The Score

February 29, 2012 6:27 PM

The Am Law 100, the Early Numbers: As Merger Loomed, Luce Forward Revenue Hit Ten-Year Low

Posted by Sara Randazzo

In the year leading up to its impending merger with McKenna Long & Aldridge, San Diego–based Luce, Forward, Hamilton & Scripps saw its gross revenue fall 17.7 percent to $83.5 million and its profits per partner slide 20.7 percent to $535,000, according to reporting by The American Lawyer. Revenue per lawyer dropped a more modest 5 percent to $670,000.

Despite 2011's weak financial performance, managing partner Kurt Kicklighter said during a February 24 interview that Luce Forward was "right on our budget" last year.

"The story behind the 2011 numbers is really 2010," said Kicklighter, explaining that two outsize contingency fees inflated Luce Forward's revenue and profit figures for 2010. "[Last year] was in line with our expectations. . . .  There was no big drop-off in work."

A review of the firm's recent history, though, suggests otherwise. The last time Luce Forward—which has consistently resided in the lower third of the Am Law Second Hundred since that list's creation in 1999—collected less gross revenue was 2000, when it took in $82 million.

Given the 2011 figures, it appears unlikely that Luce Forward will qualify for this year's Am Law 200 when the list is published in The American Lawyer's June issue (the last firm on the 2011 list, Hodgson Russ, brought in $92 million). And by the time next year's survey rolls around, Luce Forward will no longer exist as a stand-alone entity: After 138 years, the firm's name will vanish when the merger becomes official.

The tie-up with 425-attorney McKenna, in the works since last year and announced in mid-January, offers the attorneys of real estate–heavy, California-centric Luce Forward—which currently has two offices in the greater San Diego area and one apiece in Los Angeles, Orange County, and San Francisco—access to offices in New York, Albany, Denver, Philadelphia, Atlanta, Brussels, and Washington, D.C. 

In January, McKenna and Luce Forward said they planned to complete the merger by Thursday. On Wednesday, the two sides jointly put out a statement saying they have executed the definitive agreement to combine and "are actively continuing integration activities that will be completed in March."

Kirklighter was enthusiastic in the February 24 interview about the combination. "I am really looking forward to being part of a firm that has specific focuses, both in California and nationwide, that will enhance the services we deliver to clients," he said, citing McKenna's strengths in government contracts, government relations, intellectual property, insolvency, corporate, and tax work.

Kicklighter's excitement has not been universally shared within Luce Forward's partnership. In the weeks leading up to and since the merger announcement, the firm has lost at least ten partners, as well as several associates. The departed include Pat Swan, the former head of the firm's white-collar defense group, who left for Jones Day in late January; intellectual property litigation partners Callie Bjurstrom and Peter Hahn, who jumped to Pillsbury Winthrop Shaw Pittman earlier this month; and corporate partner John McNeece III, who also left for Pillsbury, where he is now counsel, in February.

The firm also lost two major groups in February to San Diego firm Procopio, Cory, Hargreaves & Savitch: a three-partner labor and employment team including former practice chair Marie Burke Kenny, Phillip Kossy, and Robert Levy, and a three-partner corporate team of Dennis Doucette, Jason Femrite, and Eli Mansour.

Doucette says his decision to leave was based in part on Luce Forward's plan to shut the Carmel Valley office in San Diego's North County region, which is home to much of the local biotechnology industry. A Luce Forward lifer, Doucette opened the Carmel Valley office 15 years ago. He and his team remain in Luce Forward's old space.

The recent departures come on the heels of a year that saw the firm's head count drop from 143 to 124. The net loss of 19 lawyers, Kicklighter said, was largely the result of the looming merger: "There were some people in late 2011 that departed because they made a personal decision, as often happens in mergers, that they wanted to head in a different direction."

In contrast to previous years, Luce Forward did little lateral hiring to counteract the departures, according to Kicklighter. Indeed, the firm added just one partner, Los Angeles trusts and estates lawyer James Murphy from Cox, Castle & Nicholson, who arrived in May. The firm also promoted four attorneys to partner last year, though one of those, Amy Giannamore, left for DLA Piper along with partner Darryl Steinhause in October (Giannamore is now of counsel at DLA).

All told, Luce Forward heads into the McKenna combination with 74 partners, according to the firm's Web site as of Wednesday. Many of those are real estate, environmental, and insurance specialists, and just three of the partners are stationed full time in the Orange County office. McKenna already has 116 of its own lawyers in three California offices (Los Angeles, downtown San Diego, and San Francisco).

Exactly how many of Luce Forward's current partners will retain that title—or continue to have equity partner status once the merger is finalized—remains to be seen (currently, roughly two-thirds of Luce Forward's partners hold equity in the firm). Without going into details, Kicklighter says some changes in title and equity status will take place.

For its part, McKenna notched average profits per partner of $965,000 in 2011, a 4.3 percent increase from 2010, according to reporting by The American Lawyer, and revenues of $279.5 million, a 1.1 percent bump from the previous year. Kicklighter says the difference in partner profits between the two firms isn't as extreme as it looks, but that "McKenna has maybe proportionately more high performers." (Read more on McKenna's financial year in sibling publication the Daily Report)

"There's really no controversy at all," he says. Sources familiar with the merger, speaking on condition of anonymity, say legacy Luce Forward attorneys who remain equity partners at the combined firm will be required to contribute substantially more capital within the first few months.

After the merger, Kicklighter is to hold the title of California executive partner. In that role, he will oversee McKenna's growth strategy within the state. Along those lines, he says he is working on ways to preserve the Luce Forward brand going forward, even if the name is destined to disappear.

"Luce Forward is really made out of people," he says. "We're going to be serving our clients the same way we served them in the past, only hopefully better and more broadly."

This report is part of The Am Law Daily's early coverage of 2011 financial results of The Am Law 100/200. Final rankings and full results for The Am Law 100 will be published in The American Lawyer's May 2012 issue and on The Am Law Second Hundred will be published in the June issue. An interactive chart of the financial results reported so far is available here. The chart will be updated as additional data is reported.

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