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It was another record year for New Jersey’s largest law firms. But the real record was set by forces operating outside New Jersey. The bigger story in this year’s annual financial survey of New Jersey’s 20 richest firms was the continuing march toward regionalization, which began in the mid-1980s with New York and Pennsylvania firms making inroads into New Jersey. It never was more in-your-face than it was in 1999, when two non-New Jersey firms finally cracked the Top 20 and a third one missed cracking it by inches. Out of about $780 million in revenues posted by the 20 top-grossing firms operating principally in the Garden State, 8 percent came from branches of Philadelphia megafirms. Fox, Rothschild, O’Brien & Frankel’s purchase of Atlantic City, N.J.’s Horn, Goldberg, Gorny, Plackter, Weiss & Perskie in February 1999 was followed by the absorption of Florham Park’s Shanley & Fisher into Drinker, Biddle & Reath last fall. The two deals dramatically change the face of the legal landscape in New Jersey. In both of the 1999 mergers, the two biggest legal business deals ever for the state, the New Jersey partners married their fortunes to larger firms with strong corporate practices in search of new clients in new territories. For as the boom times continue to roll in spite of Federal Reserve Chairman Alan Greenspan’s ongoing interest rate increases and inflation warnings, transactional business is what’s been pushing many New Jersey firms to new highs in gross revenues. The only downside, it seems, is that the competition for transactional lawyers, particularly from New York firms offering dizzying associates’ salaries, keeps increasing New Jersey salaries and therefore has helped to check overall profitability. “Corporate/transactional is up because of the explosion in hi-tech and dot-com companies in need of venture capital and other financing,” says Michael Rodburg, managing partner of Roseland, N.J.’s Lowenstein Sandler. “But we’re inhibited by getting the talent. We’re pulling it out of New York, especially patent attorneys, and New York is pulling it out of New Jersey with those incredible salaries.” Michael Griffinger, name partner with Newark, N.J.’s Gibbons, Del Deo, Dolan, Griffinger & Vecchione, says his firm has also felt the sting. “The competition for talent from New York is enormous, with the salaries they’re offering.” On the whole, things still were looking up. Revenues for the 20 top-grossing firms last year rose again, though by only 4.9 percent compared with a startling 9.3 percent climb in 1998. On the other hand, profits per partner actually declined marginally in 1999 by 1.4 percent to $368,500. The previous year, partner profitability rose by nearly 10 percent to a record $373,600. In part, the average profits per partner in 1999 was dragged lower by the two mergers, as Drinker, Biddle and Fox, Rothschild absorbed all of the existing partners from their newly acquired New Jersey firms. Both firms show relatively low profits per partner that are below the firms’ revenues per lawyer. That should change for the better as the firms go forward with their new identities and, most likely, with higher rates and improved lawyer-to-partner ratios, or leverage. By contrast, many New Jersey firms scored healthy gains in profitability. In fact, the total net profit for all 20 firms was $284.1 million, up 5.8 percent from 1998. Put another way, the average profit margin climbed slightly, to just more than 36.4 percent, demonstrating that technology and productivity are more than offsetting higher wages. Leverage — the ratio of lawyers to partners — dropped slightly, from 2.92 in 1998 to 2.79 last year, which means that firms are keeping their associate ranks slim. Leverage for the large firms had dropped for six years, through 1996, reflecting the shakeout after the go-go years of the 1980s and early 1990s, but picked up in 1997 and 1998 with a resurgence of associate hiring. The result is reflected in the number of lawyers in the Top 20 during 1999, 2,156. That is 6 percent higher than the total the year before and by far the biggest jump since the beginning of the 1990s. That translates to an average of almost 108 lawyers per firm. As late as 1996 that average was still below 94, and didn’t reach the 100-lawyer plateau until 1998, when it hit 101.6. Eight firms had 100 or more attorneys, with Archer & Greiner of Haddonfield showing 99. The last time New Jersey boasted nine, 100-lawyer firms was 1993. NO ‘DIAMOND STRUCTURE’ YET Those lawyers produced, on average, revenues of $361,700 each, another record for the large firms in revenues per lawyer, though only by a tiny fraction. The flat revenue per lawyer reflects, in part, no or only modest rate increases as New Jersey firms continue to compete with their out-of-state rivals on price and value. Moreover, in spite of the increased pressure to recruit midlevel lateral associates, the firms continue to bring in large first-year associate classes from law schools, thus keeping the firms’ blended billing rates from