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For law firms, bigger isn't always better

‘The first time you enter into a boardroom in one of the glass towers, it’s impressive. And the second time you go visit, you complain about the cost of your parking,’ says Albert Luk, a lawyer in Toronto with Devry Smith Frank LLP.

Fernando Morales/The Globe and Mail

The recent rash of legal industry mergers have seen some of Canada's top law firms join with massive international players, boasting that their new size and scope will outpace rivals.

But some of their smaller competitors, without thousands of lawyers and offices around the world, actually think the new global competition creates an opportunity for them to grow, too.

Lawyers at small and mid-sized firms say small and medium-sized business clients are increasingly seeking them out, feeling alienated by a big-is-better attitude on Bay Street and looking for lower legal fees and closer attention from their lawyers.

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Albert Luk, a lawyer with Devry Smith Frank LLP, a firm of about 50 lawyers headquartered far from the glass towers of King and Bay in Toronto's suburban Don Mills, said small and medium-sized business clients have been venturing away from their brand-name big law firms and knocking on his door.

"Any firm that's positioned itself as a mid-market alternative to national and international law firms will probably benefit from the continuing empire building that's occurring," Mr. Luk said.

He said just in the last quarter, his office has seen in influx of small or mid-size clients who have used big Bay Street firms, including those that have recently merged with international players.

Even larger companies or institutions, who will naturally prefer a big firm for more high-end complex work, are looking to save money by retaining smaller firms for other legal tasks, he said.

Certainly lower costs are one of the advantages that smaller firms like Mr. Luk's they offer. And it is not only hourly rates that are well south of Bay Street's up-to-$800-an-hour, but new fee arrangements, such as fixed fees for different legal tasks, that make legal costs more predictable.

"I think the funniest thing I ever heard was, the first time you enter into a boardroom in one of the glass towers, it's impressive. And the second time you go visit, you complain about the cost of your parking," Mr. Luk said. "… I think clients are just making choices based on their budgets and their needs."

Anne Kennedy, managing partner of 31-lawyer Pallett Valo LLP, based in Mississauga, Ont., said her firm and others like it are already seeing a bump in referrals as newly merged mega-firms hand over work that they can no longer do because of client conflicts.

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That's on top of smaller clients looking to her firm for the attention that larger law firms are sometimes unwilling to give them.

"We see the mega-mergers and Big Law as an opportunity for our firm … We are flexible, and I think we are more cost-effective," said Ms. Kennedy, whose law firm's slogan is "Right-sized Thinking."

Danny Lee, president and CEO of Jumbleberry Performance Group, a four-year-old Toronto-based online advertising company with 18 employees andn about $15-million a year in revenue, said he has stuck with Mr. Luk's firm even after meeting with a list of bigger, and pricier, firms on Bay Street.

"It's not just the hour rate – it's the number of people they bring into every meeting," Mr. Lee said.

The last two years have seen mergers, and merger rumours, fly around Bay Street's dominant firms.

In 2010, Ogilvy Renault announced it was merging with London-based global firm Norton Rose. Last year, Calgary-based Macleod Dixon also joined Norton Rose. In November, 2012, Fraser Milner Casgrain LLP announced it was merging with two foreign firms to create a new global firm to be called Dentons.

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Bay Street firms have also grown domestically, as in the recent merger between the former Lang Michener and McMillan LLP.

Of course, the big firms insist that they offer flexible pricing and attentive service, and a high level of work for clients big and small.

Anthony de Fazekas, a partner with Norton Rose in Toronto who specializes in start-ups and technology companies, said the firm is conscious that new ventures cannot afford massive legal bills.

He said the firm's deep bench of expertise across legal areas, as well as national borders, provides big advantages for little companies: "They rarely stay as start-ups for long. Some of them may fail, but a lot of them, in my experience, scale quite quickly. And so they really need to tap into a large pool of expertise."

But even amid the merger mania, more specialized boutique firms have started up – many the projects of lawyers leaving the spires of Bay Street to strike out on their own.

They benefit from referrals from the big firms, when working for a client would conflict with an existing client. But their size also makes them attractive to start-ups and small businesses whose ability to handle massive legal bills is low.

Among them is Toronto's SkyLaw LLP, which focuses on corporate law, M&A and financings for public and private companies.

The firm's partners, Kevin West and Michael Lee – both veterans of Bay Street and major foreign firms – say new technology, such as Web-based document-management tools and cloud computing, now make it possible for even tiny firms to cheaply replicate the infrastructure of a larger firm.

And, with a staff of eight, Mr. Lee said, they feel no need for the stereotypical Bay Street imposing lobby, with a skyline view and large abstract paintings: "A lot of clients are attracted that we are not in a big glass tower, and we don't have a lot of art."

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