Ashurst braces for stiff test with Aussie tie-up
19 September 2011
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Ashurst faces a tougher challenge than previous UK-based firms that have ventured into Australia. By Yun Kriegler
Ashurst is set to become the fifth UK-headquartered firm to venture into Australia as it moves closer to a tie-up deal with Blake Dawson, but it faces a bumpier road ahead than its predecessors.
The silver circle firm has put itself firmly in the spotlight with its proposed tie-up with the big six firm. Details of the proposed deal have trickled out over the summer.
lthough both firms have refused The Lawyer’s requests to confirm speculation, it is widely understood that the model will be a strategic alliance initially, with the intention of completing a full merger after three years, subject to several convergence conditions.
Under the alliance Ashurst and Blake Dawson will form a joint venture in Asia, where their offices will be consolidated into one operation under the Ashurst brand. The firms will remain as separate partnerships outside Asia and be shareholders of the Asia joint venture in the first three years.
The legal community’s view on which firm will be the bigger beneficiary of the tie-up are divided evenly. Latest statistics illustrate that the difference between the sizes and financial strengths of the two firms is slender, so the benefits should be largely mutual.
Blake Dawson has 670 lawyers including 172 partners, while Ashurst has 795 lawyers of whom 222 are partners. In terms of geographical coverage Blake Dawson has 10 offices in five countries, while Ashurst operates out of 12 countries.
For Blake Dawson, the tie-up will provide a much-needed platform to provide global services to clients. The price for gaining such access, however, is to give up its own brand, similar to Deacons Australia, which joined the Norton Rose Group and was renamed Norton Rose Australia.
The combined Asia operations of Blake Dawson and Ashurst will see 31 partners working in Singapore, Shanghai, Hong Kong, Tokyo and Papua New Guinea. It will still be a relatively small practice compared to its international peers.
In mainland China, one of the world’s most important emerging markets, the combination will hardly produce a tangible advantage, as Blake Dawson’s Shanghai office is a small operation with two partners, who probably spend half their time in Sydney, functioning more like a liaison office. Ashurst will have to rely on its Hong Kong office, in association with Jackson Woo & Associates, that was opened in November 2008, and its strategic alliance with one of the largest Chinese firms, Guantao, to grow its China business.
Without a strong platform in Asia there are doubts about the pair’s ability to create and seize more opportunities in the region, even with the tie-up.
Clifford Chance Hong Kong partner Scott Bache, echoing the view of many lawyers, says: “Ashurst and Blakes are both good firms, but they don’t have a big presence in Asia, although they are reasonably active in certain parts of the region, such as Singapore and Tokyo, and I’m sure the tie-up will be useful for both firms, but it’s slightly puzzling how they can grow the depth and breadth of their Asia coverage through the combination.”
Clearly the success of the joint venture depends on a sound strategy, a unique approach, strong leadership and effective execution.
In terms of financials, the two firms are almost on an equal footing, although this equality is partially due to the currently strong Australian dollar. Ashurst turned over £303m in the financial year 2010-11, with a net profit of £107m.
In the 2010-11 financial year, Blake Dawson reported A$382m (£247m) in total revenue and its net profit is estimated at A$156m. In the two years to 2010-11 Blake Dawson saw a 7 per cent growth in annual turnover, securing it a place as one of Australia’s 20 fastest growing firms. Highlights of recent deals include: advising GE Money on the sale of its A$5bn Australian and New Zealand residential mortgage business to Pepper Homeloans; acting for China’s Sinopec Group on its A$1.7bn acquisition of a minority stake in Australia Pacific LNG; and advising Shanghai-based Bright Food Group on its A$500m acquisition of a 75 per cent stake in Australia’s Manassen Food.
Before A&O’s entry to Australia in 2010 a senior partner at Minter Ellison remarked that as important as the Australian market is to local lawyers, it is only 2 per cent of the world’s economy. Many lawyers at the time held the view that a lot of international firms would focus on forming transatlantic alliances before turning their attention to Australia.
The arrival of A&O, followed by Norton Rose, Clifford Chance, DLA Piper and now Ashurst, clearly illustrates the rising priority of Australia in UK firms’ growth strategy.
Australia’s resilient economy - its strong banking sector, robust mining and natural resources industries and healthy level of business investment - is obviously attractive to international firms. Nevertheless the underlying strategic importance of the Australian market is its close ties with Asia.
A&O Sydney-based partner Barry Irwin raises the question bluntly. “If a UK firm can only have one or two offices in Asia Pacific, or if it tries to set up its first presence in the region, will it consider Australia?” he asks.
Of course, the answer is most likely to be no. Irwin believes that a UK firm’s decision to move into Australia needs to be based on a powerful business case.
“Australia is a good place to be, but it won’t be a priority for global firms unless there’s a strong business case based on a well-established existing network in the Asia Pacific region,” Irwin says. “If the firms already have a presence in Asia this increasingly creates a need to have on-the-ground capabilities in Australia, then having an Australia office will make good business sense and will generate more opportunities and businesses if the Asia and Australia offices can work effectively together.”
In the past 18 months Irwin has collaborated on client matters with a number of A&O offices, particularly in Asia. He has made many trips to India, China, Japan, Indonesia, Singapore and Thailand, where the firm has offices or alliances. In comparison, he only visited the London headquarters for the first time this month.
