The Midwest, Indianapolis legal markets prime for opportunities

Sommer Barnard. Locke Reynolds. Dann Pecar Newman & Kleiman. Those are just a few Indiana law firm names that are now only part of history.

While there have been mergers sprinkled through the past decade, the Indianapolis legal market has seen an upswing in firm mergers and acquisitions the past few years. Five out-of-state law firms have acquired firms or opened an office in Indianapolis since May 2008.

Cincinnati-based Taft Stettinius & Hollister merged with Sommer Barnard; Bloomfield Hills, Mich.-based Plunkett Cooney opened an office; Louisville-Cincinnati-based Frost Brown Todd merged with Lock Reynolds; Cleveland-based Hahn Loeser & Parks acquired Galbraith Associates in Fishers; and Cleveland-based Benesch Friedlander Coplan & Aronoff merged with Dann Pecar Newman & Kleiman.

This while Indianapolis-based firms Barnes & Thornburg and Krieg DeVault opened offices or acquired firms outside Indiana.

The current merger-and-acquisition market nationally is showing a lot more firms are implementing a regional strategy, said Ward Bower of Altman Weil, a management consulting firm that works exclusively with legal organizations.

This regionalization of law firms is also in response to corporate clients utilizing convergence programs – consolidating legal work with their outside law firms to help control costs, said Bower. Law firms, in order to better serve and keep clients, expand where their clients are.

Why is Indianapolis now a seemingly popular destination for out-of-state law firms?

"Most of the activity is coming out of Kentucky and Ohio in our area. It's not Indiana as a whole," said Joe Altonji of consulting firm Hildebrandt Baker Robbins' Chicago office.

Altonji said Indiana is considered an "add on" market for out-of-state firms that are trying to expand their own market brands. The Indianapolis legal market is reasonably stable economically, said Altonji, who added that the state's balanced budget is a draw over others states that are struggling fiscally.

It's hard for second-tier markets like Louisville or Cincinnati to make a play in a first-tier market, even Chicago, Altonji said. But these firms are looking to grow, and they can grow only so big in their own states.

He said Indianapolis also is attractive because it's a relatively short driving distance, and there are good lawyers there. "The cultures are reasonably compatible to Kentucky and Southern Ohio, but not as much with Northern Ohio," said Altonji.

He said there is a bit of an economic divide in Ohio, and Northern Ohio is dealing with a lot of issues as part of the Rust Belt, which has been hit hard because of the auto industry's problems. It's a tough market so a lot of firms are trying to expand out of that area. Western Pennsylvania and New York are not attractive markets right now, Altonji said.

It's easier to take the step of moving into a new market, he said, if the legal market cultures are similar.

"What we're seeing is firms from surrounding states looking at Indianapolis as a place where there are opportunities," said Altonji.

One reason Indiana hasn't been on the top of law firms' lists of where to expand is three big firms have dominated the market, said Bower, referring to Indianapolis' largest firms: Barnes & Thornburg, Baker & Daniels, and Ice Miller.

Cincinnati is a good example of this as well. Bower said that city was dominated by firms such as Frost Brown Todd, Taft Stettinius & Hollister, and Dinsmore & Shohl. Plus, the clients there were not accepting of outside firms, even firms from Cleveland and Columbus, he said. The clients wanted local firms, Bower said. That has changed in recent years.

One firm that does not have an Indianapolis office but nearly merged into the market in 2009 is Greenebaum Doll & McDonald, a Louisville-based law firm with four offices in Kentucky and Ohio. The firm was in merger talks with Ice Miller, but talks ended after several months.

"Indianapolis is a strong market, particularly in certain areas," said Phillip Scott, chairman of Greenebaum.

Agriculture and health-care practices in Indiana would work well with such practices in Kentucky, said Scott, who is based in the firm's Lexington, Ky., office.

"I think the cultural situation is similar to Kentucky. There's a very strong work ethic. You're very comfortable. … At least we would be, although I can't say East Coast attorneys would feel that way," said Scott.

"I'm partial to Indiana," said Scott, who went to Hanover College and has family that lives in Southern Indiana. "I think Indiana has a lot of opportunities."

He declined to comment, however, about current opportunities the firm may be considering or if any are in Indiana.

The most recent to firm to move to Indianapolis is Benesch, which merged with Dann Pecar March 1.

However, it wasn't the Indianapolis market that first attracted Benesch, according to the firm's managing partner, Ira Kaplan. It was the people at Dann Pecar.

Kaplan said Benesch was looking throughout the Midwest and Eastern United States for opportunities. A consultant and trusted advisor who had helped with Benesch's strategic plan thought the two firms should meet. Once they did, they had another consultant do a market study of Indianapolis, which had a lot of positive feedback. The study showed Indianapolis is in pretty good shape economically, struggles with government are minimal compared with other states, and the state government has an attitude of wanting to help and grow businesses.

"You have a good market," said Kaplan, "not dissimilar from other cities in the Midwest."

Despite the merger activity Indiana attorneys have witnessed, there continues to be a certain degree of cautiousness because of the economy.

Altonji referred to one of his recent blog posts in which he paraphrased Sunil Chopra, interim dean of Northwestern University's Kellogg School of Management: It is incredibly difficult to improve your competitive and strategic position in good times. Market positions don't often change when times are good. It is times like these when companies can drastically improve their market positions.

That, Altonji said, also applies to law firms.

Bower also said a lot of law firms are wary right now, but it's because many wonder if there will be a W-shaped recession – a recession with a small period of growth in the middle. Yet, law firms with strong balance sheets are using the recession as an opportunity, he said.

Altonji said he applauds firms that are being bold and taking advantage of opportunities but also are cognizant in their decision-making.

"This is a time to be opportunistic and strategic," Altonji said. "This is not a time to ride out the recession …."