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Will 2002 turn into the year of the law firm merger? A flurry of recent deals suggests that a wave of consolidation could be nearing a crest. In the month of May alone, San Francisco’s McCutchen, Doyle, Brown & Enersen announced a merger with Boston’s Bingham Dana, creating an 800-attorney international firm; Washington, D.C.’s McKenna & Cuneo combined with Atlanta’s Long Aldridge & Norman; and San Francisco intellectual property boutique Flehr Hohbach Test Albritton & Herbert inked a deal to merge with Minneapolis’ Dorsey & Whitney. Meanwhile, Oakland, Calif.’s Crosby, Heafey, Roach & May has confessed that it, too, is considering a merger. According to managing partners and legal consultants, these recent events are merely the most visible manifestations of the merger mania going on behind the scenes at just about every firm. But while law firms are more open to merger discussions than ever, few predict that this will translate into a record year for mergers. “At least 70 percent of all discussions go nowhere, or should go nowhere,” said Donald Oppenheim, the executive director at San Leandro, Calif.’s Meyers, Nave, Riback, Silver & Wilson and a former principal at legal consulting firm Altman Weil Inc. “Either there’s really no business case that creates dramatic synergy, or there’s philosophical or cultural differences that would make a long-term combination an unhappy event,” he said. These odds don’t appear to be dissuading firms from looking around for potential mates, though. In fact, the occasional news report about merger discussions is a fraction of the inter-firm dialogue and courtship that constantly takes place, say managing partners and legal consultants. “It’s the favorite indoor sport of law firms these days,” said Gray Cary Ware & Freidenrich Managing Partner J. Terence O’Malley. According to O’Malley, Gray Cary is approached by another firm every few months, though the majority of these inquiries do not result in meetings. Managing partners at other Bay Area firms also report receiving merger inquiries on a regular basis, some as often as once a month. What’s driving all this merger talk is a desire to grow and add depth in a sluggish economy. Two years ago, legal work was so abundant that firms could expand simply by enlisting as many associates as they could lay their hands on. “When you have clients pounding on your door to do work for them, you’re just trying to get that work done,” said Hildebrandt International’s Blane Prescott. “Well, there’s not as many clients pounding on the door, so a lot of firms are now thinking more strategically — how do we get those clients?” For many, an appealing answer is to look at other firms and their practices. Unlike poaching lateral partners on a piecemeal basis, hooking up with an entire firm means the partners’ work in progress and their account receivables are retained. More important, the complementary practices and clients that the two firms bring to each other can present huge opportunities for cross-selling. McCutchen Doyle Chairman Donn Pickett said the firm is already reaping new work from its merger with Bingham Dana that neither firm would have received on its own. And despite the technology and Internet downturn that’s ravaged so many sectors of the Bay Area economy, local firms still make attractive merger candidates. For one thing, firms with national aspirations are eager to capture some of the litigation and corporate work in San Francisco. Moreover, many expect the flagging tech market to eventually rebound, and view this as a good opportunity to establish a foothold. Michael Lucey, the managing partner of San Francisco’s Gordon & Rees, said most of the merger inquiries he receives are from out-of-state firms looking to get a California presence. But while firms are much more open-minded and willing to talk about joining forces than in the past, the talk has yet to produce a slew of new combinations — aside from perennial merger candidates like McCutchen Doyle and McKenna. “Most of these conversations that occur end up dying after one or two conversations,” said Larry Watanabe, a San Diego-based legal recruiter who also works with firms on mergers. “I don’t think at the end of the year there’s going to be quite as much merger activity as a lot of people anticipate.” The damage that can result from a bad fit, whether in terms of practice or culture, is not easy to undo. Executive committees, well aware of the irreversibility of a merger, are extremely cautious. “This kind of change is very fundamental. If it’s a true merger of equals, it can wreak havoc on a firm’s culture,” said Gordon & Rees’ Lucey. Even proceeding with merger discussions past a certain, preliminary level poses a significant risk. As the circle of people involved in the discussion widens, the potential for discord and fallout within a firm rises. In any proposed merger, certain partners and practices will decide that a combination is not in their best interest, and will begin to make contingency plans, explained Watanabe. As a result, even if the merger talks ultimately fall through, it’s not unusual to see some partners jump ship in the wake of the discussions. “That’s not a coincidence most of the time,” said Watanabe. And mergers aren’t cheap. While money typically doesn’t change hands, there are still plenty of costs involved, such as attorney downtime, the cost of integrating two disparate computer systems and the cost of conducting client conflict checks. These costs invariably exceed initial estimates, said Gray Cary’s O’Malley, whose firm has completed two mergers over the past decade. “I think when people get close to actually doing it, they see more clearly the issues and problems attached and often back away,” said O’Malley. But despite all the risks and expenses involved in mergers, many people agree that there’s plenty of room for more pairings. “If you think about it, the largest market share of any firm in the U.S. is one half of 1 percent,” said Oppenheim, of Meyers Nave. “This is a marketplace that will consolidate much further, no doubt about that.”

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