After a Merger Fails, Patton Boggs Still Seeks Partners

For over a half-century, the Washington law firm Patton Boggs has been a significant player in the nation’s legal, lobbying and business worlds.

The firm has represented corporations like the Mars candy company and Exxon Mobil, as well as an alphabet of foreign governments. Its chairman, Thomas Hale Boggs Jr., helped design and win approval for the bailout of Chrysler in 1979. A partner, Benjamin L. Ginsberg, was George W. Bush’s chief legal strategist during the 2000 Florida vote recount. One of its lawyers, Jack Evans, is a member of the District of Columbia Council and is running for mayor.

Yet even this august firm is not immune to the broader forces sweeping the legal field, where law firms long accustomed to operating like exclusive clubs are finding that they have to be nimble business strategists as well. Last year, Patton Boggs joined the swell of firms looking to merge.

Despite its $317.5 million in revenue for 2012, the firm slipped 12 places to 95th in the country, according to annual firm rankings from The American Lawyer, a legal publication.

Like other firms, Patton Boggs has felt the pinch of static or even declining legal fees. Cost-conscious corporate clients are handling routine legal work in house or sending it offshore, which is eating away at once-assured law firm profits. Patton Boggs’ revenue fell 6.5 percent from 2011 to 2012, according to The American Lawyer, and its per-partner profits dropped 15 percent, to $735,000, in that period.

One bright spot has been its advocacy work. The firm earned more from its lobbying than its K Street rivals, according to July 2013 data from the Justice Department. Lobbying, however, represents only 12.5 percent of its income, according to the firm’s managing partner, Edward J. Newberry.

Patton Boggs is far from alone in seeking a rapid way to bolster its revenue and expand its practice areas through a merger. In 2013, there were 87 such combinations, of varying sizes, according to the consulting firm Altman Weil, up from 60 the year before and more the double the 39 in 2010. “Firms merge to expand their geographic reach and add new business areas to their client offerings,” said Dan DiPietro, chairman of the law firm group at Citi Private Bank.

Peter Zeughauser, a consultant to Patton Boggs and other major law firms, said mergers made sense because the legal field was “highly fragmented.”

“Even among the highest-grossing firms,” Mr. Zeughauser said, “no one has more than a 2 percent market share.”

But mergers are complex and delicate, as Patton Boggs found when months of negotiations with Locke Lord, a Texas firm, foundered when conflicts over representing clients could not be resolved. That followed the failure in recent weeks of two other expected mergers of major firms for similar reasons. The largest, involving Orrick, Herrington & Sutcliffe and Pillsbury Winthrop Shaw Pittman, would have created one of the nation’s 10 biggest firms, with a whopping 1,700 lawyers.

Patton Boggs, founded in 1962, initially specialized in international and trade law. But through the years, it became a major force in national and international legal circles. It is particularly well connected in Washington, where it recruited Trent Lott, the former Republican senator from Mississippi who had served as majority leader, and John Breaux, the former Democratic senator from Louisiana. As the firm notes on its website, “We’ve been able to draw upon the deep experience of many senior policy makers.”

The firm is led by the name partner Mr. Boggs, the 72-year-old son of Representative Lindy Boggs, a Louisiana Democrat. Mrs. Boggs, who died last year, was elected to succeed her husband, the House majority leader Hale Boggs, after his death in a plane crash in 1972, and went on to serve nine terms.

The younger Mr. Boggs, who joined the fledgling firm 47 years ago, mingles easily with Washington’s top echelons. The National Portrait Gallery has a permanent exhibit, “The Network,” that features the views of a select number of Beltway power brokers, including Mr. Boggs. With his courtly manner, Louisiana drawl and wafting cigar smoke, Mr. Boggs personifies the firm’s decades of storied legal and lobbying victories.

“Lawyers â€" sometimes people don’t think we’re businesspeople,” Mr. Boggs wryly observed a year ago while accepting a local business leadership award. “Until they get the bills.”

Mr. Boggs, through his spokesman, declined to comment.

The firm downsized twice in 2013, laying off lawyers and support staff members, including food servers who had worked there more than 20 years. It is now down to 430 lawyers in the United States and the Middle East, from a high of 511 in 2010. Unusually for an upper-crust law firm, Patton Boggs has filed some legal actions against clients to recover $2 million in unpaid fees.

“The industry is undergoing a fundamental shift,” Mr. Newberry said of the estimated $20 million in cost-cutting. “When demand is declining, it is difficult to raise rates, so profitability takes a hit.”

Mr. DiPietro, of Citi Private Bank, said law firm revenue nationally had “been almost flat in the last four years.”

Like other firms, even as it was trimming back its own lawyers, Patton Boggs has hired lawyers from other firms who come with profit-generating clients.

To recover revenues, many firms are also getting in line to merge, despite the spectacular collapse in 2012 of the top-tier New York law firm Dewey & LeBoeuf, which underlined the hard business choices for law firms. Hundreds of legal jobs were lost in Dewey’s failure, and a web of litigation followed.

“Firms which want to merge may have to choose whether to jettison a practice area or a large group of lawyers as a result of combining,” Mr. DiPietro said.

Even casting about for a merger partner can open up a firm to speculation in the current ravenously competitive landscape, in which lawyers with established clients keep (or at least think of keeping) client files boxed and stashed behind office doors, ready for a move for another firm’s better offer. That is why most firms conduct searches and negotiations very quietly. Patton Boggs, for example, says it is considering a merger with a New York law firm to expand its corporate work, but steadfastly refuses to name the firm.

Some experts who keep tabs on merger activity questioned whether potential suitors were concerned about the firm’s pay policies, which have highly rewarded those who originate business, or even by its lobbying and legal mix. Also hovering over the firm is the effect on its reputation of a lawsuit filed in 2012, claiming harassment during what was described as alcohol-laced fraternizing at its offices. The lawsuit, for $12 million in damages, was settled and details are not public.

But a possibly more financially consequential development is a threat of fraud action against the firm by the Chevron Corporation. The oil company wants to sue Patton Boggs for its role in a multibillion-dollar judgment for drilling damage to Amazon rain forests that was won by Ecuador, a client.

Whether or not it finds a merger partner, Patton Boggs is having to rethink one of the fundamental tenets of law firms â€" the partnership, in which partners divide up profits at the end of the year and, equally, assume any liabilities. Mr. Newberry said Patton Boggs was shifting its management structure away from the traditional partnership model, in which earnings depend largely on business brought through the door and hours of billable work.

Under the new model, the firm is moving more toward compensation based on a broader array of factors, including firm-wide benefits from donating free legal counsel to various causes or impoverished clients.

“Many, many mergers do not work out,” Mr. Newberry conceded. “Our brand is an extra-powerful tool in this environment, but we have to be well configured in size, expenses and service offerings to be able to take advantage of that.”