Thursday, September 1, 2005
Midsize Practices Fend Off Suitors
By Geneva Whitmarsh
Daily Journal Staff Writer
If the California law community were a pick-up scene, Russ August & Kabat would be among the most eligible at the bar.
“There are not that many midsize firms out there. They’ve all been acquired by the big firms,” said Larry Russ, a founding partner of the 17-attorney West Los Angeles firm. “We get hit on all the time, but we will not even consider it.”
At the same time, Russ said, being a strong player in the competitive legal world means the firm must draw on its strengths in order to attract top talent and keep its client roster strong.
Law Firms
Mergers and acquisitions of U.S. law firms continued to be strong in the first half of the year, with 34 firms inking deals, according to Hildebrandt International’s Merger Watch.
The most notable trend thus far, according to the consulting firm, is the size of the combinations compared to 2003 and 2004.
The largest merger of the year to date is the combination of London-based DLA and Piper Rudnick Gray Cary to establish a firm of 2,600 lawyers.
The largest deal in the second quarter of the year was the merger of Pillsbury Winthrop and Shaw Pittman, creating a firm of 900 attorneys.
On the other side of the spectrum, five of the acquired firms this year had fewer than 10 lawyers.
Jules Kabat, partner at Russ August & Kabat shrugs off the notion that bigger is better.
“Businesses are becoming hyper-cost-conscience, and we can offer something the larger firms can’t,” Kabat said. “I’ll have three-to-four lawyers working on a case compared to five or six there.”
“And that appeals to companies, because a lot of them are being hammered on their budgets.”
Midsize Manatt, Phelps & Phillips, with 310 lawyers, has taken the approach of concentrating its practices on key areas, including entertainment, health care and technology.
The firm’s partners have said a merger does not make sense for the Los Angeles-based firm, which has eight offices, including New York, Washington D.C. and Mexico City.
“We rarely hear from our clients. ‘We wish you were another 200 lawyers bigger,'” said managing partner Paul Irving. “We have yet to find a compelling reason to make that move.”
Hanson Bridgett Marcus Vlahos & Rudy, a 120-person firm in San Francisco, Munger Tolles & Olson, a 160-person firm in Los Angeles and San Francisco, and Howard Rice Nemerovski Canady Falk and Rabkin, a 110-member strong firm in San Francisco, have taken the same approach.
“We think what we have works, and we don’t want to change it,” Russ said.
The key to being a successful midsize law firm is to strike the right balance, said David Wilkins a professor at Harvard University and director of the school’s Program on Lawyers and Professional Services Industry.
“You have to find something you’re really good at that distinguishes you from either the bigger competitors or the boutique competitors,” Wilkins said.
Russ August & Kabat, for example, is among a handful of law firms offering expertise in three distinct yet similar areas of law: real property, intellectual property and litigation.
Besides special expertise in a few particular practice areas, Wilkins said, smaller firms can set themselves apart from bigger firms with their knowledge of local court procedures and contacts with other lawyers and business leaders in a given community.
Wilkins noted that big corporate clients in the past often relied on dozens of different firms to meet their legal needs, which, in turn, led to a law-firm consolidation.
Today, those clients may be returning to a “relationship-based” agreement with outside counsel, one based on hiring a lawyer, not a law firm.
“Clearly, there’s caution about the idea that bigger is necessarily better,” he said.
Midsize law firms also have to retain top talent, which means competing with high salaries and big-name clients of huge firms.
Many midsize firms rely on lateral moves by attorneys who have tired of the mega firms. But names of clients are also a big draw.
“The big names have the big advantage,” Wilkins said.
The firm’s culture is another big selling point and can include its method of mentoring associates, its pay structure and even the allocation of office space and furnishings.
Steven Goldberg, a partner at Russ August & Kabat, worked for a large law firm for several years before moving to his current position.
Goldberg described the culture at his previous firm as “institutional.”
“Associates carried the bags of partners into court, and the partners and associates would often ride to appearances in separate limos,” he said. “The partner and associate turnover is enormous, people leave and it’s not even announced. You’re a number on a sheet, and that’s it.”
“It wasn’t for me. I wanted to like coming to work again.”
Contributing to the uptick in law-firm mergers is the strong success of firms in 2004, when profitability boomed with strong litigation practices, corporate governance and Sarbanes-Oxley compliance work, robust real estate practices in some markets and steadily recovering transactional work.
Continuing the trend of past years, New York and California were the strongest in-bound markets in 2004. Of the 10 New York Mergers in 2004, four involved firms entering or expanding in New York City, and the rest involved firms in other parts of the state.
California was host to five mergers, including three in Southern California and two in Northern California.
“I don’t think it’s going to slow down,” said independent analyst Jonathan Meyers. “If anything, I think you’re going to see a sizeable pickup as firms try to compete with each other.”
“It’s going to make for an interesting time in the next few years.”