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The San Francisco Bay Area’s leading law firms took a cash-rich rocket ride in 2000, hampered little by a stock-battered technology industry and spiraling labor costs, The Recorder‘s annual survey of law firm finances shows. Double-digit revenue and profit growth was the norm as combined grosses from the region’s 10 biggest firms pushed past $3 billion for the first time, an $800 million increase over their record-setting take in 1999. Brobeck, Phleger & Harrison recorded profits per partner of more than $1 million, another Bay Area first. Brobeck was followed by Wilson Sonsini Goodrich & Rosati, which hit $925,000. The pair of tech titans topped the list of the highest-grossing firms, eclipsing last year’s No. 1, Morrison & Foerster, which slid to third. MoFo’s consolation prize? A solid 36 percent gain over the previous year’s revenues and a 10 percent hike in profits per partner. Each of the top three firms grossed more than $400 million in 2000. In many respects, glum financial news for Bay Area technology companies has meant increased opportunities for their legal advisers. Even as the initial public offering boom of 1999 tanked with the Nasdaq’s collapse last year, law firms capitalized on consolidation. Though revenue leader Brobeck acknowledged a slowdown in corporate work in the fourth quarter, tech lawyers fostered mergers and acquisitions and helped dot-com survivors find creative ways to finance their businesses. “When tech companies see their stock price savaged, people expect their legal work will be declining,” said Brobeck chairman Tower Snow Jr. But that’s not so, he said. Brobeck, for example, has “a broad base of clientele from start-ups to giants that throw off a lot of work.” The glut of work fostered a year-long hiring boom as the 10 highest-grossers added 1,000 lawyers over 1999 — increasing their attorney workforce to 5,400-plus. Most of those additions were associates, and firms kept a lid on the number of new equity partners. The 10 largest firms had just 6 percent more partners taking a cut of profits in 2000, and that meant across-the-board surges in profits per partner. In 1999, the 10 revenue leaders averaged per partner profits of $615,000. The number jumped to $735,000 last year. Beating the average were Wilson and Brobeck, as well as Cooley Godward, which saw profits hit $905,000; top 10 newcomer Fenwick & West, which clocked $800,000 per partner; and Orrick, Herrington & Sutcliffe, with $750,000. Firms were also helped by rate increases that helped offset the additional money spent on associate salaries. Most firms raised the starting salary for first-years to $120,000 or more, and for firms like MoFo and Brobeck that meant a hit to the bottom line of more than $20 million. The year’s fastest-growing firm was Cooley Godward, which placed fourth on the power of 62 percent growth in revenues. Rounding out the top 10 were Orrick at No. 5; Pillsbury Madison & Sutro, No. 6; Heller Ehrman White & McAuliffe, No. 7; Gray Cary Ware & Freidenrich, No. 8; Thelen Reid & Priest, No. 9; and Fenwick, No. 10. Fenwick, the sole new top 10 firm, replaces Graham & James — which folded in 2000. Just nine years ago, Graham was one of the Bay Area’s five biggest firms before being hit hard by economic turmoil in Asia and a long series of partner departures. In fact, of the five leading firms in 1991, only Brobeck and MoFo remain close to the top. BROBECK Brobeck marched to the top of the revenue and profit rankings in 2000 with a simple strategy: grow, grow, grow. The firm has increased from 540 lawyers on Aug. 31, 1999 to 950 today — adding 308 lawyers in the last year alone. And Snow, the firm chairman, said Brobeck has been using its people more efficiently — attempting to maximize the revenue generated by each attorney. “We’re able to turn out more work with fewer people in less time,” Snow said. The result: A 52 percent increase in revenues. And even more important for the firm’s top lawyers, profits per partner of $1.17 million. Snow said the firm’s performance was strong across every practice group and that complex litigation, IP and securities litigation, labor, real estate, commerce, financing and tax were consistently robust. Corporate work, however, slowed in the fourth quarter as economic woes dampened the number of deals. Associate salary hikes introduced at the beginning of last year cost the firm an estimated $20 million to $30 million. But Snow said about half of this expense was offset by a reduction in associate attrition, which went from 24 percent in 1999 to 12.5 percent last year. That, in turn, meant a significant savings in recruitment and training costs. Snow said he doesn’t anticipate another salary hike this year given the volatility of the financial markets. He also expects a slowdown in hiring. “I don’t think we’ll hire 300 lawyers, but it wouldn’t surprise me if we hired 150,” he said. As for future expansion, Snow said the firm will concentrate on growing existing offices. Last year, Brobeck opened an office in Dallas and this month it is