Model merger

(From left) Jesse Ruiz, Doug Swill, Kathleen Murphy and Ed Getz.
(From left) Jesse Ruiz, Doug Swill, Kathleen Murphy and Ed Getz.  —Photo by Ralph Greenslade
December 2013
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By Roy Strom

Like many law firm mergers before and since, the 2007 pairing of Drinker Biddle & Reath with Gardner Carton & Douglas was meant to propel two regional firms onto the national stage.

The linking of 445 lawyers from the 158-year-old, Philadelphia-based Drinker Biddle with 200 practitioners at Chicago’s 97-year-old Gardner Carton was one of 60 U.S. mergers in 2007.

It was the sixth-largest merger that year, in terms of total lawyers involved, according to consulting firm Altman Weil.

Seven years later, the firm believes its integration effort is successfully completed and is now looking to grow its Chicago office. And in some ways, the success of the merger can be measured.

The firm still operates under the same management and structure that crafted the deal. It has maintained its size of roughly 650 lawyers and, perhaps more importantly, kept a majority of legacy Gardner Carton lawyers. It now has a national presence with 11 offices. Some of its practices, particularly its employee benefits team and a health-care group that focuses on nonprofit health systems, represent clients from Alaska to Florida.

And revenue has grown, according to Chicago Lawyer surveys, from about $382 million in 2008 to $392 million in 2012. In a five-month span this year, the Chicago office added four lateral partners — growth it says it wants to continue.

Other reasons the firm counts the merger as a success are less calculable. Partners talk about a client-first culture at both regional firms that meshed nationally thanks to a healthy dose of due diligence and a thorough integration plan.

The story of this merger and the yearslong integration effort could be enlightening for managing partners who have again caught the matchmaking bug. Law firm mergers were on pace, as of the end of the 2013 third quarter, to easily break the record 70 mergers that occurred in 2008, according to Altman Weil.

And the trend is likely to continue.

“I don’t see anything that’s going to be different about 2014 than 2013,” said Ward Bower, a principal at Altman Weil, which tracks law firm mergers.

While the Drinker Biddle merger has resulted in the firm meeting its own criteria for success, it also shows that integrating two firms into one takes time, plenty of planning and a commitment to introducing partners to clients and partners to partners.

In other words, the lawyers need to get along.

“This stuff doesn’t happen overnight,” Bower said. “It generally takes years. And measuring the success of a merger is difficult.”

The seeds of a new firm

Gardner Carton traced its roots back to 1910, when two Harvard Law School graduates opened an office in Chicago and began representing corporate clients, including food processor Swift & Co.

Over the next 97 years, it continued to represent corporate clients and also sent a number of lawyers to high-profile government positions — its roster includes a former chairman of the Securities and Exchange Commission, assistant secretary of the Treasury and deputy secretary of defense. It added big-name clients such as Wal-Mart Corp., JP Morgan Chase, Illinois Tool Works, Motorola and others.

Drinker Biddle Reath
(From left) Jesse Ruiz, Ed Getz, Doug Swill and Kathleen Murphy.
Photos by Ralph Greenslade.

But by 2006, for the 200 lawyers at Gardner Carton — still mostly based in Chicago — growing their practice and better serving their clients seemed easier done by joining a new firm than going it alone, said the partner in charge of the Chicago office, Ed Getz.

According to Chicago Lawyer surveys, the firm shrunk from 251 lawyers in 2005 to 224 in 2006. It reported 200 lawyers to Altman Weil at the time of its merger, which became effective on Jan. 1, 2007.

“We were looking at different models for growth — organic growth being one model and growth through a significant, large-scale combination being another,” said Getz, who was vice chairman of the management committee at the time.

Once that leadership group settled on the latter, it created a set of benchmarks that Getz said guided them in selecting a firm to join.

First, there were financial guideposts. Getz said management sought to join with a firm that posted revenues and profits within a 10 to 15 percent range of Gardner Carton’s.

Drinker Biddle met that criteria. Revenue per lawyer and profits per equity partner at the Philadelphia firm in 2005 were $550,000 and $575,000, respectively. Gardner Carton recorded $560,000 in profits per equity partner and revenue per lawyer that same year. The combined firm had profits per equity partner of $726,165 in 2011, the last year it reported the figure to Chicago Lawyer.

Getz also stressed client-focused and culture-based factors in explaining why Drinker Biddle was a good fit. For instance, the well-known health-care industry team at Gardner Carton was attractive to Drinker Biddle — and vice versa — because both firms represented clients in different sections of the industry. In addition, both firms believed they would benefit from merging their well-regarded employee-benefits practices.

“The combination of that expertise into an even stronger (employee) benefits practice was a huge benefit to our clients,” Getz said.

While the plan was always for Gardner Carton to assume the Drinker Biddle name, local management did its due diligence to ensure Gardner Carton lawyers would be well-represented in the new, national firm.

