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WASHINGTON — Shea & Gardner is, by most accounts, a healthy law firm. Indeed, with profits per partner of $840,000 expected this year, up from $715,000 last year, the firm seems to be thriving. But last week, the 70-lawyer firm announced it is merging with 500-lawyer, Boston-based Goodwin Procter. And when the news broke, D.C.’s community of small and midsize firms issued a collective sigh. That’s because for years, big firms have been urging them to merge and consultants have been predicting their demise. And although Shea & Gardner’s immediate future seemed secure, partners are taking nothing for granted. “The consolidation in the legal industry is inexorable,” says California-based law firm consultant Peter Zeughauser. “It’s going to happen everywhere. That’s the way free markets work.” Although Shea & Gardner, known for its strong litigation practice, has a reputation for quality legal work, that good name “works with clients that know them well, but it’s a tougher sell for those that don’t,” says Hildebrandt International law firm consultant Lisa Smith. And large firms take advantage of their size to lure potential partners. Shea & Gardner Chairman John Aldock says he was approached by firms looking for a D.C. merger partner every couple of months before Goodwin Procter came calling. The firm’s partners say they didn’t want to relinquish their independence, but they were thinking about their future. Although they were “certain that we could maintain profitability and be a successful firm for 10 years out,” a merger like this would ensure longevity, says William Hanlon, Shea & Gardner’s administrative partner. “They have wrapped themselves into the embrace of a larger firm,” says legal recruiter Charles Garrison of Garrison & Sisson. “They have provided for a longer life expectancy.” The 57-year-old firm has managed to hold its own. In addition to its profitability, the firm, which rarely hires laterals, is able to attract talent from top-tier law schools. And while Shea & Gardner, a member of the dying breed of profitable one-city firms, wasn’t willing to be swallowed, it needed a national platform to compete with bigger D.C. firms. In the end, Goodwin’s offer stood out. “It was just too good to pass up,” Aldock says. But David Wilkins, a Harvard Law School professor and director of the school’s Program on Lawyers and the Professional Services, says the merger is a clear indication of the fear even profitable firms have of being dwarfed by their competition. “They think they need to get bigger in order to survive,” he says. “It’s a domino effect.” KEEPING CONTROL In addition to giving Shea & Gardner’s litigation practice a national platform, Goodwin’s tiny 12-lawyer Washington office ensured that Shea & Gardner’s 70 lawyers here would not be marginalized. “We weren’t very interested in joining somebody that already had 200 lawyers in Washington,” says Aldock, who will be managing partner of the combined firm’s D.C. office. And Shea & Gardner’s profitability “allowed us to make this decision from a position of strength,” says Hanlon. Shea & Gardner expects average profits for its 31 equity partners to jump 18 percent in 2004. Revenue has also been climbing. The firm estimates that revenue per lawyer will increase from $582,000 in 2003 to $640,000 in 2004. Last year, Goodwin Procter’s 103 equity partners brought home an average of $1.025 million, according to Recorder affiliate The American Lawyer magazine’s survey of the nation’s top-grossing law firms in 2003. Goodwin, known for its corporate, litigation, financial services, real estate and intellectual property practices, earned revenue of about $610,000 per lawyer in 2003, a close match with Shea & Gardner. Shea & Gardner’s relative strength has assured it control — at least for now — of the combined firm’s D.C. office and two spots on Goodwin’s 10-member executive committee. In that capacity, both Aldock and Hanlon will have a role in shaping the nearly 600-lawyer firm’s future. But when the merger is completed in October, they will shed the Shea & Gardner name. “It’s sad to lose the name,” says Aldock. “On the other hand, as the Washington presence, we think we will be able to hold on to the cultural values that made us what we are.” Although Shea & Gardner maintains a loyal list of clients including the General Electric Co., Prudential Financial Inc. and the National Association of Manufacturers, Aldock says some potential clients have the perception that bigger is better. “There are companies that have been going for litigation to their regular corporate firms,” he says. “The perception that you only have 70 lawyers can be an issue.” Zeughauser says that small and midsize firms often face a difficult choice: take on smaller clients and less prestigious work or merge with a firm that will give them “that proverbial national platform.” “The bigger firms have such tremendous presence, branding and marketing resources,” he says. “If one person’s busy, they’ve got 10 other people.” STAYING SMALL Partners at D.C.