Last fall, leaders at Thompson & Knight hired law firm consultant Brad Hildebrandt to discuss the firm’s future.
The 107-year-old Dallas-based corporate law firm faced a crisis: It was bleeding lawyers, clients and revenues. The 250-lawyer firm needed to grow to survive, but bigger out-of-state law firms and a handful of Texas legacy law firms with significantly deeper pockets were hiring away their best partners and associates.
Thompson & Knight managing partner Mark Sloan put together a small working group of top lawyers to “talk about the future of the firm” and to explore options. The team quickly realized their choices were limited, according to lawyers familiar with the discussions.
Staying independent was the preference, but it was no longer realistic. A merger partner, they agreed, was the solution.
“The Texas market has changed a lot,” Sloan told The Texas Lawbook Monday. “There are a lot of new entrants into the market. There is a need for us to grow in a quickly changing landscape.”
TK was losing the battle of lateral hires: The firm had hired eight partners from other law firms in Texas in 2018, 2019 and 2020, but the firm had lost nearly triple that many to competitors, according to Texas Lawbook research.
Those struggles were showing up in the firm’s financial numbers.
Thompson & Knight ranked 12th in revenues in Texas, according to the 2020 Texas Lawbook 50, which documents revenues of the 50 largest corporate firms operating in Texas.
The Texas Lawbook 50 shows that TK’s 231 lawyers practicing in Texas generated $178.8 million last year – a decline of 9.4% from the year before and down from $214 million in 2018.
“Some action of this sort has been lurking out there for some time,” Emily Parker, TK’s former managing partner who has practiced tax law at the firm since 1973, told The Texas Lawbook. “The firm struggled to grow and maintain its independence.”
With Hildebrandt’s help, the small group of Thompson & Knight leaders identified a handful of law firms that they thought were good matches.
“We looked at culture, practice group fits and potential opportunity, and Holland & Knight was at the top of the list,” Sloan said. “This is something we’ve been talking about for the future of the firm for years.”
Indeed, Thompson & Knight engaged in serious merger discussions with Reed Smith in 2010 and 2011, but those talks ended because a handful of powerful TK partners opposed the combination and because of client conflicts.
This time, in 2020, the situation was different. TK found itself fighting for survival.
Just before Thanksgiving last year, Hildebrandt called Holland & Knight managing partner Steven Sonberg saying he had a client in Texas interested in merging. A few days later, Sonberg and Sloan met for the first time by Zoom.
Pleasantries were exchanged. Both men shared their firms’ interest in a combination and their general visions. They agreed to meet again.
“We have been very interested in growing in Texas for a number of years, but we had not done a merger with another firm in several years,” Sonberg told The Texas Lawbook Monday.
Firm leaders exchanged basic financial information, according to lawyers with knowledge of the discussions.
Holland & Knight, a Miami-headquartered law firm with about 1,300 lawyers and about $1 billion in revenues in 2020, had opened an office in Dallas in 2013. It added an Austin office a year later and then opened an outpost in Houston in 2015.
The Texas Lawbook 50 ranked Holland & Knight as the 35th largest corporate law firm in Texas in 2020 by lawyer headcount with 92 attorneys. Those 92 Texas lawyers generated an estimated $74.8 million in revenue – a 9% increase from 2019 – which placed the firm 33rd on Texas Lawbook 50 as ranked by revenue.
H&K experienced exceptional growth in Texas. The Texas Lawbook 50 shows the Florida firm’s revenues were $34 million in 2015 and have steadily increased every year since.
To grow more, Holland & Knight recognized, would be very expensive, as the competition for partners with a book of business and associates with experience in deal-making and litigation has become extremely heated.
Even fourth- and fifth-year associates are being offered signing bonuses of $50,000 to $100,000. Seventh- and eighth-year associates are getting double or triple those amounts.
The bottom line: The two firms needed each other very much.
By merging, HolIand & Knight instantly added 200 Texas lawyers overnight in critical practice areas such as oil and gas, real estate and litigation – and without dishing out signing bonuses.
For Thompson & Knight, a merger with H&K provided its lawyers and clients a larger national platform. They also hope it stops the bleeding of losing some of its best lawyers to other law firms.
“Covid-19 was the overriding obstacle because it created issues on how we meet to make sure the two law firms fit well together,” Sonberg said. “We wanted to meet enough partners to make sure this would work.”
As a result, leaders for the two firms did not meet and start discussions in earnest until late February, when partners were being vaccinated.
“We became very comfortable early on that Mark and the people we met were in sync with our values,” Sonberg said.
On the TK side, Sloan said there was “not so much” opposition in merging with Holland & Knight as there had been a decade earlier with Reed Smith.
“Everybody here thought that Holland & Knight was just a larger version of Thompson & Knight,” he said.
Partners at the two firms overwhelming voted to approve the merger, which was finalized Sunday. A little after midnight this morning, the Thompson & Knight website, tklaw.com, officially announced the combination and then shifted readers to the Holland & Knight homepage.
Combined, a merged Thompson & Knight and Holland & Knight would have been the seventh largest corporate law firm operating in Texas in 2020 with about 320 attorneys and revenues of $253.6 million, according to The Texas Lawbook 50.
Thompson & Knight lawyers joined a significantly more profitable law firm. In 2020, Holland & Knight reported profits per partner were $1.7 million, compared to TK’s $745,145. But their revenues per lawyer were remarkably close and, according to Sloan, their “hourly rates are compatible.”
“Our strategy is we want to grow even more in Texas and we are not done by any measure,” Sonberg said. “Our focus is growing on the revenue side and expanding our opportunities in the Texas market.
“Now, the hard work starts,” he said.
The combined firm will have approximately 1,600 lawyers and other professionals in 30 offices. The scale will allow the firm to dedicate more resources to its clients and additional capital to target key growth markets and industries.
FYI: The Knights in Holland & Knight and Thompson & Knight were not related.
Peter O. Knight was the second mayor of Fort Meyers, Florida, in 1886, and then was elected to be state’s attorney in 1893. Knight founded his law firm, Knight, Thompson & Turner – no relationship between the Thompsons either – in 1915.
In 1922, President Warren Harding asked Knight, who graduated from law school at age 18, to serve on the U.S. Supreme Court, but Knight declined. Knight went on to be president of Tampa Electric Company (now TECO Energy) in 1925 – a position he held for two decades.
The other name on the firm, Holland, was no rube either. Spessard Holland was the former governor of Florida and a U.S. Senator. Holland played baseball in high school and college and turned down a contract to play professionally for the Philadelphia Athletics.
For more on the history of Thompson & Knight, click here.