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The hardships triggered by the collapse of the technology and Internet sectors did not pass over the Bay Area’s smaller, regional law firms. But while profits took a hit at many of these firms in 2001, the damage was less severe than at some of the Bay Area’s national, tech-focused firms. The annual list of the nation’s second 100 biggest firms, ranked by gross revenue and published this week by Recorderaffiliate The American Lawyermagazine, underscored the tough times visiting Bay Area firms. And as was the case with the list of the nation’s 100 largest firms released last month, Los Angeles proved a pillar of strength in a down economy. Average profits per partner for the group of San Francisco and Silicon Valley firms ranked from 101 to 200 — or the Am Law 200 — were essentially flat for the year, just barely dipping into negative territory at minus 0.5 percent. The decline was not nearly as drastic as it was for the Bay Area’s Am Law 100 firms, which saw their average profits plummet 5.5 percent in 2001. Meanwhile, Southern California firms averaged a healthy 7.8 percent gain in profits per partner for the year, besting New York’s firms, which averaged 6.9 percent profit growth. Nationally, Chicago-area firms on the Am Law 200 showed the strongest growth for the year, with average profits increasing by 10.6 percent. “The Bay Area firms generally are more involved in the emerging company and technology practices, which were harder hit,” said Guy Halgren, chairman of Los Angeles-based Sheppard, Mullin, Richter & Hampton. “The firms in L.A. tend to be more diversified.” With 2001 revenues of $145.5 million, Sheppard, Mullin grew its average partner profits by 9 percent, coming in at $535,000 for the year. L.A.’s Manatt, Phelps & Phillips increased its average per partner profits by 21.7 percent, to $615,000 on annual revenues of $120 million. And another Southern California stalwart, Munger, Tolles & Olson, boosted profits per partner by 12.2 percent, for average profits of $780,000 per partner. The best performing Am Law 200 firm in the Bay Area in terms of profits per partner was McCutchen, Doyle, Brown & Enersen, whose average profits per partner were up 9 percent, to $600,000, on revenues of $151 million. And employment firm Littler Mendelson grew its average profits by 5.7 percent, to $365,000. But, in terms of gross revenue, and thus the Am Law 200 ranking, Fenwick & West beat out both Littler and McCutchen, coming in at No. 104 on the list with $158 million in gross revenue. The seven Bay Area firms in the Am Law 200 included a pair of newcomers: Townsend and Townsend and Crew and Howard, Rice, Nemerovski, Canady, Falk & Rabkin, both based in San Francisco. Buoyed by its work representing Pacific Gas & Electric Co. in its Chapter 11 bankruptcy case, Howard, Rice pulled in $80 million in revenue in 2001. And the firm’s 55 equity partners took home an average of $755,000 in profits for the year. Palo Alto’s Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, which has been reeling from the dot-com implosion, was the only Bay Area firm to fall off the list completely. Unlike the Am Law 100, whose denizens have offices across the United States, as well as overseas, the Am Law 200 is heavy on firms that have a strong regional presence. Allen Matkins Leck Gamble & Mallory, the 168th ranked firm, has five offices, all in California. Sheppard, Mullin, No. 116 on the list, has seven offices, also all in California. And while more than a dozen of the top Am Law 100 firms grossed $500 million or more in annual revenues, the second 100 group’s yearly revenues ranged from $72 million to $161 million. The two biggest drags on Bay Area profits came courtesy of Fenwick & West and Crosby, Heafey, Roach & May, which each saw a 10 percent erosion in their average profits per partner. For Fenwick, the drop came hand-in-hand with its downgrade from the Am Law 100, where it ranked 97th last year, to the Am Law 200, where it now occupies the 104th slot. “We certainly felt the slowdown in the economy just like all of our peers, especially in the corporate area,” said Crosby, Heafey Managing Partner Kurt Peterson. He cited mergers and acquisitions as well as patent and intellectual property work as among the harder hit areas. Because Crosby, Heafey is roughly two-thirds litigation, Peterson says he expects the firm to meet its projections going forward. But he acknowledged that the recent wave of law firm mergers is putting pressure on the regional players. “If you want to compete for the most challenging work at the highest levels, there is clearly a movement toward consolidation,” said Peterson. “That is not just something people are talking about, it’s real.” Peterson said Crosby, Heafey is looking at possible merger partners and expects to make a decision within the next 90 days. It’s a decision that McCutchen, Doyle, Brown & Enersen made earlier this year. While the firm’s $151 million in revenues ranked it 111th on the list, its recent merger with Boston’s Bingham Dana means that this is likely its last appearance on the second 100. “I feel like we’re talking about ancient history,” said Donn Pickett, vice chairman of Bingham McCutchen and former chair of McCutchen, Doyle. Simply combining the 2001 revenues of McCutchen and Bingham Dana yields a $402.5 million firm, putting it squarely in the top one-third of the Am Law 100. And while there are costs associated with its merger, Pickett says he expects 2002 revenues to be up slightly. “We have felt all along,” said Pickett, “that we could provide far better service to clients from a national platform than from one that was located in a single state.” Related chart: Second Tier of Highest-Grossing California Law Firms in 2001 Related story: The Am Law 200: The Second Hundred’s Hidden Strength

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