Legal Business Blogs

Reed Smith enters merger discussions with Pepper Hamilton

As a sluggish US legal market drives consolidation, Reed Smith is lining up a merger with smaller American firm Pepper Hamilton.

The two firms confirmed the merger talks on Monday (11 April) night, with 1,600-lawyer Reed Smith saying that ‘based on these preliminary discussions, we see many potential benefits to joining forces’.

The firm added: ‘There remains a significant amount of work to do with Pepper Hamilton to assess those benefits and before any transaction would be ready to bring to the Reed Smith partnership.’

Pepper Hamilton has 13 US offices but no overseas network, while Reed Smith has 14 US offices and 12 overseas. While there is some cross-over between the two firms’ American practices, a potential merger between the two firms would add offices in Boston, Silicon Valley, Harrisburg and Berwyn, Illinois.

At just under a third of the size of Reed Smith, Pepper Hamilton’s 490 lawyers grew revenue by just 1% in 2015 to $388.5m. Nonetheless, that figure marked a record high for the Philadelphia-based firm, and profits per equity partner crossed the $1m boundary for the first time as PEP grew 9% to $1.03m.

The rising PEP at Pepper Hamilton last year coincided with a fall at Reed Smith, bringing the two firms’ profitability into closer alignment. With revenue falling 3% to $1.15bn in 2015, the knock-on effect was an 8% dip in PEP to $1.1m.

Should the merger talks be successful, the combined firm would be home to 2,100 lawyers and be set to generate revenue of around $1.5bn. This would make Reed Smith one of the 20 largest firms in the world.

Reed Smith made redundancies at the start of this year, with the firm axing 45 lawyers across its US, Europe and Middle Eastern offices in a move it said were ‘necessary adjustments to remain competitive’.