Sizing Up an Orrick-Pillsbury Combo
SAN FRANCISCO — The proposed merger of Orrick, Herrington & Sutcliffe and Pillsbury Winthrop Shaw Pittman would instantly make the firm the biggest in the Bay Area, with nearly 500 lawyers split between the San Francisco and Silicon Valley offices.
But that’s almost beside the point.
On each side, the strategic thinking seems more about strengthening practices and offices outside the Bay Area.
Both firms have long been cruising the merger market, with Orrick famously getting close a few times in recent years only to end up empty-handed. Pillsbury has done a series of combinations, yet today is the same size it was in 2001.
Because the two S.F.–rooted firms have looked so far and wide for potential partners, there would be some irony should they wind up together. Partners at both firms are just learning about the deal, but are “more excited about this merger than any of the others,” said Sandy Lechtik, president and founder of Esquire Inc., a legal search firm in touch with lawyers at both firms. “It seems that the two firms will play to each other’s strengths and put wind in each other’s sails.”
The firms and their respective chairs aren’t speaking publicly about the merger talks or whether there has been a decision about who would lead the firm: Mitchell Zuklie, the young Valley-based Orrick chairman who took over in March, or James Rishwain Jr., the Los Angeles real estate partner who has helmed Pillsbury since 2006.
The consensus among industry strategists seems to be that large firms with shabby or indistinct brands need to get bigger to thrive. When he took over, Zuklie told The Recorder that he wanted the firm to be known for its practices rather than its management—a nod at the legacy left by the 20-year reign of Orrick’s Ralph Baxter, who built Orrick’s global network of offices but left the firm without the clear “this is what they do” identity enjoyed by a firm like Cooley, in the Valley, or Cravath, on Wall Street, or even rivals like Morrison & Foerster, with its tech emphasis.
“If you’re not going to have that uniqueness, there is a tremendous push for size,” said David Berger, a partner at Wilson Sonsini Goodrich & Rosati and chair of the firm’s policy committee.
Though smaller clients often say they don’t really want firms to get bigger, having a lot of bodies and offices around the world is seen as the key to landing work for global corporate giants. Put the two firms together, and they’d have several leading practices catering to that clientele, starting with Pillsbury’s crown-jewel energy practice, which would gain from Orrick’s strength in Africa and renewables. Orrick sees synergies from Pillsbury’s regulatory depth in D.C., courtesy of its 2005 merger with Shaw Pittman, and in the financial services sector, where the firms see cross-selling opportunities.
Orrick also likes Pillsbury’s corporate practice, which includes the Valley’s Jorge Del Calvo, and is a quiet IPO powerhouse: In 2012 it took five U.S. companies public, the same number as Cooley, ranking it fifth for IPOs.
But Pillsbury’s overall brand is a little beat-up. Widely viewed as the city’s preeminent firm a generation ago, it’s since given up ground—to Orrick, to Morrison & Foerster, to the tech-focused Valley firms. A former Orrick partner said his old firm “has more brand recognition and respect in the marketplace.”
The combined firm would be a major player in every California market—together the firms employ more than 720 lawyers in the state. Pillsbury has two offices in San Diego, Orrick has an Orange County office, and they each have offices in L.A., Sacramento and, of course, Silicon Valley and San Francisco.
Legal consultant Peter Zeughauser says cross-town deals can be hard to pull off because there are “much greater rivalries and the partners know each other really well.” Many of the partners could have gone to one firm or the other and already made their decision, he said.
Globally, the two firms would have about 1,600 lawyers, and 2012 revenue would put them in ninth place on the Am Law 100 revenue list, between Sidley and White & Case.
One former Pillsbury partner said he thought the merger would help it “compete with firms that have thousands of people across the world and to attract the blue-chip clients.”
Financially, the two seem fairly well matched. Pillsbury’s revenue per lawyer was $920,000 last year, better than Orrick’s $885,000. But Orrick has restructured its partnership in recent years, and today counts just 12 percent of its lawyers as equity partners, compared to 26 percent over at Pillsbury. That allows Orrick to calculate profits per partner of $1.63 million, well above Pillsbury’s $1.1 million.
That math could make existing Pillsbury partners worry that one order of business for the combined firm would be improving Pillsbury’s leverage by de-equitizing partners or taking other steps to improve profits. They’ll be watching carefully as details of the deal are rolled out.
Gerald George, a partner at Davis Wright Tremaine and former of counsel at Pillsbury, said partners there are probably feeling anxious. “If they aren’t checking out their other opportunities, they’re idiots,” he said. “You just have to protect yourself, so you have a place to jump if you need to jump.”
Legal recruiter Larry Watanabe said he’s been fielding calls from partners at both firms with “concerns about the unknown.”
The deal already has detractors. “It’s very much an acquisition” of a firm “sliding into obsolescence,” said one expert on the legal marketplace who is familiar with both firms but not authorized to speak about the merger. Tying up with Pillsbury does nothing for Orrick, this person said: “It brings them more deadweight in more deadweight markets,” and creates conflicts in places like S.F. and shifts weight to the West Coast, “rather to where it should be centering, which is New York, London and Hong Kong.” The combined firm, this person said, will need to shed less productive partners and practices in Sacramento, Orange County and San Diego.
But interest in the deal, for both firms, is clearly driven by other points on the map. A source close to the deal says Orrick is interested in Pillsbury’s energy practice, with clients like Chevron, NextEra, Duke Energy, General Atomics, Emerson Energy, Mitsubishi, Dynergy, Tesoro and Brookfield. Pillsbury has a strong natural gas practice in Houston, a team in Abu Dhabi and an energy debt capital markets practice in New York. Pillsbury also has a strong nuclear energy practice.
On Pillsbury’s side, a source close to the deal said the firm sees a chance to gain in energy with Orrick’s presence in Northern Africa, and also sees a complementary strength in Orrick’s renewable energy practice.
In financial services, the two firms see an opportunity to strengthen relations with existing clients like Wells Fargo, BNP Paribas/Bank of the West, BNY Mellon, Morgan Stanley, Deutsche Bank, BofA, JPMC, Goldman and Citbank.
Also a draw for Orrick’s securities litigation and regulatory practice is Pillsbury’s strength in D.C.
In intellectual property, Orrick likes Pillsbury’s Northern Virginia office, its life science clients in San Diego and a client list that includes Intel, Apple, Toshiba, eBay, Kabam, Medtronic, Xerox, Astra Zeneca and Merck.
Pillsbury likes Orrick’s strength in bet-the-company litigation, pointing to a string of IP litigation wins and its top-shelf appellate practice.
Finally, both firms like the other’s positions in emerging companies and venture capital representation.
Partners at the Valley’s tech-focused firms don’t think the combination will impress a lot of local tech clients.
Jake Handy, a partner in Fenwick’s San Diego office, said the reason the Valley firms get the work they do “is because of the attorneys and relationships. I don’t think a merger is really going to affect that. The platform helps, for sure.” But clients are hiring individual lawyers for their expertise, he says, “except for those big-ticket things [where] you need a lot of bodies.”
A partner at another firm agreed. “They both had the opportunity to be big tech players—they’ve been here during the boom and the busts, they’re both historical firms here—and they missed it.”
But, from Orrick and Pillsbury’s perspective, the possible deal doesn’t seem to be about winning more local clients, as much as it is about bulking up and defining flagship practice areas.
There, said legal consultant Zeughauser, “size is a significant factor in brand recognition—and even brand quality.”
Pierrepont, Natalie. “Sizing Up an Orrick-Pillsbury Combo.” The Recorder. American Lawyer, 1 Nov. 2013. Web. 04 Nov. 2013.