Thursday, September 25, 2008

118 YEARS WON'T BUY YOU A FEW MONTHS FROM THE BANK: I was mulling over some punny titles for this post, but I don't have it in me. Heller Ehrman, a 118-year-old titan of the San Francisco law-firm world and a recognized brand name throughout the US legal market, is dissolving on Friday. Unlike some past law-firm flameouts, this was principally driven neither by over-growth and hubris (cough Brobeck cough) nor by a decline in the quality or value of the firm's talent. Heller remains, until Friday, a top-notch firm, and was conservatively-managed and perennially profitable.

Instead, Heller is a lesson about how quickly things can snowball in volatile times. Law firms have merged like crazy in the last decade, and Heller started shopping itself this year. I don't know why; it wasn't as if it needed to. But once it was shopping itself, several groups of partners with the more profitable practices -- the assets that made Heller attractive to potential merger partners -- realized that they could make better deals for themselves if they separated from the less-profitable groups. The remaining lawyers weren't attractive enough to keep the interest of their dance partners, and the mergers fell through, weakening the firm. The departures crossed a threshold specified in Heller's line of credit. A year ago, even six months ago, there might have been some renegotiation and an extension while fees rolled in, but in this market the bank called in its markers, which left Heller without sufficient capital to run its business. So, with two days notice (though "staff" -- not clear whether that includes nonpartner employees -- gets 60 days pay), everybody working for a profitable firm gets a pink slip.

There are many, many lessons here (including that if you try to merge you had better be sure you know what you're doing, and that this multilateral game of bailout chicken we're watching is a huge ball of scary), but mostly I just wanted to say that I hope our friends at Heller land on their feet and soon.

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