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Like debutantes at the start of the social season, law firm managing partners are spending more and more time meeting with suitors and assessing their prospects. At some of the more eligible firms – Crowell & Moring; McKenna & Cuneo; Wiley, Rein & Fielding; and Arent Fox Kintner Plotkin & Kahn, for example – vetting merger offers can be a full-time job. Many D.C. firms — merger targets as well as those looking to gobble up slumping partnerships — are spending a significant amount of energy and resources on addressing the merger question. Firms are driven by “the fear of being caught as the last man standing without a bride,” says Stuart Pape, the managing partner of D..C.’s Patton Boggs. Managers say that changing client demands are turning up the pressure on firms to add the proverbial “breadth and depth” to their practice groups as well as to open offices in uncharted markets at home and abroad. At the same time, managing partners face increasing pressure at home, as associates demand higher salaries and partners expect bigger profits. “Let’s face it, telecom is a hot area, and we’re certainly one of the leading firms doing it — so that makes us popular,” says Richard Wiley, managing partner of Wiley, Rein & Fielding. Firms like Wiley Rein are debating the question at partnership meetings. Wiley says he routinely receives calls from large, out-of-town firms looking for a way into the D.C. market. He asked his 40-odd partners last fall if they wanted to merge and the outcome of the discussion was they wanted to “stay the course” as an independent firm while continuing to grow through lateral recruitment and boutique acquisitions. Despite all the compelling reasons to couple up, it’s still tough to hammer out a deal. Managers at D.C.’s Collier Shannon Scott say they had received inquiries from as many as two dozen firms and talked seriously with D.C.-based Howrey Simon Arnold & White; Chicago’s McDermott, Will & Emery; and D.C.-based Swidler Berlin Shereff Friedman. But ultimately, they decided they would rather preserve the firm’s collegial culture and traditional values than join forces with another partnership. The 77-lawyer firm, which was recently rocked by the departure of the majority of its cash cow antitrust practice to Howrey Simon, has devised a new strategy, aiming to stay focused on developing its Federal Trade Commission group and two niche areas. The first is a consumer protection, marketing, and advertising practice. The second, dubbed the “Competition Section,” melds the firm’s 12 leftover antitrust attorneys with its IP practitioners and technology specialists. “We’re going to make it clear that the decision we made was the right thing for everyone,” says William Scott, Collier Shannon’s outgoing managing partner, who is retiring at the end of the year. It’s a bold and risky move to make in this era, where a firm’s profitability is the key measure of its health, and conventional wisdom dictates that in order to become more profitable, firms have to get bigger. Putting together a merger isn’t as easy as it may seem. James Gallagher, McKenna & Cuneo’s Los Angeles-based firmwide managing partner, says he has had preliminary talks with as many as a dozen firms in the past year, but only a couple have gone on to secondary discussions. “It’s very difficult to put together a large law firm merger – there’s conflicts and different ideas about what areas of expertise need to be grown,” Gallagher explains. Plus, mergers aren’t without drawbacks, says Collier Shannon’s Scott. “You can cross-sell more services,” he says, “but you also have more conflicts of interest.” Collier Shannon’s adviser, Newport Beach, Calif.-based law firm consultant Peter Zeughauser, charges $400 per hour to dispense his wisdom. He says that Collier Shannon and other small-to-midsize shops can survive alongside full-service firms “as long as [they are] highly focused and cultivate a niche.” Lisa Smith, a D.C.-based consultant with Hildebrandt International agrees that a firm doesn’t necessarily have to be big to be strong, but says, “the larger firms tend to be more profitable.” Some of the bigger-equals-better rationale has to do with the inherent economies of scale that come with running a big firm, such as spreading the overhead costs of administration and building brand awareness, but that’s not what’s driving the current enthusiasm for mergers. Rather, D.C.-area firms are looking to expand into new practice areas in order to nab high-end corporate deals, cutting-edge intellectual property work, and new markets, particularly New York and California. Witness the recent ventures into New York by D.C.’s Hogan & Hartson, Covington & Burling, and Swidler Berlin Shereff Friedman. All three firms broke into the corporate-driven town by scooping up transactions boutiques and are already leveraging their newly acquired expertise in their other offices. For those firms that haven’t yet bought or built their own corporate groups, such as Wiley Rein and McKenna & Cuneo, adding a transactions practice remains on the top of their to-do list. Meanwhile, the D.C. area has become a hot legal market in its own right, thanks to the emerging local high-tech, biotech, and telecom sectors, as well as an explosion in regulatory and antitrust issues related to these industries. “A lot of out-of-town firms are wondering how to get into D.C. If you can merge with a middle-sized Washington firm, then you’re a step ahead,” says Wiley, adding that he tries to be “courteous” and listen to other firm managers’ pitches even if he knows nothing is going to come of it. R. Bruce McLean, managing partner of Akin, Gump, Strauss, Hauer & Feld, also gets his fair share of calls. “I do a lot of talking, and we don’t want to be uncivil, but if we know we’re not being productive, we don’t want to waste management time,” he says. Although merger solicitations can be distracting and time-consuming, they do have one important upside, says Hildebrandt’s Miller: “The management of firms learn what other firms are doing.” NOT CONDITIONED FOR ATTRITION With the legal industry undergoing massive change, most firm managers – no matter how profitable their firms – are trying to figure out how best to navigate through these times. “There’s only a handful of firms that don’t worry. All the rest of us worry every day about where we are in a rapidly changing marketplace,” McLean says. The anxieties linked to facing change have firm leaders shelling out $1,300 to attend two-day leadership conferences thrown by event coordinators. One such pre-planned talkfest, sponsored by the Fulcrum Information Services’ Neil Handwerker, was where last year’s blockbuster Clifford Chance Rogers & Wells merger was conceived. “We’ve seen a real exponential growth simply based on the fact that management needs information,” says Handwerker, who put together 20 conferences on law firm management last year for more than 1,000 participants. “They are more willing to sit down with people who are facing the same challenge.” Not the least of those challenges, notes Handwerker, is this year’s headline-grabbing round of salary increases and the widespread problem of associate attrition. Many in the industry predict that the mounting costs of recruiting and retaining young associates will eventually widen the gap in talent between top-tier and second-tier firms, as more firms find themselves unable to afford the latest salary bump-ups. “It’s going to speed up the process of ferreting out the low performers,” says Zeughauser about the skyrocketing associate salaries. To avoid being picked apart by headhunters or hiring less talented associates, some firms may choose to merge with a larger firm, swapping identity and autonomy for a seemingly more secure future. Those familiar with the D.C. legal market point to Crowell & Moring, McKenna & Cuneo, and Arent Fox as firms that could be rejuvenated by a merger. For example, Crowell has been plagued over the past year by high associate attrition, to the distress of managing partner Herbert Martin. “We’ve had so little of this in the past 20 years, the last few months it has been something new to us and not pleasurable,” he says. Likewise, McKenna and Arent Fox have traditionally lagged behind the area’s comparably sized partnerships in profits. Still, Christopher “Kit” Smith, managing partner of Arent Fox, maintains he is often approached by large firms interested in talking about the possible benefits of a merger. But like most firms engaged in the merger dance, Arent Fox hasn’t yet met its perfect match and has pursued its growth strategy by acquiring practice groups instead. Besides, says Smith, mergers can have unwanted outcomes. “The quality drops if you add too many lawyers too fast,” he explains. “We clearly want to grow,” he says. “But I think it’s an overstatement to say that you’ve got to do it with a merger.”

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