BY MARION WEBB
Three local managers of leading national law firms expect little to no ill effects from the subprime mortgage crisis, housing market distress and general economic turmoil that is threatening the industry's unprecedented profit boom.
San Diego's managing partners of the law offices of Pillsbury Winthrop Shaw Pittman LLP; Paul, Hastings, Janofsky & Walker LLP; and Heller Ehrman LLP plan to weather this year's harsh economic climate by reworking existing transactions and refocusing their energy on other business areas and clients.
Sue Hodges, managing partner of Pillsbury Winthrop Shaw Pittman's Carmel Valley and downtown offices, says she doesn't anticipate staff reductions this year and expects that the firm's 44 attorneys will be busy modifying and reworking existing deals.
Hodges, who is a partner in the firm's corporate securities and technology group, says a slowdown in the homebuilding sector has generated different types of legal work in its large construction lending practice. During the past 18 months, attorneys have restructured loans and renegotiated deals before home foreclosures.
"I anticipate over the next 12 months we will see more of a shift to modifying and reworking existing transactions," Hodges said.
She also expects continued growth in handling legal issues related to the area of alternative energy, which is considered a hot sector for venture capital investment and a relatively new area of interest for the law firm.
"The California Public Utilities Commission is very interested in investing in alternative energy," Hodges said. "We just finished the acquisition of a wind power company with offices in Escondido. We expect robust activity for 2008 in the energy practice, at least in San Diego."
Pillsbury, which has more than 800 attorneys working in 14 offices, reported $590 million in revenue for 2007, up from $579 million in 2006, Hodges says. For this year, the firm expects another revenue increase.
"Is it possible that business will decline in the last half of 2008? I can't say that it's not, but I am optimistic," said Hodges, expressing the firm's resiliency to the economy's downward spiral.
Carl Sanchez, chairman of Paul, Hastings, Janofsky & Walker's downtown office, who is chair of the firm's global mergers and acquisitions practice group and partner in the firm's corporate department, expects the entire firm to stay on track for double-digit revenue growth this year.
"Last year, the corporate office was as busy as they have ever been," Sanchez said, adding that it's difficult to find good midlevel and senior associates with sophisticated high-quality corporate transaction experience in San Diego.
Although Sanchez declined to give specific revenue figures, he predicted that his group will see no slowing of mergers and acquisitions deals this year, as homegrown, high-tech and life sciences firms remain attractive targets for outsiders.
"We groom companies to be acquired from outside of San Diego and I see that continuing for 2008," Sanchez said. "The vast majority of deals done in San Diego are strategic buyers who come in and buy other companies with cash and stock, and don't use a lot of financing."
He says the weak dollar value and weakening U.S. economy will likely have a negative effect on Paul Hastings' mergers and acquisitions activity with clients who are U.S. buyers. But the losses will be offset by representation of overseas clients for whom U.S. firms have become a bargain. Sanchez says he represents overseas clients involved in these mergers and acquisitions, and is focusing on wealthy business clients in Asia.
"We won't represent as many U.S. clients doing deals, but shift to doing more deals for international companies," said Sanchez.
Paul, Hastings, Janofsky & Walker has a staff of 46 attorneys. Mergers and acquisitions represent a major part of the firm's legal work in San Diego. Clients include financial services firms Citigroup Inc. and Marathon Asset Management LLC, which are both based in New York.
John Benassi, managing partner at Heller Ehrman's San Diego office, isn't worried about chilling effects from the current economic climate either. He says the local office plans to hire two or three attorneys this year to add to its existing staff of 54 lawyers who focus on intellectual property law and patent litigation.
"I expect the demand for legal services in these areas will continue to grow," Benassi said.
He says San Diego-based wireless technology company Qualcomm Inc. and South San Francisco-based biotech firm Genentech Inc. are among Heller Ehrman's many high-tech and life sciences clients.
For 2008, Heller Ehrman's 14 worldwide offices are expected to grow their net income by 3 percent to 8 percent with revenues rising by 6 percent to 12 percent from $491 million in 2007, Benassi says.
Time For A Decline
The local law office managers' optimism is in stark contrast to the 2008 client advisory, published last month by Citi Private Bank, a unit of New York City-based Citigroup, and Somerset, N.J.-based legal consulting group Hildebrandt International, which warned that the legal market was due for a "correction" after years of double-digit growth in profitability.
This year will mark the first time since 2001 that the U.S. legal market will see a decline, according to the Citi Private Bank Law Watch report. The report culled seven-year data from surveys comprising mostly Citi Private Bank clients, which consist of more than 200 law firms generating between $2.5 million and more than $1 billion in annual revenues, says Phil Thompson, vice president for business management in Citi's law firm group.
Provided local law firms have truly built up strong and varied portfolios of businesses, they may be able to pull through this year's tough market conditions.
"We believe it would be prudent for leaders and managers of law firms to assume that the current economic slowdown is likely to have a detrimental impact throughout 2008," Citi Private Bank and Hildebrandt said in the report.
Marion Webb is a Rancho Bernardo-based freelance writer.