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This time last year, Gray Cary Ware & Freidenrich partner Diane Holt Frankle could simply say the word “deal” and be mobbed by associates anxious for work. That changed last spring when Zoran Corp. asked Gray Cary to put together its $358 million acquisition of Oak Technology Inc. For the first time since the Internet bubble burst in 2000, Frankle and her partners played tug-of-war over associates. “It felt like a real deal,” Frankle said, adding that it came along as several other transactions were starting to cook. “We were totally strapped because we had all these corporate people dedicated to all these resource-sucking transactions.” For Gray Cary, the Zoran deal was the first tangible sign of a turnaround in M&A activity after two years of declines. Deal activityactually grew in 2003. Bay Area firms with significant M&A practices had a hand in 410 deals, a 45 percent increase from 2002, when firms took part in 283 deals, according to the firms, MergerStat and Thomson Financial, a securities research firm. “We’re very pleased with the deal activity, and we saw 2003 finish strong,” Frankle said. “And it looks like 2004 is going to be a year with a lot of M&A activity.” Rising stock prices set the stage for a run of initial public offerings in the second half of 2003. And the Nasdaq hit 2,000 in December — its highest level in two years — to cap off a 600-point climb that began in April. The rising stock market gave technology company executives new currency — and fresh courage — to go out and buy other companies. “There were more strategic deals in 2003 than the last year, when buyers were pulling up the ladders scared,” Frankle said. “You could start to see people actually considering strategic deals.” Frankle’s firm had a hand in 76 announced deals last year, landing it in fourth place among California firms. Topping the list was Wilson Sonsini Goodrich & Rosati with 131 deals. Los Angeles firms grabbed the two slots in between. Second-place Latham & Watkins had a hand in 124 deals, and Gibson, Dunn & Crutcher did 87 deals to rank third. The other Bay Area firms with large M&A practices are Heller Ehrman White & McAuliffe (41 deals), Cooley Godward (41 deals), Pillsbury Winthrop (35 deals), Fenwick & West (29 deals) and Orrick, Herrington & Sutcliffe (28 deals). Those numbers seemed unlikely at the start of 2003. “In the first part of the year, an unusually high number of deals cratered,” said Richard Climan, a partner at Cooley Godward. “In some cases, the more intense due diligence investigations conducted by buyers brought issues to the surface that ultimately prompted buyers to walk away.” As the year drew to a close, Climan said, the pipeline of deals flowing through his firm was packed. “Our buy-side clients now appear to be willing to consider bolder moves, like larger, strategic deals,” Climan said. The competitive landscape has changed as well, he added, with more buyers competing for attractive targets. Robert Koenig, a Latham & Watkins partner, said clients are no longer just thinking about how to protect their businesses, but are looking at ways to use transactions for expansion. “What we’re seeing are CEOs who feel a little more optimistic about their own businesses,” Koenig said. “They feel better about the direction of their company, their industry and the economy as a whole.” Gray Cary wasn’t the only firm caught off guard by the mid-year surge in business. Idled corporate groups had become favored targets for layoffs or hiring freezes in recent years, and when clients suddenly started doing deals, partners were left short-handed. Even Koenig, whose firm didn’t do any layoffs, was suddenly strapped for associates when the 25 in the firm’s Menlo Park corporate group were suddenly busy. “We went from having excess capacity early in the year to being quite stretched in terms of being able to staff matters toward the end of the year,” Koenig said. “My partners were calling me up and saying, ‘I need somebody to be in an organizational meeting tomorrow’ and there was me, having to say ‘we don’t have anybody.’” Koenig quickly added that the firm managed to get a lawyer to every client meeting when one was needed. “It caught us a little off guard,” he said. Chart: At the Outposts

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