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When O’Melveny & Myers partner J. Jay Herron starts talking about client Meade Instruments Corp., which makes amateur and professional telescopes, he verges on the rhapsodic. He can tell you how a buyout firm had driven Meade into the ground until founder John Diebel rode to the rescue and nursed it back to health. He can proudly note that the Irvine, Calif., company’s sales increased 66 percent in its last fiscal year. He can tell you about its new “ETX” telescope, which is equipped with a computer program that can automatically locate stars. Meade Instruments, which had sales of $126 million for the fiscal year ending last February, may not seem like the sexiest client on the planet, but Herron can’t imagine a better relationship. “Hands down, for me these clients are the most interesting,” says Herron about fast-growing, midsize companies like Meade. “You may be talking about acquisitions one day, labor the next, stock options the next. It gives you a full range of things to do. You don’t feel you’re doing the same thing over and over again.” In this era of extremes — the teeny dot-com, the supernova-size merger — regular midsize businesses like Meade Instruments often get overlooked by firms looking to build extreme practices. But according to lawyers like Herron, these companies can be great clients, especially when they’re growing fast. Because they often have no in-house lawyer, or a small legal department, that leaves lots of work for the outside counsel. Even better, the outside lawyers get to work closely with senior executives, helping to formulate rapidly developing business strategies. “You’re not insulated from the business decision makers by a layer of lawyers or a layer of anything,” says V. Scott Killingsworth of Atlanta’s Powell, Goldstein, Frazer & Murphy, who represents Theragenics Corporation, which makes radioactive products used to treat cancer. To see who is representing companies like these, we borrowed a list published by Business Week last May. Labeled “Hot Growth Companies,” it attempted to identify the most successful public companies with annual revenue between $25 million and $500 million. The list shows the 100 companies that posted the best sales growth, earnings growth, and return on capital over the past three years, based on data collected by Standard & Poor’s. (It omitted banks, insurers, real estate firms, and utilities.) Although the computer industry shows up most often, the list is not limited to New Economy companies. It contains a refreshing mix of old-fashioned businesses that make ordinary useful things — like concrete, folding chairs, rearview mirrors, and watches. (Because this list required companies to be profitable, it’s bereft of dot-coms.) Forty-one of the companies do not have inside lawyers; 29 have only one lawyer on staff. When we called around to find out who counsels these up-and-comers, we found Northern California firms dominating. That’s not surprising, given their focus on technology ventures, which make up a heavy component of this list, and the fact that 29 of the companies are based in California. Palo Alto’s Wilson Sonsini Goodrich & Rosati got the most mentions, with seven. The list also includes firms throughout the country, although New York firms don’t make much of a mark. With the exception of Skadden, Arps, Slate, Meagher & Flom, only two large New York firms appear more than once. Jack Nusbaum, chairman of New York’s Willkie Farr & Gallagher, says his firm is interested in representing companies like these, but they have to come to the firm “in a way that we’re comfortable with.” For example, he explains, if an investment fund client like Warburg Pincus & Co. acquired a small portfolio company, they’d be happy to represent it. But in general, he says, “A $25 million company can’t afford a big firm and should not afford a big firm.” Beyond this particular list of high fliers, there are lots of companies out there in the middle market. According to Standard & Poor’s, more than 3,600 public U.S. companies have revenues in this range, and their ranks are growing. Since 1995, the number of these midsize public companies has increased 33 percent. Although this list covers a panoply of businesses, one common theme emerged. Nearly all of the lawyers we interviewed really, genuinely enjoy working for these clients. In fact, most freely used a phrase not commonly uttered by lawyers when discussing their work: “It’s fun,” they said. “If I could pluck from the wind four or five more companies like Meade to add to the balance of my career, I would do it in a heartbeat,” says O’Melveny’s Herron, who also represents Pacific Sunwear of California, Inc., which made the list. Why this enthusiasm? It’s mostly because these lawyers get a chance to be intimately involved in these businesses. When the client succeeds, they feel part of it. “In a growth company, you have an opportunity to really make a difference in somebody’s success,” says Powell, Goldstein’s Killingsworth. Elaine Chotlos, a partner at Cleveland’s Baker & Hostetler who represents U.S. Concrete, Inc., likes the pace of quickly executing deals with a small team. In recent years Chotlos has