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Chicago’s Chapman and Cutler is opening an office in San Francisco by acquiring Gnazzo-Thill, a 10-lawyer financial services boutique. The deal, which was announced Tuesday and will close June 1, lands the 180-lawyer Chapman on a growing list of Chicago firms setting up shop in the Bay Area in recent years. Chapman plans to relocate lawyers to San Francisco and leverage the new office to grab a chunk of California’s public finance business, said Richard Cosgrove, Chapman’s chief executive partner. “It’s a huge market,” Cosgrove said. “It’s going to continue to grow.” Chapman will be joining in the Bay Area the likes of much larger Chicago transplants as McDermott, Will & Emery, Sidley Austin Brown & Wood, and Sonnenschein Nath & Rosenthal. However, unlike other recent Midwestern arrivals, Chapman is eschewing technology companies and targeting financial clients by acquiring Gnazzo-Thill. Chapman also plans to recruit public finance lawyers to help it gain a foothold in California’s bond market, Cosgrove said. Gnazzo and Chapman began their courtship late last year. The two firms have faced off in client competitions in the past, but partners have also worked side by side for clients like Wells Fargo & Co. and Bank of America Corp. Both firms cater almost exclusively to financial services companies, providing corporate and transactional expertise to large lenders, investment banks, pension funds, insurance companies and institutional investors. Melanie Gnazzo, who co-founded the smaller San Francisco firm in 1992, said she was encouraged by Chapman’s emphasis on financial services clients. She said she hopes to translate Chapman’s broader range of services into bigger billables from her existing financial clients. “They provide us with depth in areas that are similar to what we offer but that we really need,” Gnazzo said. “It will enable us to get more business from existing clients.” The Gnazzo-Thill team, which includes five partners who will lateral into Chapman’s ranks of some 100 partners, hopes to benefit from Chapman’s litigation, tax and public finance practices, Gnazzo said. The move into San Francisco is part of a national expansion plan that Cosgrove developed since taking the helm in April 2002. The firm is looking for a similar acquisition target in New York, Cosgrove said. Chapman consistently lands among the top municipal finance firms nationally. The firm has handled more deals than Orrick, Herrington & Sutcliffe, the nation’s leading municipal finance firm, every year from 1996 to 2001, according to market researcher Thomson Financial Securities Data. Last year, the firm slipped to second place, handling two fewer deals than Orrick, according to Thomson’s rankings. However, Chapman’s brisk deal activity doesn’t translate into a leading financial role. The firm’s client base raises considerably less in total capital than Orrick’s clients. Also, the firm trails other public finance firms in California. Chapman failed to make a showing among the top 10 bond firms in the past seven years, according to Thomson. The good news, perhaps, is that the California market is wide open for new players, said Roger Davis, the Orrick partner who heads the firm’s public finance group. Still, the prospect of competing against one more firm doesn’t faze Davis. Orrick’s market share as counsel on California bond deals consistently ranges from 45 percent to 50 percent. “Most issuers are small and [deals] are infrequent, so in order to get up to any significant scale requires time,” Davis said. “It’s one more competitor among many.”

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