That meant calling attorneys from the former Shanley & Fisher, a firm that merged with Drinker Biddle in 1999, to see what types of roles they were playing in the bigger firm.

“We found that they were very engaged and they were playing very significant leadership roles,” Getz said. “So we were able to have this bird’s-eye view into what we were going to expect from our combination, and it has really played out true to form.”

A vote of both partnerships overwhelmingly OK’d the deal.

Pre-integration planning

Cara Rhodes, a founding principal of Newton, Mass.-based law firm consultancy Hoffman Alvary, said integrating two firms comparable in size presents a unique difficulty: Everything is subject to change.

Merging 445-lawyer and 200-lawyer practices involves a different dynamic than the much more common “get in line” edict handed to a small group of lawyers joining a large practice.

“Every social structure and professional approach is on the table and needs to be reconfirmed, redesigned or developed anew,” Rhodes said. “And that means anything in a partnership agreement — from governance to compensation … even the holiday party.”

That advice appears to have been taken by Drinker Biddle. Getz said prior to the combination, the two firms reviewed all their major policies and committed to adopting what they agreed were the best practices that had developed at either firm.

“We looked at what has worked best on either side of the ledger before we combined and we adopted that as an approach for our firm going forward,” Getz said.

It also committed to a longstanding talent-development program that originated at Gardner Carton. Keeping that focus helped the firm win recognition as an innovator during the recession when it created an enhanced training program for its first-year associates, while other large firms turned theirs away.

The firm maintained a practice from Drinker Biddle of recognizing staff and lawyer anniversaries at the firm — recently, Thomas Campion celebrated his 50th year of practice there — that lawyers said rewards loyalty.

And in terms of compensation, the firm transparently lists partner pay. Those figures are decided by the “allocations committee,” which considers billable hours and a broader category of “investment time” — including pro bono hours, management efforts and time spent marketing for the firm.

It takes “origination credits” into account. And the firm rewards relationship partners with credits for being a “responsible partner,” said Doug Swill, a managing partner of the firm and chair of the health-care industry group.

Providing a partner credit for responding to a client that partner did not originate is one way to stress client service, Swill said. That’s important, because being committed to client service is one way the firm said it differentiates itself.

“If people are providing great service, and you have a partner that is really rising to the occasion and being the quarterback, they’re going to get recognized for that,” Swill said. “It’s very positive reinforcement for providing great service.”

Partners trusting partners with their clients turns out to be a crucial aspect in the success of a merger. Consultants said success or failure often hinges on whether partners are able — or willing — to cross-sell (i.e., a corporate partner convincing a client to hire his intellectual property partner) their clients to others at the firm.

“Cross-selling generates more revenues, and that’s where the benefits (of a merger) will come from,” Altman Weil’s Bower said. “That is the challenge, to be able to cross-sell. It’s not automatic that just because you have the capability that clients are going to use you.”

Getting new business from old clients

Little more than a month into practicing together, 95 percent of Drinker Biddle’s partners met at the firm’s Chicago office. It was the first face-to-face meeting for a group of lawyers who were now hoping to expand their practices by working together and sharing clients.

Swill, a legacy Gardner Carton partner who headed its lauded health-care industry group, was asked to tell his new colleagues about what his practice does and who it represents.

Ruiz, Swill, Murphy, Getz“I think they were not aware that we do (mergers and acquisitions) work in our group, that we do regulatory work and that we can also bring in litigation. So giving them examples and case studies was probably eye-opening,” Swill said.

For Swill and for Drinker Biddle, that kicked off one of the best examples of integrating a longstanding Gardner Carton practice into the new firm.

Because the Gardner Carton health-care group was so well-known, Swill said it continued to brand itself as “the former Gardner Carton health-care group” for about three or four years into the merger.

The name changed after the firm hired a business development manager to embark on a larger marketing strategy that would brand the practice as the Drinker Biddle Health Care industry group. But all the while, it was building up its presence within the firm — among lawyers who started out at Drinker Biddle or Gardner Carton.

The health-care practice now includes more than 60 lawyers who devote nearly all of their time to 700 health-care industry clients in 45 states. In total, Swill said, about 100 lawyers are connected to the practice.

“At least once a week, sometimes more, I get calls from legacy Drinker as well as legacy Gardner people who are not in the health-care group, because they’ve been approached or they know somebody who has something to talk about in the health-care space,” Swill said. “And that’s happening more often than ever now.”

Swill credits that in part to the wide variety of legal work that businesses in the health-care industry need. It is a heavily regulated industry that requires counsel from almost every practice group, he said.

So in some ways, it was an easy practice to market to legacy Drinker Biddle lawyers or clients.

Not every opportunity comes as naturally.

