Editor: Steve, 2009 was not a great year for law firms. How did the Boston office weather the storm?
Ellis: It was an interesting year. Law firms do their best to develop strategies that enable them to do well in all kinds of economies. Last year was the test to see whether our strategies and business plans would work in a down economy. The Boston office did very well. It had a better year than the year before. You certainly see an increase in litigation during this tough time.
Our IP litigation practice was extremely busy. The distressed debt, junior capital and finance groups were built for this very event. We are made up of financing lawyers who also have a restructuring background, and we spent a good part of last year dealing with the transactions in which we had been involved in earlier years - converting debt to equity, restructuring amendments, revamping the balance sheet or insolvency proceedings.
Our office is also home to one of the world's leading private investment funds practices, which has been called "a powerhouse in the private equity world" by US Legal 500 and "geared to operate at the top of the international fund formation market" by Chambers USA , which also ranked eight of the team's lawyers - three more than our nearest competitor - along with two ranked tax lawyers who support the group. Headed by one of the most influential private equity lawyers in the world, according to Private Equity International, we represent sponsors and institutional investors in the full spectrum of matters from fund formation to all related investments and transactions, a level of work on behalf of the market's top players that prompted Dow Jones Private Equity Analyst to call us one of the "most active law firms" in the industry.
Editor: What was going on in your office's other practice areas that might not have been so directly in the eye of the financial storm?
Ellis: Our other practices also did well. Our litigation practice features an intellectual property group that Chambers USA says is "right at the heart of the industry" with lawyers who are known for their business sense and strategic thinking. They help our clients protect and exploit their IP assets and litigate complex disputes related to patents, trade secrets, copyrights, trademarks and technology-based licenses. Our clients are in life sciences, telecommunications, information technology, energy and many other sectors.
We also have a corporate governance and regulatory strategy practice that was built around Scott Harshbarger, a former two-term attorney general for Massachusetts. Scott has brought a wide range of skill sets to our regulatory and corporate governance practice. He and his team are well equipped to advise clients as regulation continues to expand at both the federal and state levels. Scott also heads our Boston-based corporate defense and investigations group, which is of particular importance today as more corporations become the targets of prosecutors and plaintiff's counsel.
Mark Batten heads our labor and employment law practice, mainly representing companies on employment issues. We also have an employee benefits and executive compensation practice here headed by Peter Marathas, which is a key strength for our transactional practice. Peter is well known nationally and internationally.
We are also proud of our pro bono efforts in Boston, which are led by Scott. He also serves as chairman of Proskauer's global Pro Bono Initiative and has truly been an inspiration to our young associates. Scott has, by his actions, demonstrated that doing good things is not only important from an ethical and moral standpoint and as great training experience - it is also good business because so many of our clients expect their law firms to emulate the high standards that they set.
Editor: Let's step back and look at what's happening in Boston.
Ellis: I don't view our Boston practice as exclusively local since we are part of a firm that serves clients nationally and internationally. However, since Boston is where our office is located and where we all live and work, what happens here is very important to us. The economic climate here and nationally had a major impact on the number of new ventures and on activities of our clients. Clearly there was a credit crunch, and from my perspective as a deal guy, when banks and lenders pulled back on extending credit, it made it very difficult to get deals done. In a region like ours where you have a lot of venture capital and private equity, it shut the door on getting those kinds of deals done. Seller multiples and buyer multiples pulled too far apart to bridge the gap. Major businesses like financing, banking and insurance which are important parts of the Boston community took a hit during the past year and a half. But that is not the whole story. New opportunities are emerging for Boston and Route 128 (the partial beltway around Boston) in healthcare, biotech, high tech, life sciences, and financial services. We are starting to see those "leading-edge industry" strengths that we always had enjoying resurgence.
Editor: Is your Boston office continuing to grow?
Ellis: We are one of the few firms in Boston that is aggressively hiring. We brought some of our new associates back early. I think 2010 will bring explosive growth to the Boston office - not only at the associate level but also at the partner level. Our fiscal year is the end of October. If the first part of our new fiscal year is any indication, I am very optimistic about 2010. We have been extremely busy and growth has been back to where we were before the recession - at that time we were the fastest growing office in New England for three years in a row.
Editor: Do you see hopeful signs in Boston and along Route 128 that the availability of capital is loosening up?
Ellis: There was a period when we didn't do any M&A, growth equity or similar buyouts transactions. It was very quiet last summer. Then about September, we started seeing term sheets again. No one was signing them, but at least we started to see them. Then in October and November it really broke open. In the last three months of the year, we probably closed about 30 different transactions. Then, it got quiet for a time and now it's picking up. We have seen a number of the senior banks come back to the market. Liquidity is significantly better than it was. Nontraditional lenders are back. Private equity and venture capital seem to be back. Whether it's going to be an explosion or just a better pace is hard to tell at this point. We are happy because we have a pretty steady flow of deals. The deals that are coming in relate to a variety of industries without any emphasis on any particular category and there is also great variety in the way the deals are structured.
Editor: There is a lot of discussion in Washington about regulatory reform. How do you see that affecting the Boston office's practice?
Ellis: Regulatory reform is coming, but it's not here yet. Financial industry regulation is clearly in the works. Most people would say that we absolutely need some types of reform or changes based on the fiscal crisis - and its causes - over the past two years. You have to recognize my bias, however, because we represent hedge funds, mezzanine funds, private equity firms, and CLOs. My biggest fear is that the regulation you are going to see may not be focused, sweep too broadly, and swing the financial regulation pendulum too far the other way with unintended consequences for these financial institutions which still are key drivers in our economy.
Editor: How is the practice of law changing?
Ellis: I think this past year has been a game changer. Lawyers are reevaluating how they provide legal services. You hear people talking about institutional clients; your firm sells them on its financial work and then tries to convince them to let it do their labor or litigation work. Clients are not expanding; however, they are getting smaller.
For firms to succeed it's going to be more about generating new clients. As a law firm you either have to get bigger, but still be agile and entrepreneurial, or shrink, maybe as a niche firm. You also have to re-think fee arrangements. You are not going to fix your net revenue problems by raising rates anymore. You are going to see more fixed fee arrangements - and just bumping up rates every year is not going to fly as it has in the past.
Finally, the big incoming classes of summer associates are going to be a thing of the past, and firms are going to be much more thoughtful and strategic about hiring. They will give more consideration to how the pyramid looks - whether they have the right ratio of partners to associates, and we will all be challenged to be much more selective, focusing on quality and potential for long-term value and on how we evaluate, reward and retain our "draft picks" and "free agents."