growing much. Talk of resurrecting what some consultants call the “diamond structure,” in which the annual hiring of first-years is eschewed in favor of cherry-picking productive midlevel associate laterals, has yet to reach New Jersey, which still hews to the so-called pyramid structure. Right now, according to several managing partners, the hiring of mid-levels, many of whom won’t make partner, is a regular occurrence. However, this is not part of a diamond structure strategy so much as a way for firms to replace associates who are being picked off, usually by multistate firms. It’s also being done to fill specific practice areas, in particular, intellectual property and securities law. Lowenstein Sandler’s Rodburg says the firm’s goal is to recruit up to two midlevels a month “to keep pace so we don’t spike up every September only to lose people throughout the year.” But the diamond structure may be creeping into the state’s big firms, not just by increased lateral associate hires, but by the use of two-tiered, or hybrid, partnerships as well as by the addition of more counsel or of counsel titles, which keep the middle fatter and the equity portion on top from growing too much. This year’s survey, in fact, shows two more firms using a two-tier system, with nonequity partners. They are Newark’s McCarter & English, which guarantees the incomes of these partners, and Gibbons, Del Deo. Pitney, Hardin, Kipp & Szuch of Florham Park, meanwhile, now has 24 lawyers with the title counsel or of counsel on its letterhead, making up more than 15 percent of the firm. THE NEWCOMERS Drinker Biddle, known as Drinker, Biddle & Shanley in New Jersey, placed eighth on this year’s survey, while Fox, Rothschild is on the chart for the first time. Archer & Greiner made a strong showing in 1999, moving up to ninth place from 15th place last year. In doing so, the firm becomes the first southern New Jersey shop to crack the top 10 in revenues since the Law Journal began the survey in 1986. Archer’s revenues jumped to $28.7 million, a 15 percent increase from its $24.9 million in 1998. The size of the firm grew to 99 lawyers, up from 84 a year before. There are three other signs of the strength of the south. First, Stark & Stark of Lawrenceville again made the chart, albeit in 20th position, compared with 18th place in 1998. Second, finishing 21st, and thus just missing the list, is the New Jersey operation of Reed Smith Shaw & McClay, the Pittsburgh-based multistate firm. Reed Smith had well over two-thirds of its 62 New Jersey lawyers in its Princeton office, with the balance in Newark. And third, Fox, Rothschild, which shows 74 lawyers in the state generating revenues of $24.5 million, good for 14th place, is a southern firm, with offices in Lawrenceville, Atlantic City and Voorhees in Camden County. That could change, though, as Fox, Rothschild, which has grown steadily through acquisitions, continues to look in and out of New Jersey for more pickings. The firm swallowed a 12-lawyer firm in Doylestown, Pa., last July. “We would like to move north,” says Phillip Griffin, the firm’s managing partner for New Jersey. Griffin joined Fox, Rothschild in 1993 when the firm bought the Trenton firm of Katzenbach, Gildea & Rudner. He says the firm is searching for a business transactional firm. “We’ve had talks with at least five groups” — firms and groups within firms — he says. PROFIT CENTERS Topping the list in profits per partner for the second year in a row is the Teaneck and Trenton firm of DeCotiis, FitzPatrick & Gluck, which increased in size to 64 lawyers from 52. However, the firm maintained its high leverage with only 11 equity partners producing a profit per partner of $781,800, the first time the $700,000 mark has been shattered. The firm, known since May as DeCotiis, FitzPatrick, Gluck, Hayden & Cole, topped the other leverage king of New Jersey, Morristown’s Porzio, Bromberg & Newman, which posted a per partner profit of $620,000. Porzio, Bromberg had only 10 equity partners in its 59-lawyer corps last year, for a leverage ratio of 5.9, tops in the state. As always, the top-grossing firm was McCarter & English, with its 226 attorneys producing revenues of $82.5 million. The firm, with a national practice and a huge litigation department, was again way ahead of No. 2, which remained Lowenstein Sandler, with $66.3 million and an enviable $457,200 in revenues per lawyer. But Lowenstein was not tops in revenue per lawyer for 1999, as it had been for most past surveys. That honor this year goes to Wilentz, Goldman & Spitzer, which increased its gross by more than 11.5 percent, to $58 million, with only three more lawyers on board. Wilentz, Goldman’s revenue per lawyer was $460,300. The Woodbridge firm, which moved up from sixth to fourth place in revenues, does well in part because of its stable of veteran partners who have grown up with the firm. Though the firm’s rates are comparable, if not slightly lower, than some of its northern competitors, Wilentz, Goldman may be the most top-heavy firm in the state, with 18 partners practicing