Bigger is better in the law profession these days. Firms across the board are merging faster and more often than in previous years. The prize for the big firms is an international presence. For the small ones, it’s the opportunity to provide a full-service practice.
It’s a trend that isn’t likely to end soon and one that hasn’t escaped San Diego, local professionals say.
There are several factors involved, but by far the top reason for mergers is the escalation in employee salaries, they said.
– Startups Offering Stock To Lawyers
Before the tech shakeout last spring, there was fierce competition for lawyers between pre-IPO startups in their heyday and law firms. The startups sought general councils and the law firms just wanted to keep their lawyers.
The startups offered average salaries mixed with preferred pre-IPO stock. At that time the stock was viewed as an unpolished diamond.
The law firms countered by raising salaries for associates above the $120,000 mark. Associate salaries barely topped $55,000 in 1987.
The result on the legal profession was that firms could not afford the administrative costs of those salaries.
“There’s been a real ripple effect in all the firms because of that,” said Stephanie Sontag, president of the San Diego Bar Association and an attorney with Procopio, Cory, Hargreaves & Savitch, LLP.
Bruce O’Brien was a partner in the former law firm of Shaw & O’Brien LLP. The firm recently merged with San Diego-based Higgs, Fletcher & Mack LLP.
O’Brien, partner Richard Shaw and associate James Gergurich specialized in tax law and estate planning. They had upwards of 500 clients, 150 to 175 active clients, with some of the same clients for more than 15 years.
– Administration Consumed Time
In the end, the time it took the firm to perform administrative duties took too much away from billable hours, O’Brien said.
“There’s a limit on how much an attorney can make billing hourly,” he said.
The firms merged in June and now the three attorneys head Higgs expanded tax and business practice.
“By not having to do as much administrative and overhead (now) I can spend more time billing clients, which works its way to the bottom line,” O’Brien said.
Aside from salaries, the clients that medium-range firms represent have grown in size the past two to three years and now they require a full-service law firm, said attorney James Harrigan.
Harrigan Ruff merged with the multi-state firm of McKenna & Cuneo, LLP in June.
Harrigan said in order to keep his clients the firm had to merge.
– Firms Expand Practice Areas
“We’re seeing consolidation across the board,” he said. “As there’s consolidation in the client industries (the new, bigger companies) are looking for the resources of a large law firm that can provide a wide variety of practice area coverage.
“I don’t know if they’ve gotten to the one-stop shopping, but there certainly seems to be an interest in large companies to get many of their legal services from the same firm.”
Sontag of the bar association said she expects the merger pace to pick up in the next few years. It’s not just the growth of clients that’s affecting San Diego law firms; it’s the type of companies that are growing.
“We’re becoming very attractive for national and international law firms, because of the business climate in San Diego and the biotech industry,” she said.