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Stephen Meyer, managing partner of Sacramento, Calif.’s Downey, Brand, Seymour & Rohwer — the largest firm in town — says he isn’t worried about outside competition moving into the capital city. In the past five years Meyer’s firm has grown from 50 lawyers to more than 100 and recently signed a $12 million lease renewal on its Capitol Mall office with room to grow. The lease is the largest ever for downtown Sacramento office space. “Our profits have increased substantially,” says Meyer. “I haven’t found being from Sacramento a huge hindrance.” And he takes a subtle swipe at the big firm competitors who have set up shop in the last few years: “[Billing] $400 to $500 an hour just isn’t acceptable in this area.” But outsiders are moving quickly into Sacramento, and like it or not, they’re changing the way business is done there. Nationally branded firms are grabbing the work of tech startups and global players like Intel and Hewlett-Packard that are setting up shop in the city. But concentrating on tech means that out-of-town firms are pricing themselves out of a lot of local work. Even with that lack of crossover, the presence of outsiders has put increased pressure on indigenous firms to raise salaries, billable hour requirements and even billing rates. More and more, firms that prided themselves as “lifestyle” shops have been squeezed by economic forces as well as their own leverage problems. “The market is maturing and billing rates are moving up dramatically,” says Blane Prescott, a partner with the consulting firm Hildebrandt International. Yet Prescott says not everyone is likely to jump into Sacramento. “It’s like Boise, Idaho,” he says. “Not everybody and their brother wants to go there.” That fact has helped local firms like 105-lawyer Downey Brand and 75-lawyer McDonough, Holland & Allen grow tremendously in recent years. Those firms represent everything from mom-and-pop outfits to major banks and giants with local offices like Campbell Soup Co. and Pacific Bell. “It’s very much a closed culture,” Prescott says. “Local clients tend to stick with local firms.” That said, lawyers like Gilles Attia of Palo Alto, Calif.-based Gray Cary Ware & Freidenrich see nothing but opportunity. When he looks east from his 24th-floor Capitol Mall office toward the Sierra Nevadas and west to the rough-and-tumble industrial city of West Sacramento and UC-Davis beyond it, Attia envisions tech hot spots like San Diego or Austin, Texas. “We’re bullish,” Attia says. “Sacramento is perceived as a positive place. The infrastructure is developing.” Attia sees Sacramento as the potential staging ground for the next high-tech gold rush — and he’s not the only one. He even predicts that his 17-lawyer Sacramento office, which opened just three years ago, could grow to 50 or 60 lawyers in the next decade in the same fashion that Gray Cary grew its San Diego office to 200 attorneys. The plan is largely centered on the area’s sprouting technology corridor along Highway 50. UC-Davis is also earning a reputation as a biotech hub, and venture capital firms are moving in to take advantage. As Sacramento grows, so too does the demand for lawyers who can handle complex transactional and intellectual property matters, and that’s an area where large Bay Area firms tend to have an advantage over the local competition. David Beatty, who heads Sacramento’s McDonough firm, doesn’t deny that the Sacramento firms have felt pressure from the San Francisco Bay Area and have subsequently had to raise rates, salaries and billable hour requirements. “Everything’s more competitive,” he says. At the same time, Beatty says his firm has also become more diverse and is looking to expand its tax law and business practices. He says the firm is also doing more IP work. “We want to expand that area because our clients are asking for it,” he says. Much of that corporate work is being done in the firm’s five-lawyer Yuba City, Calif. office — of all places — where a group of established corporate attorneys merged into the firm a few years ago. McDonough also has a 10-lawyer Oakland office that does the bulk of the firm’s work on behalf of California cities like Long Beach and Emeryville. In Sacramento, McDonough is counsel on Calpers’ massive development in downtown Sacramento, which has a price tag that reaches into the hundreds of millions of dollars. McDonough lawyers are also working on a $150 million deal to build the Madison Marquette mixed-use center next to IKEA in Emeryville. McDonough also represents the Northern California Power Agency in the PG&E bankruptcy. Salaries, however, have been an ongoing problem for firms like McDonough, where the ratio of partners to associates has been high. The firm has been hiring associates to improve leverage, and the firm balance stands today at around two-thirds partners and one-third associates, Beatty said. In Sacramento, first-year associates at Sacramento firms are paid $70,000 on average while first-years at large Bay Area firms are paid $125,000. For partners at the three largest Sacramento firms, profits have been known to be as high as $500,000, according to Hildebrandt’s Prescott. That’s not too shabby considering that partners at Pillsbury Winthrop earned $615,000 on average and partners at Orrick, Herrington & Sutcliffe averaged $765,000 last year. At most other firms, though, partners make close to what a senior associate might make at the Bay Area firms. But profitability often hinges on the size and complexity of transactions, and the large out-of-town firms boast that they are getting the bulk of the cutting-edge deals. “The large transactions are being done locally, but by national firms,” says Gray Cary’s Attia. “Local firms have tried to penetrate the [intellectual property and corporate securities] markets, but they just don’t have the traction.” Attia says that since opening the office three years ago, his firm, with its 10 corporate securities lawyers, has been responsible for 80 transactions worth a combined $6 billion. That includes early-stage seed rounds, IPOs and mergers and acquisitions work. Downey, Brand’s Meyer, on the other hand, says he isn’t sure if his firm had ever done an IPO. Prescott says the local firms run into a classic quandary when it comes to trying to do emerging growth work — they just don’t have the experience or the name recognition. “Nine out of 10 times [a company or an underwriter] is going to go with a firm that’s done more of those,” he says. Iain Mickle, a corporate partner who heads Orrick’s Sacramento office, agrees that Sacramento is a developing area with encouraging signs. “There’s room for growth,” he says. “Venture capital has increased and more companies are moving to the area to take advantage.” Yet Mickle says there are no plans to grow Orrick’s office, which at 30 lawyers is the largest of the national firms and seventh overall among Sacramento law firms. Pillsbury currently has 15 lawyers; Gray Cary has 17. Mickle says he isn’t convinced yet that Sacramento will become the next tech hot bed, and his office still relies heavily on its public finance work and its political practice. Attia, though, who went to Sacramento’s McGeorge School of Law and previously headed the Sacramento office of Graham & James before joining Gray Cary, is no stranger to the area and remains confident of his vision. “We’d like to be bigger, and we’re focused on this market,” he says.

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