Kalis bullish as Kirkpatrick expansion plan falls into place

Last Thursday (14 December) the latest piece of Peter Kalis’s world domination jigsaw slotted into place.

The chairman and managing partner of Kirkpatrick & Lockhart Nicholson Graham sealed his merger with 420-lawyer US firm Preston Gates & Ellis. The deal takes effect on 1 January 2007, creating the 1,400-lawyer Kirkpatrick & Lockhart Preston Gates Ellis, or K&L Gates.

The extent of Kalis’s ambition is only now beginning to be revealed. Two years ago in The Lawyer Global 100 Kirkpatrick lay in 73rd place in the global rankings with a turnover of £196.1m. Next year it is anticipating revenue of around $750m (£383m), a figure that will rocket it up the table and into the top 25.

What makes the Preston Gates deal even more interesting is its timing. It coincided perfectly with the revelation that Kirkpatrick was aiming for a New Year launch in Berlin after scooping a 20-lawyer team from Taylor Wessing.

The latter was not a stage-managed event. It was revealed by The Lawyer on Wednesday last week (12 December). But the combined effect of the two virtually simultaneous deals served to reinforce the impression of a hugely ambitious firm that is only starting to get out of first gear.

Speaking last Thursday (13 December), only hours after his partners had voted in favour of the Preston Gates deal, a “thrilled” Kalis said the deal “puts in place the template of a law firm of the future, a law firm operating on three continents and in many of the markets that matter”.

He added: “The deal gives us significant momentum and direction for the future.”

Clearly, Kalis is not about to rest on his laurels.

The immediate focus will be to integrate the two firms – not to mention the German hires, whenever they arrive. “The process of integration is critical,” says Kalis. “We want to run parallel tracks of integration and growth.” In other words, he is not intending a little thing such as gelling 21 offices across the US, Europe and Asia getting in the way of increasing revenues and geographical coverage. In fact, the likelihood is that there will be additional flags on the map sooner rather than later.

“In Europe you have to be in each of the three major economies,” says Kalis. “We’ll also be likely to start looking further east.” So do not rule out seeing Kirkpatrick in Moscow before or after its opening in Paris. And that is not to mention Shanghai, for which Kirkpatrick already has its licence application in place.

So, all is good? It looks that way for a firm that undeniably has a dominant figurehead and one who appears to know exactly where he wants to take his firm. But as with any deal of this scale, there are some significant issues to deal with. Not least the relatively low profitability of Preston Gates.

Last year the Seattle-based firm posted an average profit per equity partner (PEP) of £185,000, considerably lower than Kirkpatrick’s £414,000. Surely the acquisition, assuming the majority of the Preston Gates partners enter the equity, will have a significantly detrimental affect on PEP?”There will be no dilutive effect of them joining,” says Kalis. “With respect, this is one area where we believe journalists often get it wrong. The real issue is not dilutive, it’s reportable average profits.

“What we report as an average doesn’t affect what an individual partner in London, Boston or New York is actually going to get paid.”

In other words, it is a merit-based system; so the fact that a load of partners who are generating and earning far lower sums than you suddenly become your fellow partners does not mean your pocket will suddenly be that bit emptier.

How this will work in practice is unclear. Kalis admits that the percentage of full equity partners at Preston Gates is “much higher” than at Kirkpatrick, which would suggest the combined firm’s PEP will drop significantly (assuming these partners join the equity of course).

When pressed, Kalis admits that there will “possibly” be a reduction in next year’s reportable PEP. “Although the synergies of putting the firms together will override that,” he maintains.

The actual size of the profit will not be known for another year. By that time the actual size of the firm – branded as ‘K&L Gates’ – may be considerably larger too.