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Midsize Firms Find a Sweet Spot in Texas

Midsize Firms Find a Sweet Spot in Texas

Three midsize firms made significant group acquisitions this week in Texas, and recruiters say the activity will likely continue.

By Lizzy McLellan | June 06, 2019 at 02:41 PM

It’s been a busy week for midsize firms in the Lone Star State.

Three midsize firms made significant group acquisitions this week in Texas, as they looked to bulk up targeted practices. And in each case, the acquired group touted their new firm’s place in the legal midmarket as a selling point.

Early in the week, technology-focused Munck Wilson Mandala acquired four-lawyer litigation firm Okon Hannagan, adding to its principal office in Dallas. Founder Melanie Okon said she and partner Susan Hannagan wanted to combine with a larger firm so they could land more complex litigation work.

On Wednesday another Dallas-headquartered firm, Shackelford, Bowen, McKinley & Norton, added a fifth office to its Texas footprint, bringing on a group of seven commercial litigators from Winstead. Partner Jay Brown said he was attracted to the midsize regional firm because it was focused on client service, providing its lawyers with rate flexibility and a speedy rate-approval process, while also having a strong Texas footprint.

Also Wednesday, midsize firm Babst Calland Clements and Zomnir, which is headquartered in Pittsburgh, planted a flag in Texas by acquiring Chambers Law Firm, a four-lawyer shop in The Woodlands, near Houston, focused on oil and gas law.

Shareholder Les Chambers, who will lead the firm’s new office, said he hadn’t been actively seeking a merger partner, but Babst Calland’s courtship started at just the right time. “We were at a point where we really needed to probably double in size,” he said.

Local recruiters said all this activity shows that Texas remains a hot market. And opportunity abounds for midsize firms in particular, they said.

“Firms are still looking to get into Texas,” even with some economic uncertainty the horizon, said Jack Hopper, of Kinney Recruiting.

Last year, Texas was a major destination, and the location of some of the biggest mergers of 2018. This year hasn’t been marked by as many major combinations—at least not yet—but there have been a number of instances of smaller practices moving to or joining up with midsize or super-regional firms.

“The firms that get the headlines are the elite firms who are targeting the corporate M&A, private equity and IP litigation [work], things like that,” said Lee Allbritton, a founding partner at Amicus Search Group in Austin. But “a significant slice of the market in Texas [is made up of] middle-market, middle rate Texas firms.”

For many local clients, “The Am Law firms are too big, the boutiques are too small. There is safety and resources in the middle that makes sense,” Allbritton added.

That reality has created some of the recent moves.

For smaller firms like Okon Hannagan or Chambers, “you have to decide if you’re going to stay a boutique, or do we want to grow our presence?” Hopper said. ”There’s strength in numbers.”

And for those at Am Law 200 firms, even “super-regional” ones like Winstead, pressure on billing rates is a real consideration, especially for litigators, Hopper said. Midsize firms are able to offer a bit more flexibility.

“There’s a lot of great middle-market private companies, as well as public companies in Texas. They don’t have the deep pockets,” Hopper said. “There’s a great opportunity to go out and get that business with those middle-market companies because your bill rates are lower.”

Even the biggest public companies are looking to save on legal spend, unless they’re dealing with bet-the-company litigation, as their general counsel answer to shareholders, Hopper added.

“It’s an accelerating trend, we’re seeing it increase,” Allbritton said, referring to midsize expansion through mini-mergers.

And if the economy takes a turn, those midsize firms could benefit from the growth, he noted. That’s especially true for those with an emphasis on litigation, since disputes tend to pick up in a bad economy.

“I think the middle-market firms will act do well in a downturn, relatively speaking to the elites,” Allbritton said. “That’s primarily due to the perception that there is more client value and a more elastic rate structure.”

Brenda Sapino Jeffreys contributed to this report.

Sharon Rowe