As South Florida law firms slowly crawl out of the recession, they are starting to raise their billing rates, hire more lawyers and in some cases search out merger partners with an eye on growth.
The consensus of 62 law firms responding to the Daily Business Review’s annual managing partner survey is that the economy has definitely turned the corner while in no way returning to pre-recession levels. Many firms report a return of corporate deals — not in the billion-dollar range but in the smaller variety.
However, the firms — some with 1,750 lawyers and others with just a handful — appear to be proceeding cautiously, waiting for the election results and seeing how things play out in Europe and Asia.
The Charts: 2012 Managing Partners
“There is a pent-up demand for corporate transactions,” said Richard Rosenbaum, CEO of Greenberg Traurig, South Florida’s second-largest law firm by number of lawyers with 346. “We are seeing many more transactions being considered, which is always the first stage. We think 2013 will be a pretty strong year for corporate transactions, and real estate transactions will make strong comeback.”
Gary Sasso, president and CEO of 274-attorney Carlton Fields, agreed. “I think the recession is already behind us,” he said. “I think this coming year will be a good one. I think there are plenty of opportunities out there for us.”
Mark Raymond, Miami managing partner of Broad and Cassel, said simply, “It’s a good time to be a lawyer.”
The vast majority of managing partners said they are “slightly optimistic” about the coming year at their firm and in the local legal industry. Only a couple reported being pessimistic.
Bill Brennan, a national law firm consultant with Altman Weil, said these reports from South Florida managing partners reflect what law firms leaders are reporting nationally.
“It’s the big thaw after the great freeze,” he said. “Where firms have been suppressed for the last four years, they are now seeing some light at the end of the tunnel. They are being less cautious and more bold in their planning, which includes increasing billing rates, much more interest in mergers and acquisitions, and hiring. It’s an awakening of the legal profession.”
One clue the economy is recovering: managing partners, responding to billing rate surveys, report raising their rates, some for the first time since the recession began. That’s certainly true for Robert Hudson, managing partner of Baker & McKenzie’s Miami office, who increased his rate to $925 an hour, representing a 6 percent increase.
While law firm leaders are reluctant to quantify the increases, Brennan said firms are raising rates this year an average of 5 percent to 8 percent.
“We voluntarily froze our rates for a couple years,” Sasso said. “We told clients we were supporting them, and we would ask for that favor back when the economy improved. Our clients are in good shape, with good profits. We raised our rates a reasonable degree. They understood.”
McDermott Will & Emery also is hiking its billing rates slightly, Miami managing partner Ira Coleman said.
“We tried to hold the line on billing rates for a couple years but expenses kept increasing,” he said. “We talked to clients about it. We tried to be very upfront and worked out a good balance of what’s fair and reasonable.”
Other positive signs in South Florida: profit per partner and gross revenue are increasing slightly at most law firms, attributable to a combination of hard work, expense cutting, new lateral hires and in the word of one managing partner “hustle.”
“It comes down to a lot of hard work,” said Sasso, who reports his firm added 735 clients so far this year, many of them thanks to a new group of health-care attorneys the firm picked up.
‘Past The Bottom’
Holland & Knight, South Florida’s third-largest law firm, reports a 5 percent jump in gross revenue for the first three quarters of the year.
“We have had very good financial success in the first nine months of the year,” said Steve Sonberg, managing partner of Holland & Knight. “Where other law firms have taken downturns, we have been successful. We’ve done that through being concerned with efficiencies in how we deliver services to clients.”
Sonberg reports an uptick in the firm’s health care, banking and real estate practices with continued strength in white-collar defense and litigation. Corporate dealmaking has bounced back somewhat, he said — “not in multibillion-dollar deals we used to see but in the tens to hundreds of million dollar deals.”
The types of deals being done now are quite different from those done last year, Raymond observes.
“A year ago it was the smart investors who had speculative money,” he said. “Now the less risk-averse but also very sophisticated businessmen and women recognize we are way past the bottom and in order for them to grow their businesses need to grow.”
Foley & Lardner’s new Latin American practice, launched in Miami a year ago, is working on several deals worth hundreds of millions of dollars that are expected to close in the next nine months, said Bill Davis, the firm’s Miami managing partner.
One emerging practice area in South Florida is intellectual property, managing partners say. With entrepreneurial incubators set up by universities and biomedical research facilities, lawyers are being hired to file patents and litigate against patent infringement, they say.
