Poised to Become World's 4th-Largest Economy, California Lures Second Hundred Firms
The Recorder, December 27, 2022
By Jessie Yount
Out-of-town firms once again had a ripple effect on the California legal market in 2022. But whereas last year much of the activity stemmed from elite Wall Street and international firms, this year’s biggest office openings (often coinciding with mergers) were largely dominated by firms outside of the Am Law 50.
With this year’s new entrants, about 45% of Am Law Second Hundred firms have at least one office in the Golden State. By contrast, 93% or all but seven Am Law 100 firms have an office in the state.
Much of the flurry of activity occurred in the back half of the year, despite macroeconomic pressures and a demand slowdown that materialized in the fall. While some firms that overhired or heavily cater to the tech sector are feeling an acute impact, many others are still hiring, anticipate growth and, ultimately, are betting on the California economy, which is expected to soon surpass Germany as the fourth-largest in the world.
“I would separate the firms that are going through a demand shock versus some stagnation in demand,” Kristin Stark, a legal consultant at Fairfax Associates, said when asked about firms’ expectations for 2023. “A lot of firms have not seen a notable shift in demand as of yet. Some firms are busy because of their diversification of practices, so even with a softening in transactional work, that is offset by other practices.”
Middle-market mergers and acquisitions work is still going steady, while real estate finance deals, which tend to be impacted by an economic slowdown, have yet to dry up, Stark added.
Those characteristics and that type of work often fit firms outside of the Am Law 50, and their buffering from a transactional slowdown coupled with recent expansion in the Golden State sets them on a growth course for 2023.
New in Town
“Midsize and Am Law 200 firms are going to shine in 2023,” said Jenny Swan Meyer, a recruiter at Swan Legal Search. “This past year, we’ve seen quite a few mergers between midsize and Am Law 200 firms absorbing smaller shops. They’re strategically and steadily growing.”
Quarles & Brady, headquartered in Milwaukee, will launch in San Diego in January after merging with the 30-attorney team from employment firm Paul, Plevin, Sullivan & Connaughton. Fellow Am Law Second Hundred firms Frost Brown Todd, based in Cincinnati, will open in Los Angeles, Orange County and San Francisco next year with 23 lawyers from minority-owned firm AlvaradoSmith; and Maryland-based Offit Kurman touched down in Los Angeles when it brought on 14 attorneys from Clark & Trevithick this month.
Some Am Law Second 50 firms also achieved significant regional growth via combinations in 2022. Philadelphia-based Duane Morris recently combined with employment boutique Curley, Hurtgen & Johnsrud, expanding the firm’s presence in Silicon Valley, as well as New York and Philadelphia. And Womble Bond Dickinson, headquartered in Winston-Salem, North Carolina, merged with one of San Francisco’s oldest law firms, Cooper, White & Cooper, and its 17 attorneys in September.
“Many smaller full-service or specialty firms have been in their territory for a long time and have loyal, trusted clients,” Meyer added. “They are attracted to the resources and the larger platform of the bigger firm. It’s a win-win.”
Certainly, several of the firms that have absorbed smaller, regional boutiques aren’t interested in rewriting the script in California. Instead, they’re looking to use institutional knowledge to their advantage as they pursue additional expansion.
Quarles, for instance, plans to appoint three of Paul Plevin’s attorneys to leadership positions, and the firm will operate as Paul Plevin Quarles through 2024.
“We want to take advantage of that name recognition throughout California,” firm managing partner Mike Aldana said. “Quarles is a new name here. We’ll establish it with Paul Plevin, which is a tremendous asset given the fantastic practitioners they have.”
In another reversal from 2021, there were far more mergers and office openings in the southern part of the state in 2022.
Ropes & Gray, headquartered in Boston, was the largest firm to launch a new office in the Golden State this year, setting up shop in Century City. Phoenix-based midsize firm Fennemore Craig also expanded with several mergers in Oakland, the Inland Empire and Orange County, while Fort Lauderdale’s Greenspoon Marder grew its footprint with a bankruptcy boutique in Los Angeles.
While Los Angeles is rapidly becoming a tech hub with its own venture and private equity ecosystem, the legal market in the region is more diversified and compatible to a greater number of firms.
“In Los Angeles, there is a whole swath of industries such as labor and employment, middle-market transactional, general litigation, tax or entertainment,” Meyer said. “The firms are not so reliant upon one or two industries, creating a more recession-proof operation. This is one advantage to being a Los Angeles firm.”
https://www.law.com/therecorder/2022/12/27/poised-to-become-the-worlds-4th-largest-economy-california-lures-second-hundred-firms/