adding two outposts, one in Reston, Va., and another in Munich, Germany. The latter is the third international office Brobeck has opened under its joint venture with Boston’s Hale & Dorr. Snow said he doubts the firm would open a new office in the coming year — though he’s not ruling out another expansion in Europe. WILSON Market woes didn’t slow the flood of corporate work at Wilson Sonsini, which rode a wave of new lawyers to a 52 percent increase in revenues in 2000. Though its fiscal year doesn’t end until Jan. 31, Wilson anticipates revenues will reach $450 million, and its profits per partner will hit $925,000. “It’s been a fantastic year for us in terms of [firm] growth and in our revenue,” said Donna Petkanics, a Wilson partner and managing director of operations. “We have a solid client base. Despite a downturn in the IPO market, we continued to have strong M&A and general corporate work.” Corporate work comprised about 60 percent of Wilson’s revenues in 2000. The firm closed 191 mergers and acquisitions last year, according to preliminary figures from Thomson Financial Securities Data. And that doesn’t include the countless smaller deals valued below $100 million that the market research firm doesn’t tally. And though the market for initial public offerings soured in the spring, the firm still managed to take public 43 of its clients. That helped Wilson secure its place for another year as the nation’s top IPO firm. Despite the market downturn, it’s just 13 deals shy of its 1999 IPO total. Also helping the corporate practice was high-end work like debt financing. Wilson was able to close a number of those deals for more mature clients. The firm is also mining its intellectual property prowess by launching a side business last year to sell intellectual property counseling to clients. MOFO Morrison’s good year wasn’t good enough to keep it from slipping to No. 3 behind tech-heavy Brobeck and Wilson. But MoFo seems to be taking its fall from the top spot in stride. While MoFo may not “ride the tech wave quite as high in the boom time” as others, firm chairman Keith Wetmore said, its full service approach provides an advantage in the long run. “We may see more meteoric swings for firms who are more limited in their range of practice,” he contends. Still, MoFo saw revenue growth almost double that of 1999, and that was driven in large part by technology company work in its corporate and litigation practices. The firm showed up on a few of the year’s biggest deals: representing JDS Uniphase Corp. in its $42 billion purchase of SDL Inc. and its $19 billion acquisition of E-Tek Dynamics Inc. In another major deal, MoFo represented U.S. Exim Bank and Overseas Privacy Investment Corp. in their financing of a $2 billion power project in Turkey. The Turkish deal is part and parcel of the firm’s continuing effort to tap the global marketplace. To that end, the firm expanded significantly in London and Asia, as well as in U.S. offices in San Diego, New York, San Francisco and Palo Alto. The firm opened one office last year, in Northern Virginia. “Next year is an opportunity to make strategic additions to deepen the practice rather than spread it around,” Wetmore said. He added that he expects to see the firm grow in London and Asia and perhaps expand on the continent beyond Brussels. Though it slipped to No. 3 in revenues, MoFo continues as the No. 1 Bay Area firm in sheer number of attorneys. By year’s end, the firm became the first in the region to pass the 1,000 lawyer mark. Like other firms, MoFo’s biggest expense was associate compensation. With the boost in salaries, MoFo “moved $25 million in cash into the pockets of associates this year,” Wetmore said. COOLEY The success story of 2000 may be Cooley’s huge gain in both revenues and profits over the last year. Fueled by a 62 percent revenue increase, Cooley ascended to the top 5 and pushed down perennial leaders like Orrick and Pillsbury. The firm is now No. 3 in profits per partner and is closing in on the 600-lawyer mark — or 38 percent more lawyers than 1999. Cooley — no surprise — cashed in on the booming tech market of the first half of the year. Firmwide managing partner Lee Benton said “no practice area was noticeably down. “Corporate and securities, mergers and acquisitions, intellectual property and big case litigation have been the principal drivers of the firm,” Benton said. M&A transactions, he said, gained “more relative importance in the second half of the year as public offerings declined.” The firm handled more than 100 mergers and acquisition in 2000. Like other tech firms, Benton said Cooley kept partnership growth modest while boosting the number of associates. The firm’s leverage is now more than four to one. The firm’s Reston, Va., and Colorado offices brought in a large number of laterals, doubling in size to about 75 attorneys. Cooley did not open any new outposts last year and has no plans to do so in the near future. “We’ll approach 2001 with a certain amount of caution,” Benton said. The firm “won’t stop hiring or strategic expansion we deem necessary,” he