Business lawyers expect to build on record year
Deals in oil patch helped to drive a 7 percent revenue jump in 2014
Business lawyers in Houston and throughout Texas worked more hours, generated more revenue and took home more profits in 2014 than any year in history.
Fueled by a record year of mergers and acquisitions in the oil patch, Texas-based lawyers for 28 prominent corporate law firms generated $4 billion in revenues last year — a 7 percent increase over 2013, according to a survey conducted by The Texas Lawbook.
Business lawyers who practice in Texas saw their work demand increase nearly 4 percent in 2014, even as lawyers in most other parts of the U.S. experienced stagnant or no growth, the survey found. Law firm leaders also overwhelmingly believe revenues and profits in 2015 will match or exceed last year’s numbers.
“2014 was a record year — even better than 2013, which was also a record year,” said Mark Kelly, chairman at Vinson & Elkins in Houston.
Despite record revenues, the Texas legal marketplace is in turmoil. As many as a dozen large law firms in Houston and Dallas may be forced to shrink, merge or dissolve because they are no longer getting their share of work. Legal industry analysts say a handful of elite law firms — many new to Texas — are reaping financial benefits after poaching partners, clients and hundreds of millions of dollars in revenue from some traditional full-service firms.
At the same time, scores of litigation boutiques are stealing business that once went to big Houston legal shops.
“We are witnessing an uber-segmentation of the Texas legal marketplace,” said Jeff Grossman, senior director of Wells Fargo Bank’s Wealth Management Legal Specialty Group. “The strongest and most profitable law firms are significantly outpacing the rest of the law firms.
“Upper middle market firms in Texas are getting squeezed,” he said, adding that revenues at the elite law firms are up 12 percent, while revenues at the second-tier
firms are flat or fell.
“The Texas legal market has matured into a market that previously existed in other global cities,” said Baker Botts Managing Partner Andrew Baker in Houston.
The Texas Lawbook survey found that 10 of the 28 top revenue-producing legal shops in Texas are based outside of the state, up from four such firms in 2009.
A handful of law firms, including Susman Godfrey in Houston, declined to provide financial data.
Elite national law firms offered significant pay increases to those partners at large Texas firms with significant books of business in high-dollar practice areas, such as corporate M&A, oil and gas transactions, capital markets, tax law and complex commercial litigation.
The fight for the best lawyers has gotten fierce, especially in Houston. “The law firms that pay the most get the best talent,” said Kent Zimmerman, a legal consultant who monitors the Texas legal market. “The best talent gets the best clients. The best clients pay the highest rates, which leads to greater revenues and profits.”
Nowhere is the success of the national elite firms more evident than in mergers and acquisitions. Half of the top 20 law firms representing Texas-based companies involved in M&A were firms based outside of Texas.
“Texas has a lot of midmarket law firms that once got a lot of big deals that just do not see that work anymore,” said Michael Dillard, managing partner of Latham’s Houston office. “Companies look for expertise. It is hard for mid-market law firms to compete for the talent that has the expertise.”
Dillard said there are still growth opportunities for elite national law firms in Houston, which is unsettling news for the upper middle market Texasbased firms.
“We worry constantly if we are positioned well enough to keep our partners from going to more lucrative law firms or well enough for our lawyers to keep or grow their clients,” said Tim Powers, the managing partner at Haynes and Boone, which has about 100 lawyers in Houston.
Haynes and Boone had Oakland A’s General Manager Billy Beane, the baseball guru who was the focus of the book “Moneyball: The Art of Winning an Unfair Game,” speak to its partners last October at the Gaylord Texan Hotel.
“Billy Beane talked to us about competing at the highest levels, despite not having the biggest payroll,” Powers said. “He said we have to look at things differently and figure out how to compete and succeed based on the resources that we have.”
“Firms must realize their strengths and identify the opportunities that are there for them,” he said.
The two largest Houston-based law firms, Baker Botts and V&E, seem to have done just that. Both firms lost more than threedozen lawyers during the past few years to national elite firms, but each has seen its revenue per lawyer and profits per partner steadily increase.
V&E, for example, shed less profitable practice groups, including health care, government lobbying, public finance and products liability litigation, and focused heavily on more profitable energy M&A and capital markets. The Texas Lawbook’s Corporate Deal Tracker shows that V&E continues to dominate M&A activity involving oil and gas companies. In 2014, V&E advised companies involved in 81 mergers, acquisitions and joint ventures. Latham was second with 53 deals.
Baker Botts was lead counsel in four of the five largest transactions of 2014, including Kinder Morgan’s restructuring and Halliburton’s deal to buy Baker Hughes.