The problems are mounting for Powell Goldstein. Last week the Atlanta-based firm lost a big chunk of its health care practice group in Washington — and now two partners and two counsel will leave the firm’s tax and business and finance practices.

The problems are mounting for Powell Goldstein.

Last week the Atlanta-based firm lost a big chunk of its health care practice group in Washington — and today, two partners and two counsel will leave the firm’s tax and business and finance practices. Those are just the latest in a long list of departures from the office. But the troubles aren’t limited to D.C. The 256-lawyer firm has been struggling to grow for years, faces increased competition from larger rivals in the Southeast, and has struggled to replace departed rainmakers with top-tier laterals.

Now, the firm may be looking for a merger partner. Sources, including former lawyers and legal recruiters, say that Powell is in serious discussions with Winston-Salem, N.C.-based Womble Carlyle Sandridge & Rice. Such a union would create an 800-lawyer regional powerhouse with combined revenues of nearly $400 million. That’s still shy of King & Spalding and Alston & Bird, but far above other Southern players like Kilpatrick Stockton, Sutherland Asbill & Brennan, and Troutman Sanders.

Powell Goldstein has “lost ground to the Alstons and King & Spaldings, and the Sutherlands, and the like,” says Ward Bower, a legal consultant at Altman Weil. A merger would give the firm a chance to “close the gap,” he says. For its part, Womble would gain a large presence in Atlanta, which would complement its already strong base of clients in the Carolinas.

But a merger won’t immediately solve some of Powell’s most nagging issues. Its D.C. office, which once constituted nearly half the firm, has declined from 110 lawyers in 2002 to 66 lawyers today. And the firm’s already-shrinking health care practice may clash with Womble’s large client base of tobacco companies.

One Washington legal recruiter, taking note of Powell’s and Womble’s complementary office locations, says, “You could write a little business plan here that really makes sense for both firms.” But any change has to happen soon for Powell, especially in the District. “Their backs are against the wall,” he says.

Powell and Womble declined to confirm or deny the merger discussions. Womble’s chairman, Keith Vaughan, would only say that the firm is “always looking at a lot of opportunities.” And Powell Chairman James McAlpin Jr. says he’s intent on making Powell “a better version” of itself and emphasizes his intention to transform Powell into “one of the leading Southeastern firms.” McAlpin would not comment on problems at the firm.

This isn’t the first time Powell has been in merger talks. A decade ago it publicly announced plans to join forces with Richmond, Va.-based McGuireWoods (at the time, McGuire, Woods, Battle & Boothe). The two firms stressed a desire to build a strong D.C.-based international law practice together, but six months after they announced the merger, the deal fell apart. McGuire’s chairman blamed a lack of enthusiasm among his firm’s partnership, but recruiters pointed to possible client, culture and management conflicts.

Since then, Powell has been hit by several major defections — many of them in Washington. The first signs of trouble came in 2001, when Stuart Eizenstat, who founded the D.C. office in 1981, decided not to return to Powell after spending eight years in the Clinton administration. He instead went to Covington & Burling, where he now heads the international practice. A year later, Sidley Austin poached the entire 33-lawyer international trade group. Powell’s D.C. head count has never recovered.