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When Duane Morris looked across the aisle at San Francisco’s Hancock Rothert & Bunshoft in 2006, it saw a critical mass of California lawyers and an attractive insurance coverage litigation practice. But it also saw the warts: low rates and a few too many lawyers. The blemishes have sullied the 600-lawyer firm’s bottom line and productivity somewhat in the year-and-a-half since Duane Morris picked up 60 Hancock Rothert lawyers, firm officials said. But, they added, with the right dose of pre-emptive staff cuts and gradual rate hikes, the combination is already on the road to success. “I think it’s gone very well,” said Joseph Burton, who had led Duane Morris’ small San Francisco office prior to the merger. “I think better than we could have anticipated.” Mergers are a quick way for a firm to bulk up in a market like California � or for a smaller firm to find a measure of stability. But very few are perfect fits. Lawyers and consultants say it takes elbow grease to make it work � especially when it comes to rates. “That’s a tough issue,” said law firm consultant Richard Gary. “I expect it will continue to be.” In the year-and-a-half since the merger, the firm has made progress in raising the rates of the Hancock Rothert lawyers, said Charles O’Donnell, Duane Morris’ chief operating officer. He expects them to be at an equal level within two years. The changes haven’t sent Hancock Rothert lawyers to the exits. Aside from axing about 15 lawyers, none of them partners, as a condition of the merger, very few attorneys have left. A year after the merger, a few former Hancock Rothert equity partners did not receive equity status in the new firm but didn’t head for the door, Hancock Rothert lawyers noted. Part of that may be the merger agreement’s financial incentives for legacy Hancock Rothert partners to stick around for two years following the merger � a term closing at the end of this year. But a bigger factor, Hancock Rothert lawyers say, is the stability offered by the larger, more diversified firm. “One of the things that you can’t not see is the number of midsized firms that either decided to merge with big national firms or, frankly, just collapsed,” said Richard Seabolt, a longtime Hancock Rothert partner. “You see that it is tougher to compete as a midsize firm.” Top Line Up, Bottom Line Down In the first year of marriage, the 60 or so Hancock Rothert lawyers � most in San Francisco, some in Los Angeles and a few in Lake Tahoe and London � helped boost Duane Morris’ revenue. The former Hancock Rothert attorneys brought in $27 million, allowing Duane Morris to grow the top line 15.8 percent in 2006, according to O’Donnell. There were also $4 million in billings that neither firm would’ve produced on its own, he said � a tally observers say is respectable for the first year. But the combination took a toll on revenue per lawyer and profits. RPL was up less than 1 percent after growing nearly 10 percent in 2005, while profits per partner rose 8 percent. It had grown 18 percent the previous year. Costs related to the merger cut into profits, O’Donnell said. Double rent in San Francisco and London and severance payments to downsized Hancock Rothert lawyers and staff cost the firm $3 million in 2006, in addition to $2 million in merger costs on the Duane Morris side, he said. “We certainly suppressed our profits as a result of the merger, but we didn’t have any surprises,” O’Donnell said, adding that Hancock Rothert’s lower legacy rates also diluted RPL. Consultant Peter Zeughauser said it can be difficult to find a California merger partner. “They’re paying a price to get into California,” said the Zeughauser Group consultant. O’Donnell said that he anticipates an additional $1.5 million in merger-related costs for 2007, but he also expects that both revenue per lawyer and profits will grow again at the pre-merger rate. Adjustable Rates Some Hancock Rothert lawyers worried that their existing clients would balk at the new rates that would come with the merger. “We were going to be joining an AmLaw firm. That meant that the rate structure would be different � higher, as it were,” said Ronald Ruma, a legacy Hancock Rothert partner. “We were anxious.” Ruma said the two firms discussed the issue during the merger talks and agreed to make the rate hikes gradual. “We have had to adjust our billing rates for the clients we carried over, but not all in one fell swoop,” Ruma said. “It’s been an incremental increase.” O’Donnell said Hancock Rothert lawyers’ rates were about 80 percent of Duane Morris’ when the two firms merged. Now, he said, that gap has been cut in half, with the Hancock Rothert group expected to match the Duane Morris rates in another two years. The average Duane Morris partner rate is about $500 an hour. Zeughauser said it is essential that the firm be “moving Hancock’s rates up to Duane Morris’ and then moving Duane Morris’ up to the California rates,” he said. Lawyers there say they aren’t losing clients over the rates, though they are losing some lower-margin work. “[We want] to focus on areas that there is high risk and high exposure,” O’Donnell said. Clients are willing to pay a little more for the bigger firm, said Seabolt. “In a larger firm with more support with more efficiency, you can provide better services for clients,” he said. Widening Practices Hancock Rothert was long known for its insurance carrier practice. With clients like Lloyd’s of London, the firm prospered in the 1990s on huge fights between carriers and their policyholders over pollution coverage. But as some of that work slowed, the firm began to shrink, and some Hancock Rothert lawyers felt painted into a corner. “The last 10 years at Hancock, we had so much made our name in these huge pollution coverage cases,” said Seabolt, a litigator. “We were so associated with that, it frankly was a little bit tough to break out of that � it is much, much easier to diversify the practice being in an AmLaw firm.” Already Seabolt has had commercial litigation work thrown his way by legacy Duane Morris lawyers. In one of the those cases � a dispute between airport developer Airis, a Duane Morris client, and the city of San Francisco � Seabolt has been leading a trial team drawn from both firms. It’s also gone the other way. Since the merger, Seabolt has been able to offer longtime client Yahoo additional expertise and, for out-of-state matters, lawyers with East Coast offices. While some legacy Hancock Rothert lawyers have branched out, the insurance practice is still a formidable force. “I think that Duane Morris has a very strong insurance practice today � stronger than it was � as a result of the merger,” said Paul Glad, Sonnenschein Nath & Rosenthal’s San Francisco managing partner, who represents carriers. “On the East Coast, it historically had a strong insurance practice, but it couldn’t duplicate that on the West Coast. Hancock brought to Duane Morris that same strong insurance practice.” Although the insurance coverage group continues apace, Hancock Rothert lawyers say they’re glad to be at a firm where their livelihood doesn’t depend on it. “The breadth of the client base makes managing the risks much easier,” said Ruma. “[It's] not having so many eggs in one basket.” This article originally appeared inThe Recorder , a publication of ALM. •

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