Economy changes law firms' shape

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Before the 2008 recession, the layout of many law firms looked something like this: private attorney offices hugged the windowed walls and, outside their doors, secretarial work stations served every office occupant.

Now many of those work stations are piled high with paperwork, observed Ward Bower, a law firm consultant.

As firms cut costs when the economy tanked, support staff were often among the first to go as the introduction of smartphones, laptops and tablet computers allowed lawyers do a lot of the work that used to bounce to their administrative assistants.

Firms may be a lot leaner than they were before the recession, but those that hope to stay on solid footing going forward need to operate with caution and plot the best way to grow, Mr. Bower told representatives of Pittsburgh law firms Tuesday morning at a Duquesne Club breakfast event.

"It's a time of transition in the legal profession," he said.

PG graphic: Managing partner's outlook
(Click image for larger version)

A principal with Altman Weil, a consultancy based in Newtown Square, Pa., Mr. Bower has been analyzing the economics and operations of law firms for nearly four decades.

As the economy recovers, he expects large and medium-size firms will continue to pursue mergers and acquisitions -- many in new geographic locations -- as a means to grow. Nationally, law firm mergers peaked in 2008 with 70 combinations but fell during the recession to a low of 39 in 2010. Mergers talks then heated up again and by last year, 60 had been completed.

With 14 mergers recorded through March 7 of this year, the statistics are on track for about 60 mergers to be finalized in 2013, Mr. Bower said. "A lot are engaged in talks right now."

In terms of international growth, much of the potential merger activity is happening in Canada, the United Kingdom and Australia, Mr. Bower said.

Case in point: Pittsburgh-based K&L Gates merged Jan. 1 with prominent Australian firm Middletons and the managing partner of Reed Smith, another large Pittsburgh-based firm, said last month the firm is eyeing opportunities in Australia and Canada as well as South America and Europe.

Among managing partners at 33 firms across Pennsylvania who participated in a Legal Intelligencer survey last summer, 58 percent said they were open to merger possibilities and 6.5 percent were actively seeking a merger.

Of the 33 statewide firms surveyed, 21 percent were based in Pittsburgh.

"Pennsylvania is generally in step with U.S. trends so some merger activity is likely," said Mr. Bower.

Large firms are likely to benefit this year from a resurgence in corporate activity, including mergers and acquisitions and initial public offerings, he said.

But they will be challenged to hold on to existing clients as more firms offer special pricing, such as alternative fee arrangements. "Figure that someone is hitting on your clients every day," he cautioned.

For new lawyers, Mr. Bower didn't offer much incentive for job shopping in the state.

"Pittsburgh and Philadelphia are saturated markets. There are too many good lawyers."

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Joyce Gannon: jgannon@post-gazette.com or 412-263-1580.


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