In the cases of A&O, Norton Rose, DLA Piper and Clifford Chance, all four firms were established in the Asia market - much more so than Ashurst – before venturing into Australia. Most of them were frequently involved in cross-border deals in Australia, co-counselling clients alongside Australian law firms.
“Asia is a big driver for us to open in Australia,” says Clifford Chance’s Bache. “Our Asia-based clients are increasingly active in Australia, but we were losing revenue because we had to refer work to local firms - the type of work we would otherwise handle ourselves if we had a presence in Australia.”
The magic circle firm pulled off a dual merger with boutique firms in Sydney and Perth in May, and the Australia offices have been working alongside more than 400 Clifford Chance lawyers in Asia.
DLA Piper had a four-year engagement before it fully merged with its Australian best friend DLA Phillips Fox in May, but even with years of preparation the integration process was not without its challenges.
“We’ve invested a lot over the last four or five years in getting to know each other and understanding each other’s clients and opportunities,” says Tony Holland, DLA Piper’s Australia managing partner. “Now we are moving forward very positively. In my view, a merger itself is not the magical answer. The success of a merged firm is measured by what the partners and the teams do following integration. We’ve still got a lot to do in terms of realising the full benefits of integration, but we are well on the way.”
To Norton Rose’s Sydney partner Wayne Spanner, who will become managing partner on 1 January 2012, the biggest challenge of a merger between a national firm and a global one lies in the cultural change.
“More international firms are looking to enter Australia, while more local firms are thinking about moving globally,” says Spanner. “Different firms will adopt different ways and strategies to do it. Whichever decision a firm takes, it’s critical that it recognises the major cultural and people issues it needs to overcome.
“From our experience, there was a natural synergy between Norton Rose’s and Deacons’ cultures, with a shared approach to international expansion. During the transformation from a national firm to become a part of a global firm we had to work hard to change approach and communicate the same vision within the global firm.
“Firms should choose their partners carefully, as two-thirds of mergers fail to meet their goal.”
Spanner’s advice is well-founded. Ashurst and Blake Dawson’s three-year trial marriage, to be accomplished through its strategic alliance, is wise.
Once the Ashurst-Blake Dawson Asia joint venture is established and Ashurst starts chasing opportunities in Asia Pacific the firm will face intense competition, not only from its international rivals for global work but also among the fast-growing mid-tier firms in Australia for national work.
“I suspect there may be other international firms that are interested in Australia,” says Irwin. “I imagine that there are discussions underway with a number of domestic firms, and there will be many different models under consideration for penetrating the Australian market. Most of the top-tier firms may well be assessing the recent changes in the Australian market, and are at least considering some form of global combination or association.”
Rumour mills predict that Freshfields Bruckhaus Deringer, Herbert Smith, Shearman & Sterling and Linklaters among others are contemplating entering Australia. This means that to have a sound strategy in the Asia Pacific region, Ashurst has to take into account not only the big players already in place but also the firms yet to enter. As the Australian legal industry continues to globalise and restructure, the marketplace, particularly at the top end, will become increasingly competitive.
Everybody’s at it
Leading mid-tier firms, which have enjoyed robust growth and expanded their market shares in recent years, are also looking at global opportunities and are as likely to land an international suitor as their top-tier competitors.
“What’s interesting about the tie-ups we’re seeing is that they traverse both top and mid-tier,” says John Nerurker, CEO of Melbourne-based Mills Oakley Lawyers. “Leading foreign firms aren’t automatically looking for top-tier merger partners. Mid-tiers with the right capabilities, the capacity to service corporate clients and a footprint in key capital cities are also potential targets. That means a potentially seismic shift in the brands that lead this market. Yesterday’s minnow could be tomorrow’s ocean liner.”
Ashurst in china
In November 2008 Ashurst launched its first Greater China office in Hong Kong and entered into a formal association with local Hong Kong firm Jackson Woo & Associates (JWA).
JWA has key strengths in corporate finance, M&A, commercial law and corporate governance and compliance issues. It has three partners and 14 other consultants and lawyers.
Through JWA, Ashurst has also allied with Beijing-headquartered Guantao Law Firm, one of China’s largest firms with more than 160 lawyers in 10 offices including Hong Kong.
The alliances with JWA and Guantao enable Ashurst to offer clients access to quality advice and local experience in Hong Kong and throughout China.
Under local Hong Kong rules, a merger between Ashurst and the association will be allowed after three years, which will be November this year. The timing coincides with Ashurst’s merger talks with Blake Dawson and its plan to set up a joint venture in Asia with the Australian firm. The Hong Kong office will play a key role in the plan.
Ashurst declined to comment, but its Chinese best friend is optimistic about the tie-up. “We see it as a positive development and welcome the tie-up. It would create greater synergy and more opportunities between the markets in Asia, Australia and Europe,” says Xu Ling, a corporate partner in Guantao’s international practice group. The firm’s client list includes large state-owned companies and leading banks that have growing interests in investing and expanding globally, including in Australia.
Most recently, Ashurst and Guantao have co-advised on China Guangdong Nuclear Power Group’s $1.23bn (£780m) acquisition of Namibia’s Kalahari Mineral, a deal that would give the Chinese company access to the world’s fifth-largest uranium deposit.