L.A. appeals: national law firms building beachheads with mergers.

THE explosive growth in the legal industry is making Los Angeles a hot expansion site for high-end national firms.

East Coast firms have been establishing offices in Los Angeles for more than a decade, but three acquisitions in five months marks a definite spike in activity.

Part of the reason for the spate of mergers is the overall growth in the law business. As law firms get bigger, they increasingly need to spread out geographically.

"Everybody that wants to be a national or global firm really needs to have a presence on the West Coast." said David B. Van Etten, whose firm, Van Etten Suzumoto & Becket, was recently acquired by McGuireWoods LLP of Richmond, Va.

More could be on the way. In 2004, there were only five law firms in the United States that did $1 billion worth of business. But there were nine above or close to that figure last year, and four of those nine have yet to establish an L.A. presence.

In 1996, the Los Angeles Business Journal's list of the city's 50 largest law firms, named 11 firms based outside of L.A. County. That number had ballooned to 26 this year.

Beyond the desire to expand geographically, the firms are being lured to L.A. by the red-hot commercial real estate market and the increasing importance of intellectual property, entertainment and biotech law, all of which are prominent here.

"If you want a national practice you want to be in Southern California," said Daniel Hatch head of the partner practice at Major Lindsey & Africa LLC. "Where else are you going to go, Phoenix?"

Hatch advised Goodwin Procter LLP when the large Boston-based law firm opened an L.A. office in May.

"It's part of a national strategy we've been executing for the last two or three years," said Goodwin chairwoman Regina Pisa. "Our clients said we need to be on the West Coast and our capital markets clients said you need to be in L.A. and you need to be in San Francisco. Our decision was driven by those clients."

To guide its launch, Goodwin snatched up Lewis Feldman, managing partner at Pillsbury Winthrop Shaw Pittman LLP in Century City. A commercial real estate specialist, Feldman is well known in legal circles. With a high profile-he owns shares of two restaurants and has been immortalized with a bobble-head doll--Feldman typifies the attorneys most in demand: accomplished, familiar with the L.A. market and well connected.

Better opportunities and greater profitability at Goodwin lured Feldman, who was the second most highly paid at Pillsbury, and he'll keep the MGM Tower office he designed while he was there. He brought l0 attorneys and two analysts with him from Pillsbury's Los Angeles and San Francisco offices.

"It isn't a question of quantity, but of quality," said Feldman, who has represented Anschutz Entertainment Group and the L.A. Department of Water & Power. "I've seen mergers where fu-ms have attempted to gain market share through a belief that 1,000 lawyers was the right number and to have lawyers in every city. It's more important to have the best lawyers in specific cities that can execute their practice in a substantive and dominating fashion."

In addition to the Goodwin Procter and McGuireWoods mergers, Washington D.C. intellectual property specialists Venable LLP hung an L.A. shingle after merging with two 10-attorney firms, Gorry Meyer & Rudd of Century City and Whitwell Jacoby Emhoff of Beverly Hills. In addition, Palo Alto-based Cooley Godward LLP is said to be eyeing L.A. entertainment specialists Alschuler Grossman Stein & Kahan LLP, although both firms declined to comment.

The sweet spot

Van Etten, who founded his firm in 1996, decided last year that the time might be fight for a deal. By then, his firm had grown to 45 lawyers, squarely in the sweet spot for firms looking for acquisitions.

Depending on their size, larger firms target small firms with between 20 and 100 attorneys. That's big enough to provide a financial benefit, but small enough to be absorbed into a firm's corporate culture.

Through a search firm, Van Etten Suzumoto reached out to 30 firms with similar areas of expertise. The response was overwhelming. Every firm they contacted was "very interested" in further talks.

"What that tells me is that any firm that isn't a national firm and aspires to be, and isn't in L.A. or even California, wants very badly to be here," Van Etten said.

He and his partners narrowed the choices to six. All of these, he said, were respected firms with corporate cultures were similar to theirs. After eliminating several due to client conflicts, Van Etten made a deal with McGuireWoods. The two firms had referred business to each other for years and each had served as local counsel for the other.

Since opening the L.A. office earlier this year, McGuire has hired two associates and now has about 50 lawyers here. The firm is looking to add lateral partners and is exploring new practice areas.

Van Etten, now the managing partner of McGuireWoods L.A. office, laughs when asked if becoming part of a larger firm had lightened his workload. "Are you kidding?"

Van Etten thinks the timing of his firm's move was on the money.

"There are number of free firms that want to be national that are not yet out here because they are late to the game, he said. "Many of the better merger candidates aren't available any more."

A number of the remaining local firms, and their top attorneys, seem unlikely candidates for acquisition despite possessing attributes that could help a national firm.

Liner Yankelevitz Sunshine & Regenstreif LLP is highly regarded for its work in class actions and construction litigation, but the firm is on the large side for a merger candidate and managing partner Stuart Liner has a reputation for doing things his way.

Jeffer Mangels Buffer & Marmaro LLP is the right size for a merger, but its focus on hospitality gives the firm more of a niche appeal.

Happy on their own

Some local firms have no urge to merge.

Mitchell Silberberg & Knupp LLP, an established and well-regarded entertainment firm with an enviable client list, has shown no interest in partnering. Irell & Manella LLP, known internationally for its IP work, is also doing quite well on its own.

Fred Allen, the co-founder of the real estate law firm Allen Matkins, said that larger firms coming to town has never been a problem and that it can actually provide more business.

"I think there is a net benefit to us," Allen said. "Basically we saw many Los Angeles-based firms and other national firms de-emphasizing real estate and because of that, our business actually increased," Allen said. His firm's fees tend to be lower, which he said attracts some clients as well.

"We've seen lots of out-of-town firms come to Los Angeles, attempt to establish a foothold and have trouble," Allen said.

National firms that have notably failed in the past decade include Kelly Drye & Warren LLP, Shearman & Sterling LLP, Fried Frank Harris Shriver Jacobson LLP and Pepper Hamilton LLP.

"Success isn't automatic," Hatch said.

"They've got to get the right talent and effect the right synergy, so that the firm integrates well with its sister offices."