for 30 years or more, and 36 practicing for more than 20 years. The firm also remains one of the lowest leveraged in the state, and the lowest of the top 10 firms, with 65 equity partners and a ratio of 1.94. The other wild card for the firm is its plaintiffs’ work, which has always been a major profit factor, handling toxic tort and class-action work in addition to personal injury. Partner Frederic Becker, a member of the firm’s management committee, says only, “Our P.I. practice is a significant part of the firm,” adding that the department “had a very good year.” The only other major change in the 1999 survey is the disappearance of Roseland’s Hannoch Weisman, which folded in January 1999 but placed 13th on the Top 20 for 1998. The demise of Hannoch, along with the end, via acquisition, of Horn, Goldberg and the breakup of the Roseland firm of Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen in February, demonstrates the increased difficulty of trying to be a full-service firm at a midsized level in the state. In all three cases the senior partners of these firms acknowledged that they lacked the critical mass necessary to stay competitive, especially with their overhead. This year has also seen the demise of two other midsized firms, Roseland’s Friedman Siegelbaum in May, triggered by the takeover of most of the firm by Boston’s Goodwin, Procter & Hoar, and Tomar, Simonoff, Adourian, O’Brien, Kaplan, Jacoby & Graziano, the Cherry Hill-based labor firm that imploded in February. OUTWARD GLANCES While the presence of two multistate firms among the Top 20 in New Jersey, and the near presence of a third, is the most visible sign of the practice of law without state borders, New Jersey’s big firms have not been sitting by idly. They have been aggressively looking beyond New Jersey, for lawyers and clients. At Newark’s Sills Cummis Radin Tischman Epstein & Gross, managing partner Steven Gross says the firm has been doing deals in Europe as well as elsewhere in the United States, finding a niche in handling the purchase and sales of divisions from one corporation to another. “Our plus is our knowledge of certain industries,” Gross says. “And our ability to do a managed sale process,” which he says involves negotiating terms, arranging and structuring financing, and either bidding or putting out to bid the division. The work, he says, comes in part through relationships with investment bankers or venture capitalists. Similarly, Pitney, Hardin managing partner Clyde Szuch says his firm has been able to pick up considerable securities work, including dealing with Securities and Exchange Commission matters for publicly traded companies here, in New York and beyond. That is happening, in part, “because the big New York firms are so busy doing IPOs and large deals they can’t do a lot of this SEC work,” he says. It was Pitney Hardin that came close to buying a 50-lawyer Manhattan firm in 1998, and Szuch says his firm continues to seek practices and firms. Pitney, in fact, acquired the four-lawyer patent practice of New York’s Kane, Dalsimer, Sullivan and Levy in January. “Corporate is up 30 to 50 percent over the last three to four years,” says Szuch, who adds ruefully, “but the headhunters keep tossing out big dollars” to try to lure corporate lawyers away. At Lowenstein, of the dozen lateral associates brought in last year, several had practices in securities, intellectual property, banking, mergers and acquisitions, and taxation. Like his counterparts, Lowenstein’s Rodburg says his firm is moving into venture capital and other financial transactions that are not big enough to attract the giant Manhattan firms. Yet it is a very profitable area, he says, because it’s less price-sensitive than other work, as the company, often a hi-tech firm, needs the expertise and needs to move fast. At present, 10 of the top 20 firms maintain an office in New York, even though several of them are not staffed on a regular basis. In addition, three more, including the northern New Jersey firms of McCarter & English and the Short Hills’ firm of Budd Larner Gross Rosenbaum Greenberg & Sade, have outposts in Philadelphia. The third firm with a Philadelphia outpost is Archer & Greiner. This year several firms — Lowenstein Sandler; Budd Larner; Gibbons Del Deo; Drinker, Biddle & Shanley; Wolff & Samson; McElroy, Deutsch & Mulvaney, as well as Reed Smith’s New Jersey offices — have been running recruiting ads in the New York Law Journal on a regular basis. The ads pitch a better quality of life doing top-notch work in return for a lower income. To wit, a large classified ad Reed Smith recently ran said: “In Princeton, we offer corporate associates a sophisticated New York style practice with a great compensation package: the highest starting salary in New Jersey, bonus opportunities and profit sharing. Unlike New York you’ll enjoy our rustic, suburban setting with business casual everyday, a reasonable billable hour requirement, a food-court and work-out facilities … and time for your families.”

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