said. “We came through two to three years where no matter how hard we looked, we couldn’t find enough people to do the work,” Benton said. “Now that we’ve achieved balance we won’t have the frenetic need to go out and hire people in 2001.” ORRICK High interest rates may have put a dent in the firm’s mainstay — public finance — but Orrick still managed a healthy year, growing revenues at a faster clip than 1999. Orrick grossed $320 million in 2000 — 21 percent more than the previous year — and profits per partner climbed to $750,000. The 14 percent growth in partner profits doubled 1999′s rate. “We had a great year,” said chairman Ralph Baxter Jr., who said that the firm saw “striking growth” in its corporate and intellectual property practice areas. Baxter, whose firm has been trying to make a big splash in the lucrative technology sector for a few years now, said the firm’s corporate technology business has quadrupled in the last two years. He said the firm’s New York presence has helped it get in on the ground floor of Silicon Alley, and the firm has added 16 lawyers in Seattle who focus on technology deals. But unlike technology powerhouses Brobeck and Wilson, Orrick did not add scores of lawyers in 2000. The firm had 532 last year, just eight more than 1999. Baxter attributes the slight growth to the loss of real estate attorneys in the firm’s New York office. Baxter said the firm has seen good growth in securitizing assets and in high-stakes litigation. And he believes Orrick has done better than most in weathering the problems in the public financing sector. Baxter said the firm is pinning expansion hopes on Asia and Europe. The firm is continuing efforts to increase the size of its London office and touts its status as only one of two U.S. firms licensed to practice in Singapore. PILLSBURY One of the first things Mary Cranston and Marina Park did when they took over the top management jobs at Pillsbury Madison & Sutro two years ago was to start crafting billable hour expectations for every lawyer at the firm — and not just associates. They say the effort paid off in 2000 with a 15 percent increase in gross revenue. “We billed out for more hours this year than we did last year,” said firmwide managing partner Park, “because, 2000 was the first year where in January everyone knew exactly what was expected of them throughout the year, and everyone really delivered on what we asked of them.” When they raised associate salaries last spring, they added the requirement that they each bill for 1,950 hours and quickly stipulated that pro bono work could not be counted. They scrapped that plan once they chose to merge with the New York firm Winthrop, Stimson, Putnam & Roberts, which became effective on Jan. 1. The new Pillsbury Winthrop will have more than 800 lawyers, a fact that should help the firm increase its revenue standings in 2001. “We now have a New York office and a global footprint, and our profits have jumped two straight years,” said Cranston. The firm’s figures are estimated by management, which won’t have them finalized until later this month, but they show that profits per partner rose from $505,000 to $615,158. Cranston said the 517-lawyer firm’s partnership was streamlined from 225 in 1999 to 195 this year, including non-equity partners. The number of equity partners has also been pared through a management reshuffling — with 100 lawyers relying solely on firm profits for their compensation. The hemorrhaging that had taken hold of the firm before Cranston and Park took over slowed to an attrition rate of about 19 percent this year, with the loss of 60 associates and 30 partners — eight of whom retired. Nevertheless, Pillsbury showed a net gain in lawyers from 490 in 1999 to 517 in 2000. HELLER Heller Ehrman held steady at No. 7 in gross-revenue rankings this year, but that was about the only thing standing still at the venerable San Francisco firm. Gross revenue at Heller grew by 34 percent over 1999 — climbing from $196.5 million to $261.5 million. “We’ve invested a lot of time and resources into building a national firm with a global reach, and this year it paid off,” said Heller chairman Barry Levin. Indeed, Heller has souped up its remote offices over the last year, adding 44 lawyers and patent prosecutors and planning moves to bigger spaces in Washington, D.C., San Diego and New York. It added a total of 15 intellectual property and biotech lawyers in D.C., 16 corporate, international information technologies and complex litigators in New York and 13 patent lawyers and practitioners in San Diego. The firm saw a net gain of 50 new lawyers, 15 of which were lateral partners added over the last year. Profits per partner soared 20 percent from last year’s $470,000 to $562,000. On top of that, equity partners gained more leverage: Last year the firm had 144 equity partners among 400 lawyers; this year, it has 138 out of 440. Levin says the firm has scored big successes representing large financial institutions like Bank of America and Wells Fargo and handling major litigation for Qualcomm and Visa. Levin also attributes