Jesse Ruiz, a corporate and securities partner at Drinker Biddle who is also the firm’s marketing partner, had only been a Gardner Carton partner for a short time when the firms merged in 2007. He had just begun locally representing a national retailer and he recounted a conversation with that client’s general counsel.

“He (said), ‘Well, there’s going to be pressure for you to grow what you do for us all over the entire country. I can’t make you any guarantees. We’ll be open to it, but I can’t bank on it,’” Ruiz said. “Seven years later, that has come to be. And I’m thrilled. And I think we’ve earned it. And I’m glad we did.”

But in a competitive marketplace, there is no guarantee that a client will give a newly national firm all — or even some — of its national work.

To compete, Ruiz said Drinker Biddle’s sales pitch focuses on providing first-class client service and relative value compared to some firms larger than its 650-lawyer head count.

“We think we can be competitive and be top of mind for (clients) by re-emphasizing service,” Ruiz said. “And the value — make sure they acknowledge it, understand it and appreciate it.”

New ways to grow

Drinker Biddle also wants to be top of mind for lawyers at other firms — especially in the Chicago market.

Like many firms toiling in a legal services market that shows little signs of growth, it has been active in the lateral partner market and says it wants to continue that.

From February to July 2013, the firm recruited four new partners. Those included former Dentons partner and commercial litigator Leslie Davis, former Assistant U.S. Attorney Daniel Collins, former Morgan Lewis partner Ted Becker and Frances LaFleur, former senior legal counsel for Schneider Electric.

Darren Cahr, a 20-year lawyer at the firm and a partner in its intellectual property practice, plays a large role in lateral recruiting. His pitch centers around the firm’s focus on cross-selling.

“Look at me personally, I’ve worked with, over the past year, 11 of our 12 offices,” Cahr said. “That’s the kind of story that people like to hear. … That’s the kind of anecdote that’s very powerful in making people understand that this place — while superficially very similar, because all law firms look superficially very similar — is different.”

If anybody can tell if Cahr is correct, it is Becker.

Becker, who joined the firm in April, spent 15 months crafting — then methodically trimming — a list of 40 potential law firms where he might want to move his ERISA litigation practice, which he had developed for more than 20 years at his own firm, then at Jenkens & Gilchrist and Morgan Lewis.

He formed the list by documenting 40 firms that had a Chicago office and what he believed to be a national ERISA litigation practice, which centers on pension plans and other retirement benefits.

He began trimming the list by investigating the depth of those practices, which he used as a measure for their future success in attracting major cases.

“Some firms have made, I won’t say fatal, but a serious mistake,” Becker said. “They haven’t brought the next generation of lawyers along, particularly in ERISA litigation practices. What you see are the deans of ERISA litigation across the country. Then you see huge gaps in the practice.”

Firms where such gaps existed were knocked off the list. The initial 40 dwindled to about 15.

He had multiple interviews at those 15 firms. He wanted to determine who was “dedicated” to practicing in Chicago and the Midwest, which is where he said the “ERISA litigation industry” largely resides due to the number of financial service firms it headquarters.

“You really need a full-service office in Chicago,” he said.

Despite Drinker Biddle now being considered a national firm based in Philadelphia, he said he found its Chicago office still featured the full-service capabilities he wanted.

“When I went to law school and had my own practice, I always looked up to Gardner Carton,” he said. “And Drinker Biddle was the same type of firm. They both have long histories. And so to me, it made sense because it was a combination, more or less, of equals. It wasn’t just a firm from Philadelphia coming in and saying, ‘Now we have a Chicago office.’”

But that was far from the end of Becker’s analysis.

To craft a practice he envisioned drawing the biggest ERISA class-action cases, Becker also needed a firm that had a wide range of developed practice groups. Specifically, he needed practices in employee benefits, executive compensation and health care, as well as one representing insurance companies at a corporate level and another representing brokers, dealers and banks.

That quickly narrowed his down even further, leaving just a few firms. But he had one more requirement.

“The practices have to work together,” he said. “What I found here was they actually work together. And not only here. I’m surprised they didn’t get tired of me and just say, ‘Well why don’t you go somewhere else?’ Because I kept asking Drinker Biddle to bring me more partners to meet in a variety of different practice areas. And they didn’t hide anybody.”

He interviewed with more than 40 partners in offices in San Francisco, Los Angeles, Philadelphia, Chicago and New York. He met another 30 associates. Finally, he felt comfortable making his move. He said in the five months since he joined, he has had access to — and has been able to cross-sell with — the heads of all those major practices.

“They’ve delivered on everything they promised and much more, in terms of cross-introductions to clients and practices, co-marketing (and) working together,” said Becker, the firm’s new head of ERISA litigation.

“I just feel that they understand that if you have a lawyer who wants to reach out and connect with the rest of the firm, the firm has to make those opportunities available and very quickly so the new lawyer coming in doesn’t feel isolated.”

Sounds like the same approach to a successful merger.