DLA Piper seals ‘unique’ Aussie merger
31 January 2011 | By Luke McLeod-Roberts
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DLA Piper CEO Nigel Knowles is known for making categorical pronouncements.
So it was no surprise that he accompanied the news that his firm planned to merge with Australian best friend DLA Phillips Fox with assertions that the local offering will be “unique”.
He also stated that adding 145 partners and more than £100m in turnover will create “the world’s largest business law firm”.
But just as Allen & Overy’s (A&O) 2010 decision to launch in Australia with a cherry-picked team of partners failed to threaten the likes of Freshfields Bruckhaus Deringer or Linklaters, DLA Piper’s entrance into the world’s 14th-largest economy has not spooked its major competitors.
”Australia’s not a priority market for us,” said Eversheds managing partner Lee Ranson. “The view at our end isn’t about flags in the map but sensible client coverage. The Australian market’s pretty mature already. For us it’s a different proposition. [We prefer] to focus on emerging markets. For DLA it’s more about trying to complete the jigsaw.”
Baker & McKenzie London managing partner Gary Senior, whose firm has had offices in Australia since the 1960s, said Bakers was not likely to bulk up its offerings in Sydney or Melbourne as a result of DLA Piper’s move.
“Historically we were the only international law firm with a significant Australian operation - we were ahead of our time,” said Senior. “We’ve got critical mass in Australia and very strong offices down there.”
There is one thing that Knowles and his peers agree on - that putting the DLA Piper plaque on offices in locations such as Sydney and Melbourne is entirely consistent with the firm’s global strategy, which envisages a full-service presence in all major markets.
“If you want to be the leading business firm you need to be in the G20 economies and the emerging markets,” said Knowles. “How can any business not be in Australia?”
If the strategy is familiar, that is because it is increasingly articulated by management consultants, who stress the importance of tapping into the legal spend of new markets.
The strategy has also been advocated by general counsel at multinational organisations, who often want closer ties with a small number of trusted advisers rather than having to choose from long rosters of panel firms.
“There’s [a] consolidation of client relationships globally,” explained Senior. “Clients want to limit the number of firms they use globally, often to one key adviser. To get on a pitch list you’ve got to be in a certain number of jurisdictions.”
Although DLA Piper wants to tap into opportunities in commodity-rich Australia, it also sees the market as the linchpin in a wider Asia-Pacific strategy.
“Australia [has been] becoming increasingly integral to our Asia strategy,” said DLA Piper Asia managing director Alastair Da Costa, who upon completion of the merger will become managing director for the entire Asia-Pacific business.
Da Costa highlighted the transactional opportunities linked to M&A investment flows and the growth of Australian financial institutions as major drivers for the tie-up. He also said DLA Piper was attracted by the pool of highly skilled Australian lawyers who share a broadly Anglo-Saxon cultural and professional mindset.
“We’ve already got plans to move partners from Australia to South East Asia, particularly into insurance. We’re still going to be recruiting locally [but we’ll be] transferring people around,” he revealed.
Spot the difference
Although A&O, Bakers and Norton Rose have already tapped into these possibilities, Knowles is adamant that his firm’s approach is unique.
“We don’t follow anybody,” he insisted. “What anybody else has done in Australia we’ve ignored. We’ve done it because it’s consistent and aligned with our strategy. Norton Rose copied us [with its tie-up with Deacons]. A&O did their own thing. We’ve been there longer than all of them and now we’ve moved beyond that.”
Unlike Norton Rose in Australia, or indeed A&O, the proposal is that DLA Piper Australia will share profits with the UK and European partners from day one. Australia is generally less profitable than the UK, but Knowles pointed out that the firm was “not changing the rules” by, for example, adding an extra rung at the bottom of the equity to accommodate the Australian partners.
The move beyond best friends to financial integration has been a protracted process. Suspicions were first raised that a merger was on the cards when Phillips Fox adopted the DLA prefix and a string of Australian senior partners based in DLA Piper’s Middle East offices, including Stephen Webb, Damian McNair and Tony Holland, moved over to Phillips Fox after the downturn hit the Gulf.
Holland, who is currently CEO of DLA Phillips Fox, will become the Australia regional managing partner under the new structure.
Accompanying these more cosmetic moves are others designed to bring the two businesses into closer financial alignment.
Before the announcement, DLA Phillips Fox closed its Adelaide office, adopted similar practice lines to DLA Piper, de-emphasised its insurance practice and spun off its New Zealand arm into a separate financial entity. The latter will continue to operate as part of the DLA Piper group, but will not be part of the international LLP.
Knowles was at pains to stress that “we don’t love [the Kiwis] any less [than the Australians]”, and the fact that there are considerable trade ties between Australia and its smaller and less profitable neighbour will not have been lost on the firm’s management.
The vast differences in turnover and headcount between DLA Piper and DLA Phillips Fox, together with the fact that Phillips Fox will lose its suffix, suggest that this is more of a takeover than a merger of equals.
But Knowles fiercely denied this, pointing out that, while DLA Phillips Fox has spent the past three years getting its house in order, DLA Piper has spent time investing in its Asia practice in order to create a meaningful regional offering.
The rising importance of Asia and Australia means that a seat will be reserved on the international board for a member of the Asia-Pacific practice. At first it will be an Australian, but that could change further down the line.
And if UK firms are not convinced by the rationale of opening in Australia, there is an expectation that the premier Australian firms will try to persuade them otherwise as they see their competitors gaining access to an apparently seamless global network.
The approach made by former Clayton Utz partner Grant Fuzi to A&O, which led to the first magic circle firm opening in Australia, shows the powers of that persuasion.