“The incubators that have been set up by University of Miami and University of Florida and the biomedical center in Martin County are starting to generate new ideas and processes that need good lawyers to help them monetize their discoveries,” said Dan Casey, Miami managing partner of K&L Gates. “That’s a practice that never existed here before.”
Other managing partners reported a waning of their bankruptcy and workout practices. In fact, Broad and Cassel is now taking Miami associates it trained in litigation to handle “broken deals” a few years ago and retraining them to handle transactions and deals.
“They did hundreds of complex commercial foreclosure cases with sophisticated lenders, and those are now drying up,” Raymond said. “Now they are back doing deals, and we are looking for litigators to replace them.”
But the decline in bankruptcies doesn’t necessarily signal a robust economy, cautions Rosenbaum of Greenberg Traurig.
“I think it’s due to a combination of low interest rates, many more extensions of debt instead of enforcement as well as out-of-court workouts and settlements to avoid the expense of a major bankruptcy,” he said. “I don’t see that as a sign the economy is improving.”
Still, South Florida continues to be attractive to out-of-state law firms, which are fiercely scouting for lawyers and groups of lawyers to open in the gateway to Latin America.
One managing partner who did not want to be identified said he has been “inundated” with calls from headhunters for out-of-town law firms in recent months, including mega-firms Jones Day and Sidley Austin. Both reportedly have been looking to open Miami offices for at least a year.
Despite the economic rebound, law firms are still keeping a close eye on expenses, whether that means renegotiating leases and vendor contracts, outsourcing document review, utilizing more contract attorneys or keeping a closer eye on accounts receivable.
“We’ve exercised a great deal more diligence in billing and collections,” Sasso said. “We monitor accounts receivable on a weekly basis where we used to do it on a monthly basis. We want to identify red flags early and reach out to clients to help them with issues earlier.”
Foley & Lardner outsourced its central recordkeeping this year to save money, while McDermott Will & Emery and Akerman Senterfitt report more use of contract attorneys.
“We use them to help our clients on large litigation, electronic discovery projects usually in the compliance and health-care areas where there’s big dumps of data you have to sort through and analyze,” Coleman said.
Cori Lopez-Castro, managing partner of Coral Gables-based Kozyak Tropin & Throckmorton, said her firm is extra cautious these days before taking contingency cases and has even formed a contingency committee to assess which cases are cost-effective.
As with many employers, some expenses can’t be reduced or even held steady. Managing partners report a large jump in health-care insurance costs in the last year. Jamie Cole, managing partner of Weiss Serota Helfman Pastoriza Cole & Boniske, said insurance for his midsized firm was set to jump 50 percent, so the firm switched companies. The smaller increase was shared among the firm and its employees, he said.
Keeping a close eye on its finances, Greenberg Traurig issued its first capital call in more than a decade, calling on partners to raise $24 million by next year. Rosenbaum said the move was made not because the firm was in trouble but as a “buffer against uncertainty.”
The only other firm that said it would consider a capital call this year is Holland & Knight.
“We look at the capital needs of the firm,” Sonberg said. “We will look at this at the end of the year. We will give partners plenty of advance notice. We try to do it in a programmatic way.” Holland & Knight issues capital calls “periodically,” something that has enabled the firm to remain debt-free, he said.
One troubling trend reported by South Florida law firms is that corporate clients are increasingly taking more work in-house.
“Some corporate counsel are beefing up their in-house departments and trying to do as much as they can themselves,” said Davis of Foley. “Some corporate clients are looking for fixed-fee relationships or alternative billing schemes. The recession has caused a reset in the way corporate clients spend their legal dollars, and that’s just the reality these days.”
In keeping with a national trend of law firm mergers, South Florida firms also appear to be actively looking for merger partners, primarily boutiques. Carlton Fields and Becker & Poliakoff both announced mergers earlier this month, and more statewide mergers are expected this year, sources say.
“We are actively looking for opportunities to grow the firm,” Sonberg said. While Holland added 26 new partners firmwide in the last year, including a group from the defunct Dewey & LeBoeuf, it also created a new position of chief international officer to scout for new opportunities and potential merger partners abroad.
Large or small, one thing managing partners uniformly agree on is their longing for the election to be over, regardless of who wins. Clients are watching and waiting anxiously, they say.
“It will be interesting to see how the election comes out and what effect it will have on business, if any,” Davis said. “There are potential ramifications with regard to tax structure, health-care law. The fiscal cliff is looming. Business people just want some certainty.”