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Palo Alto, Calif.’s Gray Cary Ware & Freidenrich, the product of a 1994 merger, appears to be mulling another marriage — this time in Los Angeles. According to sources familiar with the negotiations, the target in the talks is L.A. corporate boutique Riordan & McKinzie — the firm co-founded by outgoing L.A. Mayor Richard Riordan. The mayor plans to return to the firm when he leaves office later this year. Though neither firm would confirm they are indeed in serious talks, they did say they each have engaged in merger discussions with other law firms in recent months. “We’ve talked to a lot of law firms over the past year and continue to respond to inquiries from firms in various markets,” said Gray Cary chairman J. Terence O’Malley. “But we do not have a transaction structured at this time.” Riordan’s managing partner Richard Welch said he’s met with a number of firms but would not divulge which ones, or whether Riordan was in serious talks with Gray Cary. Any exploratory conversations have been for strategic reasons, and the firm has not put itself in play, Welch added. “We’re not crying down here or waving our arms. We’re doing just fine as a firm,” Welch said. Nevertheless, sources familiar with the negotiations say the two firms are serious about pursuing a merger. “They’re being real hush-hush about it,” said one source. Given the shaky economy, the timing of a possible merger struck some legal market observers as potentially prescient. “I suppose it could be a good time based on the fact that the market is not exactly robust,” said Los Angeles-based legal recruiter and consultant Larry Watanabe. If corporate work was still going through the roof as it has in recent years, then firms like Riordan or Gray Cary would be less likely to feel the need to merge, Watanabe said. And by linking with Riordan, which has offices in Los Angeles and Orange and Ventura counties, Gray Cary would score total penetration in California’s biggest markets, he said. “I can’t think of another law firm that can lay claim to that,” Watanabe said. The 380-lawyer Gray Cary currently has six offices, one each in Seattle and Austin, Texas, and five in California, including two separate offices in San Diego. The firm was created by the merger of Palo Alto’s Ware & Freidenrich, which at the time had 100 lawyers, and San Diego’s Gray, Cary, Ames & Frye, which had 165 lawyers. Ware & Freidenrich brought to the merger a focus on transactional work for technology clients, while Gray, Cary, Ames & Frye had a heavy emphasis on litigation. The move was seen as a shrewd one for the San Diego firm, which scored entry into Silicon Valley just as the technology and Internet boom took off. But some of the same lawyers say the work of melding the two firms may have dulled Ware & Freidenrich’s edge in the tech market. Since 1995, Gary Cary has seen a third of the growth of its closest counterpart at the time, Cooley Godward. In the last five years, Gray Cary has grown its ranks by 44 percent to 380 lawyers and its revenues by 123 percent to $190 million. While the growth was strong, it paled in comparison with Cooley’s and that of other firms that rode the tech boom. In 1995, Cooley logged $82 million in revenue in 1995 — $3 million less than Gray Cary — and 214 lawyers. But in the past five years, Cooley grew its ranks by 170 percent to 578 lawyers and its revenue by 320 percent to $345 million. The merger was more difficult than the lawyers from the firms had expected, and many key partners left, forcing the combined firm to rebuild, said Gregory Gallo, a Ware & Freidenrich partner who negotiated the merger with Gray. Also contributing to a slower growth rate, Gallo said, was the firm’s strict client intake policies that ultimately kept its client and lawyer turnover low. But Los Angeles could prove to be a new frontier when it comes to staking out high-tech territory. In Los Angeles, Gray Cary wouldn’t face the same kind of intense competition for emerging growth companies as it does in Palo Alto, San Francisco, Austin and Seattle. Among Gray Cary’s closest San Francisco Bay Area tech competitors, only Brobeck, Phleger & Harrison has a significant presence in Los Angeles. But Pillsbury Winthrop and Heller Ehrman White & McAuliffe also have offices in Los Angeles and are aggressively bulking up on high-tech startup clients. “Riordan’s a player in the convergence market of entertainment and technology. It would be a little coup for Gray Cary,” said Peter Zeughauser, a principal of Irvine, Calif.-based ClientFocus. He doesn’t appear to be alone in that view of Riordan. The 85-lawyer firm has seen an uptick in merger interest in recent months, said managing partner Welch. “In the last six months, there seems to be greater emphasis on building up in L.A.,” Welch said. “And there seems to be a trend toward merging.” The firm’s 25 equity partners log about $550,000 in profits per partner, Welch said, but he did not disclose last year’s revenues. Welch added that the slowing economy is not at issue for the firm. But Riordan is using merger talks to examine long-term growth strategies that will continue to emphasize high-tech companies and venture capitalists. “The current economy is not a factor in anything we’re thinking of doing,” Welch said.

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