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While larger Philadelphia firms attempt to create various identities — whether they be national, regional, superregional, or global — one fact remains: There are few out-of-town national firms with offices in the City of Brotherly Love. There is a bit of a debate around the legal community as to whether that is about to change, not through new office openings but through big-name mergers. While discussing a possible merger between Pepper Hamilton and Rochester, N.Y.-based Nixon Peabody, Dan Binstock, managing director of BCG Attorney Search’s Washington, D.C., office, said that Philadelphia is an “untapped resource” when it comes to merger possibilities, citing the large amount of pharmaceutical work done by the city’s firms and the lower hourly rates. “To some extent, Philadelphia has been, over the years, in the shadow of New York or Washington, D.C.,” Drinker Biddle & Reath managing partner Andrew Kassner said. “But that may not be the case for much longer.” Robert Denney of consulting firm Robert Denney Associates Inc. said he questions whether the Philadelphia market has the potential to be “tapped.” “I do not see that the Philadelphia legal market has the growth potential for a national firm to want to acquire a Philadelphia firm,” he said. “A regional firm might look at a Philadelphia acquisition as a defensive step to consolidate their regional position. I do not think a national firm would be as interested.” The two biggest reasons that a large national firm would want to come in and acquire a large Philadelphia firm, according to Joel Rose of Joel A. Rose & Associates, would be for a certain client base and attorneys who round out the firm’s areas of expertise. The problem with a merger of that magnitude, however, would be client conflicts, he said. Rose said the “tremendous pharmaceutical base” in the Philadelphia market would be another big draw. “I could see a national or multinational law firm acquiring one of the large firms in Philadelphia because of the client base,” he said. Stephen Cozen, chairman of Cozen O’Connor, said he thinks the pharmaceutical work is not concentrated in the Philadelphia area but is spread around to several national firms. According to Cozen, other than the “wealth of legal talent” in the market, he does not see why a large firm would want to come to Philadelphia before other markets. “I can’t think of anything that any Philadelphia firm does . . . that larger national firms from New York, Chicago, and Los Angeles couldn’t acquire elsewhere,” Cozen said, adding that he could not think of a particular practice area that was so unique that it could not be found in the “back yard” of the large national firms. Kassner said that although Philadelphia firms might not be the first on the list of merger prospects, they could eventually move up. “As consolidation is completed in major markets like New York, Washington, D.C., and maybe Chicago, I think national firms might look to other major markets,” including Philadelphia, he said. In an interview, Binstock agreed that the first choice for big firms is not to go into a smaller market. He said, however, that such a move could provide opportunities to get more medium-size clients and farm out more work to offices that have lower rates. “It’s a strategy for retaining clients, rather than losing them to firms with lower billing rates,” he said. Binstock said larger firms are “racing to merge with the firms in large cities,” but added that a second wave may come in with those same firms looking to smaller markets. In an end-of-the-year letter to clients, Michael Coleman of Coleman Legal Search predicted that 2006 would be the first time a large out-of-town firm and a large Philadelphia firm would merge. He also predicted that if that were to happen, an intracity merger between two Philadelphia firms would take place. He said in an interview that the second merger would occur with a firm that realized that while it would not receive interest from a large national firm, it did not want to remain stagnate. He said a firm in that situation would most likely look to merge with another local firm. “Someone has to be the leader, and once someone leads, others tend to follow,” Coleman said. He also said that the positive press Philadelphia has been receiving in general as a place to live might spill over to its legal market, as well. “Up to now there was a feeling of �This is not a must-locale,’ ” he said. “ I don’t think it’s an untapped resource unless we change our thinking.” Fox Rothschild Co-Chairman Abraham Reich said he has often wondered why large national firms have not targeted Philadelphia. “If it was going to happen, it would have happened” already, Reich said. “Philadelphia may not be a growth market in terms of client base.” Reich said most local law firms say their growth is in other markets. There also are questions about whether the city provides the same economic model that many large firms are seeking to attain, given that Philadelphia often has lower hourly rates than most major markets. Kassner questioned whether national firms would manage practice areas in markets with varying rate structures and be able to maintain their profitability. Coleman said that while the rates may not be the same, the cost of living, associate salaries, and overhead in this market are still lower than in many other major markets. “It’s worth looking into because if the cost structure is lower, profits can be further enhanced by raising rates,” he said. Kassner said the business model would have to make sense. “Most national firms, I imagine, would be hesitant to just acquire a general-practice regional firm,” he said.
Gina Passarella is a reporter for The Legal Intelligencer , the Philadelphia-based ALM publication where this article first appeared.

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