Law Of The Land
Local legal firms are expanding into markets far beyond the comforts of our fabled perimeter, with some dipping their toes ... and others diving head first.
Drew Ermenc, Senior Writer
August 27, 2008
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M
uch like the banking industry - a sector that has seen its fair share of mergers and
acquisitions in the last 10 years - expansion is becoming the name of the local legal game. With
this period of tremendous transition, major law firms in the city are benefiting from hot markets
like Charlotte and Washington, D.C., where countercyclical elements make practice areas like
litigation and bankruptcy highly competitive and profitable.
Expansion plans have evolved both organically and through acquisition, depending on the situation and strategy presented. "Whatever works economically," says Jim McAlpin with a laugh. As chairman of Powell Goldstein, an Atlanta-based firm, he orchestrated the opening of a Texas office in 2006 by acquiring a small Dallas firm with a strong foothold in the marketplace.
"The important thing for us is the people. Will they fit well within our firm and have the characteristics that we value in our partners? You can't bring in people with whom you can't work."
According to Altman Weil, a legal consulting and research group, the numbers of new law firm mergers and acquisitions rose sharply in the second quarter of 2008 across the country. Although this M&A activity has become more newsworthy due to the dramatic increase, it's actually been trending this way for some time. "It's probably the last four years, at least, as law firms have started to deal with a lot of different things in the marketplace," says Tom Clay, principal with Altman Weil.
Clay suggests corporate clients are streamlining operations, including their outsourced legal teams, which is leading to firms being more proactive.
"[Clients are] pairing down the number of firms they use. [They are] looking to have maybe eight or 10 firms rather than 15 to 20. So that's one area that's caused firms to look ... at being bigger in terms of breadth and depth.
"Another is simply strategic opportunities; growth in geographic ... and vertical markets; firms looking to get into other areas like health care or bio-science."
Clay believes acquisition is the strongest way to enter a market effectively. "You'll find some [organic growth] going on in Asia simply because you need to send some of your own people there," he says. "But you need to develop relationships and you can't do it from 12,500 miles away. Normally, people or law firms have found that sending people into a marketplace and saying, 'We're here, come use us,' hasn't been very effective."
Expansion into other markets isn't new to local firms, as Peach State institutions such as King & Spalding have had a New York presence since 1990 (with Kilpatrick Stockton, Sutherland, Alston & Bird and Troutman Sanders later following). But the clip and markets where these top firms are expanding is noticeable - and many appear to be following one another.
Here are several of the top markets that local law firms find to be the most valuable:
The Potomac Practices
There's a rumbling coming from the shores of the Potomac, and it's not the political discourse. In the last six quarters, seven law firms in Washington, D.C., have been gobbled up by outside acquirers, including two of Atlanta's larger firms.
In June, Troutman Sanders announced a merger with Ross Dixon & Bell, a 100-attorney, D.C.-headquartered firm with offices in California and Chicago. "We've had a very good D.C. office since 1993, but we needed to expand the critical mass in that office and this gave us a good opportunity to do that," says Robert Webb, managing partner and chairman of Troutman Sanders. "We're going to go from 86th to 46th in the D.C. market. That's a pretty good jump, and puts us in a position where we believe we will be extremely competitive in the D.C. market for clients, for business and for lawyers."
The deal, expected to be completed by January 2009, helped kill two birds with one stone for Troutman Sanders mainly due to Ross Dixon's significant presence in the markets where Webb wanted to be. "We also had been looking for some time to expand our presence on the West coast," he says. "We have extensive representation for major energy companies and about 10 of them are located on the West coast. We've got lawyers out there all the time and needed a presence to help service them."
In May, Kilpatrick Stockton merged with D.C.-based Muldoon Murphy & Aguggia, a firm comprising of 22 attorneys with a solid client base already established in the market. "The driving force of that merger was the caliber and quality of the lawyers," says Bill Dorris, managing partner of Kilpatrick Stockton. "[Muldoon Murphy has] a leading practice in their financial institutions area. It fits nicely with our strategy of growth in that area and in the D.C. market, so it was a win-win for both of us.
"They do corporate-related work with a focus on financial institutions and community banks and thrifts. That is an area where we practice but not nearly as extensively and with the breadth they have. It was a nice combination of our practice and theirs."
