Berwin rings in year of the billion-dollar BFF
5 August 2013 | By Yun Kriegler
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China link could give SJ Berwin the friendly leg-up it needs
Earlier this month, BBC world affairs editor John Simpson questioned whether China is friend or foe to the West. A day later SJ Berwin (SJB) gave its own answer by voting in favour of a merger with Sino-Australian King & Wood Mallesons (KWM).
The deal will see SJB becoming the fourth member under KWM’s existing Swiss Verein on 1 November. The tie-up will be non-financially integrated but SJB will be required to phase out its brand. In the meantime, the firm will be known as King & Wood Mallesons SJ Berwin in the UK, Europe and the Middle East.
The combined outfit will be governed by an international management committee chaired by legacy King & Wood founder Wang Junfeng, while SJB senior partner Stephen Kon will become joint deputy global chair alongside Mallesons chair Stephen Minns.
To many it looks like a Chinese takeover. That may not be quite true, but it is the China bit that makes this union unique.
SJB’s relationship with KWM was initially developed and led by the Chinese side, with former King & Wood Shanghai managing partner Zhang Yi at the centre. Zhang, who focuses on private equity and funds, has a long history of working with SJB’s former senior partner Jonathan Blake. As a member of KWM’s eight-member global executive committee Zhang played a key role in pushing forward the merger discussions.
Kon says Zhang and Blake shared a vision with “a twinkle in their eyes” when the idea came up. Building on the relationship in the private equity practice, the firm’s connection with the Chinese firm gradually broadened. This included Kon himself, who has worked with Susan Ning, King & Wood’s China head of antitrust and competition.
As a result of the close link, Zhang, together with KWM global managing partner Stuart Fuller, were invited to SJB’s partner retreat in Marbella in June, where the first partnership-wide discussion on the tie-up took place.
The China factor to some extent explains why SJB reversed its well-known US-facing strategy. A number of sources noted that the merger had a wider appeal in the firm than the doomed 2010 trans-atlantic deal with Proskauer Rose.
“This looks in a direction that appeals more – Proskauer was mainly about private equity and funds, while other practices were less engaged,” a source points out. “Some were looking to the US but more were looking east. The Far East is a centre of gravity and it would make sense to anyone.”
A former partner notes that SJB sees the KWM link-up as lower risk than a leap into the US.
“The firm doesn’t think anything significant will change except for bringing in more work, but there’s some naivety,” says the SJB alumnus. “SJB is drifting a bit.
The organisation will be largely the same but being part of a bigger group may give it a leg-up.”
KWM covers three major jurisdictions in the Asia Pacific with a strong roster of clients including China Molybdenu, Sinopec Corporation and Weichai Power. Each of those jurisdictions is known for being difficult to access for newcomers.
A number of recent office closures by international firms in the region show the scale of the challenge. Last week US firm Blank Rome closed in Hong Kong hot on the heels of Vinson & Elkins’ decision to shut in Shanghai.
Financial integration between the firms is some way off. Kon refuses to speculate and adds that “it’s too soon to ask – it’s like asking a newly married couple when they’re going to have a baby”.
Fair enough, but the hard truth is that even if they want a full merger, Chinese law bars domestic firms from merging financially with foreign firms and there is no sign of that changing any time soon.
And even though China is central to the groundbreaking proposition, KWM confirmed that an IT firewall would continue to exist between China and the rest of the firm, meaning the Chinese partnership will be unable to directly access client files outside China.
For SJ Berwin, however, this relationship has just been elevated to BFF status.