman Sanders.
March 05, 2020 at 04:55 PM
5 minute read
Pepper Hamilton offices in Philadelphia. (Photo: Diego M. Radzinschi/ALM)
By the time Pepper Hamilton was preparing for a merger with Troutman Sanders, the firm had already taken a serious look at its finances—both in terms of making itself an attractive merger partner and knowing what to look for in a potential combination.
"We did a lot of work," said Tom Gallagher, the chair of Pepper Hamilton's executive committee and soon-to-be vice chair of Troutman Pepper Hamilton Sanders when the merger becomes official next month. "Our preparation was so good that when we received calls, we were able to determine early on whether it was worth moving forward."
A major goal for the firm over the past several years has been improving revenue per lawyer, and it managed to do so for a third year in 2019.
The Philadelphia-based firm saw gross revenue grow 4.5% in 2019, to $349.4 million, after three years of declines. Revenue per lawyer was up 3.7%, at $818,000.
The firm saw a significant jump in profits per equity partner, increasing by 13.6% to $943,000. It did so as net income grew 5.7%, to $100.9 million, with a smaller equity partner tier.
Pepper Hamilton managing partner Tom Cole, who will also be managing partner of the combined firm, said leadership manages to compensation for all partners more than to PEP. CAP was up 6.2%, at $707,000.
Pepper's head count was fairly steady year to year, growing by just three lawyers to 427. The total partnership grew by just one lawyer, to 194, but the balance of equity to nonequity partners changed. The equity partner tier shrank by 7%, or eight lawyers, to 107, while the nonequity group grew by nine lawyers, or 11.5%, to 87.
Cole pointed to health sciences and IP litigation as strong practices in 2019. He pointed to a number of transactions as well, in the corporate practices.
According to the firm, Pepper advised clients on more than 90 deals in 2019, with a combined value of more than $14 billion. Those included health sciences corporate work like JPMorgan Chase's acquisition of InstaMed, Xenon Pharmaceuticals' license agreement with Neurocrine Biosciences, Frazier Healthcare Partners' acquisition of Comprehensive Pharmacy Services, and Aro Biotherapeutics Co.'s licensing agreement with Ionis Pharmaceutical.
The firm also worked with GameStop Corp. as it sold its Spring Mobile business, and AMETEK's acquisitions of Pacific Design Technologies and Gatan.
On the litigation side, the firm represented United Egg Producers in an antitrust case, which notched a defense win in December. It also represented Michigan State University in a Title IX case, in which the school won a favorable opinion from the U.S. Court of Appeals for the Sixth Circuit in December. And it represented URS and AECOM in a trial over a $100 million claim, which ended in a defense verdict and a win for URS and AECOM in a $5 million counterclaim.
The IP practice experienced a significant addition early in the year, when it brought on two dozen lawyers from LeClairRyan in Rochester, New York. That hire marked Pepper's entrance into the Rochester market.
Thomas Gallagher, left, and Thomas Cole, right.Cole said that group brought its clients over, which may be unsurprising given that LeClairRyan closed its doors later in 2019, and the addition didn't cost much to Pepper Hamilton beyond taking over the Rochester lease and basic integration expenses.
"They had practiced together many years," Cole said of the lawyers who joined in Rochester. He would not say how much revenue their joining added to the firm, but he said their practice exceeded projected revenue for 2019.
But the bigger project in 2019 was readying the firm for the merger with Troutman Sanders, which it officially announced in January and which will go into effect April 1. When that happens, Gallagher said, some integration processes will remain, but the firm will come together with no changes to financial structure.
"The deal will be great for Pepper, and great for Philadelphia," Gallagher said.
Troutman Sanders also reported growth for 2019. The Atlanta-based firm saw gross revenue increase by 5.4% to $549.6 million, while profits per equity partner jumped 8.4% to $1.164 million. Troutman also trimmed a net of four equity partners to reduce its total to 178.
Read More
Troutman Sanders, Pepper Hamilton Vote to Seal Merger Deal
Troutman Posts Revenue and Profit Growth as Merger With Pepper Hamilton Nears
What's Behind a Wave of Healthier, Faster Law Firm Combinations?
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