Everything's Bigger In Texas
"Real estate brought us to Dallas," says McAlpin, discussing Powell Goldstein's entrance into Texas in June 2006. "Dallas was a city we'd been looking at for about 10 to 12 years." By opening a new Dallas office and acquiring Akin Gump Strauss Hauer & Feld, a 13-attorney capital markets practice in June 2006, McAlpin immediately gave the firm a presence in this super-sized market.
"Dallas looked like Atlanta without trees and hills," he says. "What the economy is based on is similar to Atlanta: a heavy emphasis on real estate and the practice of law. Litigation is strong in Texas, and we have a strong litigation practice. Real estate, although cyclical, tends to be strong during boom times as we've seen over the last four or five years."
The larger local firms also are looking to do the Texas two-step. In September 2007, Alston & Bird followed Powell Goldstein by expanding into Texas with the acquisition of Crews Shepard & McCarty, a small but powerful firm with a strong litigation practice.
And in May 2008, King & Spalding announced its intention to open an Austin office by hiring away a top commercial litigator, Mike Steinglein, from a New York-based firm to lead what it hopes will be a fast-growing practice.
With a committed strategy toward bulking up its energy practice, King & Spalding already had a footprint in Texas, with more than 100 attorneys in a very healthy and well-respected Houston office, but this move marked a significant step in positioning the 123-year old firm as a true, multi- Texas-market competitor.
The Research Triangle, N.C.
Because of the proximity to the Georgia market, North Carolina's sweet formula of burgeoning business hubs - Winston-Salem and Raleigh - and Charlotte's financial core is an undeniable combination for legalists looking to grow business quickly. It's an ideal place for Atlanta firms to set up shop, and, like New York, just about every local firm with expansion plans has done so.
"North Carolina is very diverse," says Dorris. "We're in Winston-Salem, Raleigh and Charlotte. Raleigh, of course, has the high-tech and pharmaceuticals industries, which is continuing to expand and bloom. Charlotte, as we all know, is one of the financial capitals of the country and Winston-Salem has a number of significant corporate citizens that we represent."
"The banks took us to Charlotte," says McAlpin. "The need to be in Charlotte was to service two important clients of ours: Bank of America and Wachovia. We felt we needed closer physical proximity, but we also stuck with the strategy of expanding into that market in the areas in which we were strong: real estate banking and servicing large mortgage pools."
And business is booming for King & Spalding, the 800-attorney firm that plopped five attorneys in Charlotte in July 2007. They've already quadrupled the size of the office in only a year.
Globetrotting
As a professional service, when clients go global - as most are doing these days - law firms need to follow. And Atlanta firms are doing just that. Troutman Sanders opened the first Atlanta-based law office in Hong Kong in May 1997. "We had a client with a need over there, so we opened an office in conjunction with that," says Webb. "It was not only to preserve the business we had, but also to pick up additional business from that client. And it worked.
"Our plan from day one was to expand the Hong Kong office, diversify the office and also add people. In Hong Kong, you have to be patient and you have to have a long-term view. The Hong Kong Law Society has rules and requirements that are very protective for the local bar, and you don't go to Hong Kong without a commitment to be there five, six or seven years before you can really expand an office."
After being certified as a Hong Kong law firm (as opposed to being licensed as a foreign-owned law firm), Webb saw the office grow. "We expanded from two to 18 attorneys," he says. "The office has grown with the intention of doing very sophisticated deal work, foreign-direct investment and stock exchange work. That's the kind of expertise we've added in that office and, quite frankly, that's what our clients need. As a result, that led us into mainland China."
Webb clearly is excited about the opening of Troutman Sanders' second China office, Shanghai, in early 2007. He immediately rattles off a series of data pointing to China's explosive growth and potential business opportunities.
"It's a very important market," he says, noting his firm still is the only local with people on the ground in China. Dorris notes his firm has international offices in London and Stockholm, where "it continues to have steady growth." And Atlanta's largest law firm, King & Spalding, has made significant strides to enter the Middle East, with three offices in Saudi Arabia and United Arab Emirates, another signal of the firm's strategy emphasizing energy.