-based firms about the same size as Shea & Gardner have expressed some concern about the consolidation trend, but continue to insist that they aren’t interested in merging. Howard Feldman, who with William Van Ness Jr. founded the energy, environmental and natural resources firm Van Ness Feldman in 1977, says he’s been hearing the small-firm death knell for 27 years. But “we’ve survived and flourished, and we’re doing very well,” he says. “I do not subscribe to the theory that firms of our size are an anachronism.” Joe Hollingsworth, co-founder of 66-lawyer trial and appellate firm Spriggs & Hollingsworth, says he gets merger offers all the time, but he’s not interested. “The trend seems to be against us,” he says. Hollingsworth acknowledges the challenges to remaining independent. He says there is a definite advantage to size in getting big, national clients, but his firm’s record of success in trials has helped overcome that. “We’ve been lucky enough to have clients who have been loyal to us,” he says. “I’m not sure what the future holds, but I like our independence.” Hildebrandt’s Smith says that with small firms, name recognition only goes so far. “It’s tough to compete sometimes,” says Smith, who worked on the Shea & Gardner transaction for Goodwin Procter. But the small firms aren’t the only ones feeling the squeeze. With 500 lawyers firmwide and only four offices, all on the East Coast, Goodwin Procter is solidly regional. “Boston has been somewhat of an insular market,” says Zeughauser. But significant Boston firm mergers and an influx of out-of-town firms into the city have forced old-line firms to reconsider their strategy, he says. In May, Boston-based Hale and Dorr combined with D.C.’s Wilmer Cutler Pickering to form a firm of nearly 1,000 lawyers. And in 2002, Boston’s 500-lawyer Bingham Dana merged with San Francisco-based, 300-lawyer McCutchen, Doyle, Brown & Enersen. Fellow Bostonian Ropes & Gray has also acquired smaller firms in D.C. and New York in recent years. Regina Pisa, Goodwin Procter’s chairwoman and managing partner, says Boston firms are only now beginning to aggressively expand outside of the city because the market has remained profitable and consistently robust in spite of unstable economic conditions. “The Boston market is one of the best-kept secrets in the country. We could stay in this market, and only this market, for a very long time because it is very healthy,” she says. “But this is about where we want to be in 10 or 15 years.” In 2001, Goodwin Procter decided to grow from a “super-regional law firm” to a national one. Pisa says firm partners identified New York, D.C., and, more broadly, California as the three other markets necessary for a national presence. The firm, already one of Boston’s largest, has grown to about 100 lawyers in New York. And in October, the firm, which at the time had fewer than 30 lawyers in D.C., began checking out the local market. “We spent a fair amount of time evaluating all the firms in Washington, D.C., and made some judgments of who we wanted to talk to,” says Pisa. “Shea & Gardner was at the top of the list.” Goodwin’s need to find a D.C. partner was intensified late last year when 16 lawyers from its financial services group in D.C. departed to form their own firm, Buckley Kolar. The move left the office with just 11 lawyers. Pisa says D.C. was attractive to Goodwin Procter because of its position, along with New York, as a “national city,” and because D.C. firms and their government-related legal work tend to be recession-proof and profitable. “This market had shown itself over the last four or five years to be an economically attractive market,” she says. Zeughauser says a strong D.C. office is critical for firms looking to become national players. “If you look around the U.S., there’s a small number of strategic locations,” he says. “[And] just about every business is regulated by Washington.” Marie Beaudette is a reporter with Legal Times , a Recorder affiliate based in Washington, D.C.

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