part of the firm’s success to the creation in late 1999 of 15 national practice groups, which tries to market talent harnessed firmwide. But the firm’s also had some losses, with nine partners leaving to work for clients. Levin said most noteworthy among the departures was that of August Moretti, a biotech lawyer who left at the end of the year to work as the chief financial officer of Surromed. GRAY CARY Palo Alto’s Gray Cary bested its own record revenue jump of 27 percent set in 1999 by swelling its gross intake by 35.7 percent in 2000. With revenue of $190 million, profits per partner at the firm swelled 17.5 percent to $530,000. That’s about equal to the rise in the firm’s overall profits, which jumped 17.6 percent to $48.24 million. The 380-lawyer Palo Alto-based firm has been trying to strengthen its footing among technology companies in the face of steep competition. It’s opened new offices in the past two years and grown its ranks. In 2000, the firm added 60 new lawyers. “A lot of our revenue growth has come from geographic expansion in Austin and Seattle,” said J. Terence O’Malley, the firm chairman. Gray Cary opened a Seattle office in February with eight lawyers, expecting it to lose money for about 18 months, said O’Malley. But by November, the office had doubled in size and was making money, he added. In the past year, Gray Cary also started bulking up its intellectual property litigation practice in its two-year-old Austin office. “The big drivers in profits are litigation and corporate securities,” O’Malley added. Despite a declining stock market that slowed public offerings, Gray Cary managed a plucky pace of venture capital financings and mergers and acquisitions. And as venture financings doubled, the number of mergers and acquisitions handled by the firm swelled by 30 percent, O’Malley said. THELEN After the firm’s anemic performance in 1999, Thelen Reid & Priest chairman Richard Gary said his firm is beginning to harvest the fruits of the 1998 cross-country merger between San Francisco’s Thelen, Marrin, Johnson & Bridges and New York’s Reid & Priest. Thelen finished 2000 with gross revenues at $180 million and profits per partner reaching $500,000, a 13 percent and 7-1/2 percent increase from 1999 respectively. Gary credited the gain to better working relationships among lawyers on both coasts and cross-selling among practice groups servicing the firm’s strongest industry: energy and infrastructure. “Each of the firms were regional firms with clients across the country,” he said. “We were especially successful in cross-selling financial services.” In 1999, the firm was still in transition, Gary said. It lost 30 percent of its equity partners and spent significant sums working out the details of the merger. Thelen in 1999 paid for everything from a new voice mail system to firm retreats so people could get to know each other. After minimal growth — eight attorneys in 1999 — the firm added 33 attorneys in 2000. Many of the new lawyers work in practice areas not typically associated with Thelen’s more traditional reputation, including intellectual property and technology. Gary said the merger and new practice areas are an attempt to create a firm that is well-balanced, and thus recession proof. “I think the merger really did begin to kick in for us,” Gary said. “We began to realize benefits we thought were there. The year 2000 is what I would call a steady state year.” In the coming year, Gary says the firm will explore opportunities in the United Kingdom. But don’t expect Thelen to open up a new office. The firm is looking for a merger or partnership. “Our strategy is to grow through strategic combinations,” he said. FENWICK Despite a relatively modest 248 lawyers, Fenwick & West saw revenues soar 47 percent over 1999 — giving the Palo Alto tech power its first-ever berth in the Bay Area top 10 and a profit-per-partner number that rivals firms four times its size. Fenwick logged profits per partner of $800,000, the fourth-highest in the region, and grossed $148 million. “The firm is firing on all cylinders,” said partner Greg Sueoka, who recently completed his term on the firm’s management committee. Corporate and transactions, like mergers and acquisitions, led the firm’s revenue growth last year, Sueoka said. Aside from corporate, its largest group, Fenwick scored last year with big-ticket litigation. The highest-profile case: Napster Inc.’s copyright infringement fight with 18 record labels. The record companies won a preliminary injunction and Napster appealed. The case is pending before the 9th U.S. Circuit Court of Appeals. Revenues were buoyed further by the firm’s second-largest group, intellectual property. With some 90 lawyers — 45 of them patent prosecutors — the IP group logged strong billings throughout the year, Sueoka said. “Who knows what 2001 will look like,” said Gordon Davidson, Fenwick’s chairman. “What we’re seeing so far is an actual increase in the number of M&A and an increase in the number of start-ups.” Related Chart: Changing of the Guard

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