Keeping Up With The Jones
In its simplest form, critics may say these expansion plans are just a high-dollar chess match with an already competitive group of lawyers. Some firms claim they have to "'add more lawyers to our health care group," says Clay with a laugh. "'We are more prominent. We should be more competitive at that type of thing.' And there's a little bit of a 'keeping up with the Jones' when these firms say, 'These guys did a deal. Why aren't we doing a deal and let's just grow and get to be big?' It's foolish, but there's some of that going on out there.
"All law firms keep an eye on their neighbors, believe me. And if they tell you they aren't, they're either not paying attention when they should or they're fibbing," Clay says. "The problem is they really don't know why things are being done sometimes, so they draw the wrong conclusions and formulate their own strategy based on erroneous thinking. I have 100-lawyer firms say, 'If we're not 300, we can't compete.' Three hundred-lawyer firms say,'If we're not 600, we can't compete,' and so on. It's a weird phenomena, but it's out there."
While others may see saturation in these target markets, legal leaders like Dorris envision the glass half-full, with significant opportunity for Kilpatrick Stockton. "We believe there's space in the areas of where our practices are focusing," he says. "Our footprint is Atlanta; Georgia; and North Carolina. Those three markets are projected to have the most significant increases in business of anywhere in the country.
"If you have growth as we expect to see in Georgia and North Carolina, it means there will be growth in the legal market. The legal market, at its core, is a professional services industry. That provides opportunity for us."
Tracking M&A In The Last Four Quarters
• Alston & Bird (Atlanta) acquired Weston Benshoof Rochefort Rubalcava & MacCuish LLP (Los Angeles)
• Morris Hardwick Schneider (Atlanta) acquired Wittstadt & Wittstadt (Baltimore)
• Kilpatrick Stockton (Atlanta) acquired Muldoon Murphy & Aguggia (Washington, D.C.)
• Troutman Sanders Atlanta acquired Ross Dixon & Bell (Washington, D.C.)
• Ballard Spahr (Philadelphia) acquired Needle & Rosenberg (Atlanta)
• Alston & Bird (Atlanta) acquired Crews, Shepherd & McCarty (Dallas)
Source: Altman Weil
What's Hot In Atlanta
Atlanta's
legal M.O. has been litigation and real estate development over the last 30 years. With the latter
in the tank right now, where are local law firms bulking up their practice areas? Here are a few
that offer a pretty glaring picture into our current local economy:
Intellectual Property
"In terms of growth areas that aren't related to the business cycle, our intellectual property area is growing, both on the trademarks and copyright sides and the patent side, including patent litigation," says Bill Dorris, managing partner with Kilpatrick Stockton. "The IP side is an area the economy hasn't affected [and the] practice here and in other firms has remained very strong."
Bankruptcy And Workouts
Midway through 2008, billion-dollar bankruptcies are at their highest level in five years, according to Bankruptcy-Data.com. This can mean big business for law firms. "Workouts and bankruptcy is a strong area of practice given everything going on in the economy," says Jim McAlpin, managing partner and chairman of Powell Goldstein. "We had been growing our workout and bankruptcy practice over the last couple of years and our timing was right. We added bankruptcy lawyers in Dallas. We added workout restructuring capacity in Atlanta and Charlotte and some folks in D.C. as well."
Litigation
"Litigation and parts of litigation continue to be strong historically," says McAlpin. "We've had a strong litigation practice and we've seen its benefits during a economic downturn. What has been interesting is that our corporate practice has remained strong. We have a middle-market focus in our corporate practice and we're having a very strong year. And we have a strong community banking practice and those lawyers are very busy this year as well. Typically in a recessionary environment you see a corporate slowdown; ours has seen it pick up. We continue to see mergers and acquisitions this year."
Southern Hospitality
Atlanta-based law firms have seen tremendous expansion both domestically and internationally in the last 20 years. Here's a good idea of where you can get a taste of legal peaches across the globe:
• Abu Dhabi, United Arab Emirates
• Augusta
• Austin
• Charlotte
• Dallas
• Dubai, United Arab Emirates
• Frankfurt, Germany
• Houston
• London
• New York
• Newark
• Norfolk
• Raleigh
• Richmond
• Riyadh, Saudi Arabia
• San Francisco
• Shanghai
• Silicon Valley
• Stockholm, Sweden
• Hong Kong
• Virginia Beach
• Washington, D.C.
• Winston-Salem
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