helped the rapidly expanding company complete a half-dozen acquisitions, all for amounts less than $70 million. “Things happen faster, and it’s exciting.” New York firms may shun this market as unprofitable, but Kirkland & Ellis, which represents four companies on this list, thinks otherwise. The Chicago firm — whose New York-style profits per partner exceed $1 million — gets hooked up with lots of fast-growing clients through its ties to venture capital and leveraged buyout funds. When a Kirkland client like Bain Capital, Inc. acquires a small company, the buyout fund often chooses Kirkland to represent the smaller company. That’s how partner Dennis Myers started working with Wesley Jessen VisionCare, Inc., which Bain bought in 1995. The eye care company has kept Myers busy. “We took them public, then led them in four equity offerings in the space of two years,” he says. He notes that other big firms may not be attracted to these little-known clients, but Kirkland has built a substantial and successful practice around them. “We get in the door early and can take a company through its life cycle. If it’s growing into a big company, we’re there.” Working for companies with relatively limited resources can occasionally cause headaches. One lawyer, who asked not to be named, says that meetings and projects can suffer from an unorganized, “free-for-all” approach. “If I go to a meeting at a big company, I know it will be a very controlled process with lots of able help,” he says. “Here, there’s often not the same help available or experience among the participants.” Although this lawyer is accustomed to a smaller company’s disorder, it can put a strain on negotiations with bigger companies that aren’t so tolerant. Another lawyer, who also requested anonymity, notes that executives at fast-growing companies don’t always understand that some legal matters can’t be handled at warp speed. “Sometimes they feel frustration over the way law is practiced and how methodical lawyers need to be,” this lawyer observes. Clients like these require a different touch. Frank Reddick of Los Angeles’s Troop Steuber Pasich Reddick & Tobey, who represents discount chain 99 Cents Only Stores, says he uses different terminology when talking with top executives. “You want to deliver the message in the context of a business solution, instead of the context of a legal analysis,” he says. Billings generated by these companies “tend to be very episodic,” Reddick notes. They can be as little as $50,000 or can get into seven figures, depending on how active the company is. Bruce Robertson, a partner at Seattle’s Garvey, Schubert & Barer, says he makes a point of answering his phone, to make sure he’s available to these fast-moving businesses. “The key issue is accessibility,” says Robertson, who has represented home exercise equipment retailer Direct Focus, Inc., for eight years. “Some people think I’m crazy [for answering my phone]. But that means a lot to this type of client.” (For the record, Robertson answered his phone when this reporter called.) Robertson also reviews these clients’ bills with extra care. “I will call attorneys and get a status report and find out why we’re billing what we’re billing and make sure it’s appropriate,” he explains. “They don’t have somebody in-house who will do that.” Robertson says his 110-lawyer firm targets this client base. “That’s the market here,” he says. “You can count on your hands the number of Fortune 500 companies in Seattle.” But even firms in bigger cities specifically take aim at middle-market companies. In Los Angeles, Troup Steuber’s Reddick targets these companies because he believes his midsize firm can better serve them. For one thing, he claims, they’ll have access to more experienced lawyers. At a larger firm, the senior talent may focus on the bigger fish. “The same people can show up for the same company’s transactions,” he notes. “They’re not taken off for bigger deals.” Most of all, these lawyers like contributing to a company’s business strategy. “You end up being much more of a lawyer and business adviser,” says O’Melveny’s Herron. John Diebel, Meade’s chairman and CEO, confirms that he consults Herron for all kinds of advice. “I call Jay with questions that are more business than legal,” says Diebel, an engineer who built the company from scratch. For example, before the company went public in 1997, Diebel consulted Herron about how to create some personal liquidity in Meade without losing control. Herron helped him review various options, including a recapitalization of the company. In the end, Diebel took Herron’s advice to do a leveraged Employee Stock Option Plan. “I don’t think there is a major change in direction we’ve taken that we have not passed by Jay or other people at O’Melveny,” says Diebel. For their lawyers, executives like Diebel more than make up for the fact that these midsize companies may not yet impress people at cocktail parties. According to Baker & Hostetler’s Chotlos, “You’re not just the hired help,” she says, “It’s nice to work for people who are grateful.”
Counseling Start-Up Companies: Special Challenges and Considerations. September 19-October 2.

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