After years of trying to find a merger partner to help it launch in Houston, Reed Smith decided it didn’t want to wait any longer and instead moved to open an office from scratch.
While the firm has been mum on just which lawyers will fill the new space, not wanting to disrupt any deals in the making, Reed Smith leadership did talk to The Legal about why it changed course when it came to breaking into Texas.
“Our approach is always to see if we can find a really good merger and do it,” global managing partner Gregory B. Jordan said. “That’s the way we’ve expanded.”
But Reed Smith talked to several of the key firms in Texas that it was interested in and, because of conflicts or just a differing view of where the market was headed, Jordan said those talks didn’t work out. The firm’s merger discussions with Texas-based Thompson & Knight, for example, were made public in late 2010 but ended in early 2011. Jordan said Reed Smith really liked the firm, but couldn’t get the deal done.
So nearly two years later, Reed Smith began building out its own office space in downtown Houston a few months ago, according to reports from Legal affiliate The Am Law Daily.
“We were really driven to come to this market because of the opportunities we have for our clients,” Reed Smith global head of strategy Michael Pollack told The Legal. “We didn’t want to wait any longer to take advantage of those opportunities.”
While Pollack acknowledged the Houston market has become increasingly competitive over the last five to six years as a number of outside firms have looked to capitalize on the energy work to be had in the region, he said the firm wasn’t concerned that the market would soon be void of available talent.
“I don’t know that a market is ever really closed,” Pollack said. “[There was] not a fear that if we don’t do it now there won’t be anyone else to talk to.”
Litigation department chairman Alexander Y. “Sandy” Thomas has been working with Pollack on the firm’s launch in Houston. Not only is the firm confident there is still room for it in the market, Thomas said, it has intentions to continue building in Houston and feels it has the momentum to do so.
Pollack said the Houston market is very competitive as the legacy firms are trying to hold onto their best people and there are a number of new firms moving into the city. But he said that has also created fluidity in the lateral market that can benefit a firm looking to expand in Houston.
Stephen Mims, a recruiter with Prescott Legal Search in Houston, told The Am Law Daily that the number of firms coming to town in recent years has made energy lawyers, particularly those focused on finance and transactions, “golden.”
“There’s not an unlimited number of partners with $3 million books of business,” Mims told The Am Law Daily, and because of that, some firms coming from out of town have been offering guarantees to lure partners away from local firms. Sims added that, so far, there’s been enough energy work to go around, but in the next few years firms will have to find ways to differentiate themselves and expand into other practice areas.
“It will be interesting to me to see how these branch offices play out,” Sims said.
While energy work has been the driver behind Reed Smith’s focus on Houston, Jordan said there are opportunities in the market that tie into existing core strengths of Reed Smith, including financial services and life sciences and pharmaceuticals.
Jordan likened what is happening in Houston to what the Pittsburgh legal community has seen with the Marcellus Shale, though he said the Houston market is much further along. In Pittsburgh, other practice areas, such as real estate and litigation, have grown because of the increased business related to the oil and natural gas industry’s presence in the region.
“The economic activity we’re seeing in Pennsylvania around the Marcellus is a good example of … what’s been driving the Texas economy,” Jordan said.
Pollack said the goal in Houston, as with all of the firm’s major offices, is to become a full-service shop. While most of the offices around the country tend to reflect a higher percentage of work related to the individual market’s core industries, they also have a full array of other practice areas. Pollack said he expects Houston to have everything from energy to litigation and transactional practices.
And while Reed Smith doesn’t like to put a set number on attorney headcount in a given office, Pollack said the firm’s “classic-size office” around the country has been between 100 and 150 lawyers. It may take Reed Smith a while to reach that number, but Pollack said that is most likely the goal.
Jordan said the firm’s entry into Houston has been a very deliberative process that wasn’t about just convincing people to join the new location, but hiring people who Reed Smith really felt fit within the firm’s overall strengths.
While Reed Smith’s approach to launching in Texas might be unique when it comes to the firm’s traditional growth strategy, it isn’t an uncommon one lately for out-of-town firms moving into Houston.
In May, Legal affiliate The American Lawyer took a look at how a number of firms were able to open in the market. At that time, Sidley Austin and Paul Hastings had recently opened in Houston. But unlike a host of competitors over the years that hired laterals in batches, they handpicked individual lawyers from the local talent pool, hiring a total of three lawyers from three different firms, for example.
Pennsylvania firms have taken a variety of approaches to launching in Houston.
Most recently, Blank Rome created an official presence in the city after its June 2011 acquisition of 10-attorney litigation boutique Abrams Scott & Bickley. Blank Rome previously had one attorney in the market and no official office space.
Cozen O’Connor has had an office in Houston since 2004, but gave it a significant boost in May 2011 when it picked up 14 lawyers from Epstein Becker & Green’s Houston location. The group brought a labor, employment, energy and environmental law focus to the office, including litigation in those areas. Cozen O’Connor also has a Dallas office, which opened in 1993.
Morgan, Lewis & Bockius has been very active in the Houston market, in large part because of the firm’s focus in energy work. Since opening in 2007, Morgan Lewis has grown from four lawyers to about 70 in Houston and another 16 in Dallas. Houston is now Morgan Lewis’ fifth largest office.
Brady Edwards, managing partner of the Houston office, said Morgan Lewis went into the market — long dominated by a few “old-line firms” — with the intention of focusing on its core strengths that matched up with that of the market. The focus at the start was on energy, intellectual property and mass, toxic tort cases, but the office has since become full service. He said the goal was not to do what many firms had come to do and failed at — opening an office without a specific strategy and expecting the work to just flow in.
Morgan Lewis has been successful in integrating groups of lawyers in Houston, as it does in other offices, Edwards said. Though he said one-off laterals have also been successful.
“I think the trick is to have a custom-designed strategy that is tailored to what the firm has to offer the market and also tailored to what the realities are in the marketplace,” Edwards said.
K&L Gates has offices in Dallas and Fort Worth, Texas, Duane Morris has a Houston office and Dechert has an office in Austin, Texas.
Sara Randazzo is a reporter for The American Lawyer, a Legal affiliate based in New York. •