Troutman Pepper offices. Courtesy photoThe long-awaited merger between Atlanta’s Troutman Sanders and Philadelphia’s Pepper Hamilton finally went live Wednesday, after a delayed start date and pay cuts in response to the coronavirus pandemic.
The merger creates a 1,100-lawyer firm, Troutman Pepper Hamilton Sanders—one of the 50 highest-grossing firms in the country based on their 2019 revenues. The legacy firms’ combined revenue last year was $900 million.
While initially set to merge April 1, Troutman and Pepper pushed back the effective date to July 1 because of the pandemic. Indeed, the pandemic-induced shutdown has been the greatest immediate challenge for the Troutman Pepper merger, said the firm’s vice chair, Thomas Gallagher, as the legacy firms focus on successfully integrating their partnerships and clients.
“We had a great yearning to get face-to-face and get to know people better—but we couldn’t do that with our clients or each other,” said Gallagher, Pepper’s former chairman, in an interview.
Both legacy firms have restricted travel since the pandemic’s onset, said Troutman Pepper’s CEO and chair, Stephen Lewis, who was formerly Troutman’s managing partner, with only “absolutely necessary client travel during the shutdown.”
Despite the frustration for Troutman Pepper’s 500 partners over the inability to meet in person, Gallagher said delaying the merger date allowed more time for integration via Zoom and phone calls.
“The great unknown,” Gallagher said, at the time of the initial April 1 effective date was how integration would go. “It’s been terrific—for instance, people [from the legacy firms] have been training each other on their systems.”
“There is a lot of excitement across the combined firm about making this effective now,” Lewis said.
For now, the new firm’s lawyers and staff will celebrate via video at a firmwide event Wednesday afternoon. Troutman Pepper has scheduled its first partner meeting for July 16, also via video. Lewis said the firm hopes to host an in-person partner meeting in the new year, but “it depends on COVID-19 and when the world opens back up.”
Both legacy firms made pay cuts in May to prepare for the pandemic’s economic effects. “Each firm went into this with a fairly conservative approach, not knowing what the rest of the year looks like,” Lewis said.
He added that it was similarly too soon to say when the pay cuts would be restored. “I’d love to do it sooner rather than later,” he said.
Asked about the pandemic’s effects on Troutman Pepper’s anticipated 2020 revenue, Lewis said it was too early to say. “We feel good about where we are for the year,” he said. “What happens [financially] depends on where the economy goes. We are doing our best to navigate that.”
Transformative Scale
Troutman Pepper’s geographic footprint is almost double that of the legacy firms, creating a more national firm with a footprint in eight of the 10 largest U.S. legal markets: Atlanta, Philadelphia, New York, Washington, D.C., Southern California and Silicon Valley—plus Chicago from Troutman and Boston from Pepper.
Several legal market observers have concluded that the merger makes sense because of the firms’ complementary footprints, practices and compatible finances.
Troutman’s 650 lawyers were in 12 offices concentrated in the Southeast and Pepper’s 450 lawyers were in 14 predominantly Northeastern offices. Their only office overlap is in New York, Washington, D.C., and Orange County, California. Troutman Pepper has 26 U.S. offices.
“Having more complete geographic coverage, I think, is going to be compelling for clients,” Lewis said.
Troutman Pepper’s expanded West Coast footprint had been a priority for each legacy firm, Lewis added. “We hope to use that to continue our growth—and the same with New York and Washington. Those are important markets for U.S. firms and having additional scale there really does help.”
Gallagher said another major impetus for the merger was to strengthen existing practices and add new ones. “That gives us opportunities to serve clients better in some of these markets as a national firm,” he said.
The combination deepens Troutman Pepper’s bench strength in core practices for both firms, such as corporate, litigation, intellectual property, tax and bankruptcy, while adding Pepper’s marquee practices in private equity, health care and life sciences to Troutman’s strong energy, banking, finance and insurance practices.
Lewis said the merger would not affect existing billing rates from the legacy firms. “One of the great things about the combination is that our rate structures were fairly similar,” he explained.
Troutman Pepper’s top leaders come from both legacy firms. In addition to Lewis and Gallagher, Tom Cole from Pepper is Troutman Pepper’s managing partner and Andrea Farley from Troutman is heading the combined compensation committee.
L-R: Andrea Farley, Thomas J. Cole, J, Stephen Lewis and Thomas Gallagher. Courtesy photo.Former Troutman partner John West is heading the new firm’s litigation department. The transactional department is headed by Mason Bayler and regulatory and finance is led by Amie Colby, both from Troutman.
Former Pepper partner Bill Belanger is leading the specialized litigation department while Pepper’s Rachael Bushey is heading the health sciences group.
While Troutman is the larger of the two legacy firms, their financials are compatible. Both firms reported solid growth last year, with a 5.4% revenue increase for Troutman to $549.6 million and a 4.5% jump for Pepper to $349.4 million. Troutman ranked at No. 70 in the Am Law 100, while Pepper stood at No. 106 in the Second Hundred.
Revenue per lawyer last year was quite close for both: $828,000 for Troutman and $818,000 for Pepper. Profit per equity partner was a bit further apart: $1,164,000 for Troutman and $943,000 for Pepper.
Market Response
While trying to integrate two large firms during a pandemic creates challenges, Gallagher said feedback from clients and the legal community at large has been one fun aspect. “It’s been really rewarding to get these positive communications from all corners, including clients,” he said.
Lawyers at other firms—in Philadelphia and elsewhere—have gotten in touch to say they’ve worked on deals with Troutman lawyers that went well, Gallagher said, “and rattled off names of [Troutman] people I should meet.”
Lewis added that he and Gallagher have also heard from lawyers in Europe and Asia who wanted to share positive experiences about the legacy firms. “It’s exciting and affirming that others familiar with both firms see what we see—and see the benefit.”
Asked to name Troutman Pepper’s most distinguishing feature, beyond its expanded size and footprint, Lewis said that it was a shared client-centric focus from the legacy firms.
Gallagher said that when the firms’ partners started talking last year it was about their approach to client service, instead of “ourselves or each other.”
“We’re committed to taking care of our clients—and this [merger] looks like the right way to enhance our ability to do that,” he said.
Pepper has not undertaken any major mergers over its 130-year history, but Troutman has completed several other significant combinations, starting with its 2001 merger with Mays & Valentine, a 150-lawyer Virginia firm, that was the largest-ever at the time for an Atlanta-based firm.
Troutman subsequently entered the New York market in 2005 by acquiring the 90-lawyer New York office of now-defunct Jenkens & Gilchrist, and then in 2009 combined with 100-lawyer D.C. boutique Ross, Dixon & Bell, gaining footholds in Chicago and Southern California.
Asked if the merger with Pepper is the most transformative, Lewis said that distinction might go to the Mays & Valentine combination, since it was the first big merger for the legacy Troutman firm. Troutman at the time had about 300 lawyers and only one U.S. office outside Atlanta, in Washington.
“But none have been on this size and scale—and with a firm like Pepper Hamilton,” Lewis said.
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