The founders of Stradling Yocca Carlson & Rauth have seen a lot of changes in Orange County since the firm opened its first office in a two-story building behind Edwards Theatres in Newport Beach back in 1975,an office the founders had to refurbish all by themselves.
The latest,last year’s dot-com meltdown and the Sept. 11 attacks this year,have presented the firm, which has 30% of its client base in the high-tech sector, with some significant hurdles.
“Very recently the business transactional work has decreased,there aren’t as many mergers and acquisitions at the moment,” President and co-founder Nick Yocca said. “But the maintenance work in that sector is continuing on.”
Yocca said he expects the economic doldrums to play themselves out over the next 12 months or so.
“We’ll still be suffering from the war issues that we’ve got and from the indefinite future of many activities,” he said. “But after 12 months things should become much more normal and much more active.”
Yocca said companies that have been successful are continuing to be successful,they’re still earning money and accumulating cash.
“And someday that cash will be put to use for something other than buying back their own stock,” he said wryly, referring to the post-Sept. 11 relaxation of securities regulations to allow firms to reacquire shares to shore up their prices.
“They will get back to the normal aspects of increasing their business by acquiring the complementary businesses these firms need to grow and expand their activities,” Yocca said. “I expect the tech sector will gradually come back,12 to 24 months from now we’ll see an increase in the number of transactions and in the stability of the high-tech area.”
Youngest co-founder K.C. Schaaf said he expects OC to weather the current storm better than a lot of other places. “When the nation’s economy is in a downturn, it’ll be reflected here in the county, but less so here than elsewhere,” Schaaf said.
Craig Carlson, along with Yocca and Schaaf, helps form the trio of the only Stradling Yocca founders still working for the firm full-time. Name partner Fritz Stradling joined the firm soon after its founding.
Carlson echoed some of the observations proffered by his co-founders.
“Since the dot-com meltdown and Sept. 11, the transactions go away so you end up with a lot of idle hands and that means a lot of overhead in a lot of sectors, including ours,” Carlson said. “And it means we’ll be doing more bread-and-butter work.”
More “bread-and-butter” means more work like U.S. Securities and Exchange Commission compliance work, proxy statements and contract work,with very little merger and acquisition work, and virtually no public offering work.
To survive the dot-com meltdown and the current slowdown, Stradling Yocca has moved to ensure it isn’t putting all its eggs in the corporate transactional work basket.
“We’ve added intellectual property, and the corporate litigation work has been steady for us,” Carlson said.
Michael Flynn,chairman of Stradling’s corporate department and a young partner,explained, “We went into other areas like litigation after deciding we were too dependent on corporate transactional work.”
Stradling Yocca has well over 100 OC-based attorneys, making it the county’s second-largest law firm after Costa Mesa-based Rutan & Tucker.
The original founders,Yocca, Carlson, Schaaf and Bill Rauth,all had been with Rutan’s corporate department, headed by Yocca.
During the past 25 years, Stradling Yocca has carved out a reputation for itself for helping nurture OC’s tech sector.
Its tech experience dates from its founding in the 1970s,when the personal computer first came into existence,and the firm has ridden the successive waves of innovation since then with its clients.
“Now OC has more brains and engineering talent,” Yocca said. “We have fewer of the manufacturing and assembly activities,those activities have gone to places like Mexico and elsewhere where it’s less expensive.”
One of the company’s first high-tech clients also was OC’s first homegrown tech firm,Newport Beach-based Decision Control Inc., a company the Stradling Yocca founders took with them when they left Rutan & Tucker.
Decision Control eventually was acquired by Varian Inc. of Palo Alto, then a major competitor for Hewlett-Packard, Yocca said.
“At that time software hadn’t yet made it onto the radar screen,” Carlson said. “So we were mainly involved in hardware and electronics.”
Following its acquisition, many of Decision Control’s engineers left it to form their own companies here in OC. This second generation included now-defunct firms like AST Research and Computer Automation.
Some of the engineers also formed more enduring firms that remain Stradling Yocca clients: Irvine semiconductor firm Microsemi Corp.; Fountain Valley memory module chipmaker Kingston Technology Co.; Aliso Viejo storage network gear maker QLogic Corp.; and Powerwave Technologies Inc., an Irvine supplier of radio frequency power amplifiers.
During its time as a Stradling Yocca client, AST went from being a circuit board product enhancement company to a full-fledged computer maker. And Yocca said that kind of transformation has been a reflection of how the county’s overall tech sector has evolved over the years.
“Now instead of putting together computers, we have engineers that are here designing these products that are now manufactured elsewhere,” Yocca said.
He said some of the more complex work Stradling Yocca has handled has included TDK’s acquisition of Silicon Systems and the Samsung acquisition of AST Research.
“Those were very complex cases,” Yocca said. “We had to balance the rules of very different countries in each case.”
While most of Stradling Yocca’s clients initially were tech companies and the firm made its reputation in that area, most of its work now is with non-tech clients such as Anaheim-based CKE Restaurants Inc. and Irvine-based title insurer Fidelity National Financial Inc., both chaired by OC financier William P. Foley II.
Another large segment of Stradling’s work is in public finance, and the firm also does a lot of real estate work for its tech and corporate clients.
Another big change the Stradling Yocca founders have seen in OC since the 1970s is that bigger corporations no longer have to rely on lawyers from elsewhere.
“Back in 1975 the higher-end corporate law was still practiced mostly out of Los Angeles or San Francisco,” Schaaf said. “OC is its own legal center now.”
Yocca agreed, saying a key change in the county’s legal sector has been the increase in specialization by OC lawyers. As a result, whereas the largest accumulation of lawyers possible at a firm 25 years ago would’ve been maybe 50, now there are firms with well over a hundred partners and associates.
“The county has become more specialized, larger and more recognized around the world,” Yocca said.
OC’s legal sector has become more like those in New York, Chicago and San Francisco, Yocca said, with expertise in securities and other specialized work that 30 years ago would’ve been done by law firms outside the county.
“And today that work is all done by county law firms if it involves an OC or Southern California client,” Yocca said.
“We have developed a Southern California reputation for being an expert in technology companies as many of the Northern California law firms,” Carlson said.
Despite its entrenched reputation for handling of tech companies here, Stradling officials said they plan to stay out of the Bay area for now.
“We have looked hard at the Bay area but, given the market dynamics right now, it’s not the right time,” Flynn said.
Carlson said that the Bay area is insular and tough to break into for firms hailing from outside the region.
“The money for tech is mostly all up north and where the money is makes all the difference,” Carlson said. “They have their network of friends there and it’s cozy.”
Yocca, Carlson and Schaff all said they have no current plans to retire or scale back their hours, but are grooming young partners. Flynn is one of them.
So, what do people like Yocca do in their spare time if they aren’t retiring?
“I don’t have a whole lot of spare time, to be honest with you,” Yocca said. n
