Asia Pacific 150: Australia: Under-powered
17 June 2013 | By Yun Kriegler
14 October 2013
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30 June 2014
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There’s been plenty of action on the international tie-ups front, but the domestic legal market is slow
New foreign entrants and international tie-ups are the dominant theme of the legal services market Down Under. In the past three years over a dozen UK and US firms have expanded into Australia, with Clyde & Co, Bird & Bird, Seyfarth Shaw and Quinn Emanuel Urquhart & Sullivan being the latest.
Australia’s growing importance in the global market is largely driven by its proximity to Asia and its richness in natural resources.
Most UK firms have chosen to enter the market via a local merger or tie-up, while the US firms have mainly gone with setting up greenfield operations with a niche focus.
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Routes and branches
For firms that have entered by joining forces with local firms there have been a multitude of structures.
From Norton Rose’s Swiss Verein to Allen & Overy’s (A&O) team-poaching and Clifford Chance’s merger with boutique firms, to the alliance between Linklaters and -Allens, and the full merger between Herbert Smith and Freehills, it is intriguing how many ways international firms are choosing to fulfil their Australian aspirations.
Clifford Chance chose to launch in Australia through mergers with two boutique firms, two years after its terminated merger talks with legacy Mallesons Stephen Jaques in 2008. The firm recognises Australia’s important economy but is also conscious of its relatively small size on a global scale. It holds the view that the ideal size of the Australian practice should be in proportion to the country’s weight in the global economy.
Firms that have joined forces with traditional top-tier Australian firms, such as Herbert Smith Freehills (HSF) and Ashurst Australia, although facing challenges on integration and financial alignment, have started to see benefits, winning big cross-border transactions.
For example, HSF, formed on 1 October 2012, has already carried out around 250 joint advisory and cross-referral matters since the merger. One highlight has been advising China National Offshore Oil Corporation (CNOOC) on its $1.9bn (£1.2bn) acquisition of major interests in the Queensland Curtis LNG project in Australia.
Mark Rigotti, HSF global managing partner for clients and industries, notes that both sides have identified 66 key clients such as CNOOC where there will be new opportunities for the merged firm.
According to Ashurst Australia, since it rebranded from Blake Dawson in March 2012 more than 300 joint matters have been opened with its UK ally. Two-thirds of these originated on the Australian side.
Allens, along with its UK ally Linklaters, has also seen joint work coming in apace. According to the Australian firm, from 1 May 2012 to 31 March this year the two have made 74 joint pitches. Of those that have been decided, the alliance has won around 25.
The new entrants and merger activity have caused a significant reshuffle of the country’s legal industry. This affects both client choices and partner moves.
While more Australian companies are seeking growth by engaging with Asia, the broadening pool of international advisers and expertise is a welcome development for Australian general counsel.
Australian financial services company AMP’s general counsel Brian Salter is a keen supporter of the globalising Australian legal profession. Under Salter’s leadership AMP has conducted a review of its panel and, as a result, created a new international panel to support its growing business abroad.
Following months of assessment and selection, five firms won spots on the new panel. They are A&O, Ashurst Australia, Baker & McKenzie, Clifford Chance and Norton Rose.
“We’re seeing more trans-national capital flows,” says Salter. “Whether it’s about a product launch or entering a new market, these panel firms have expertise in specialised areas. Some have been building up extensive global networks and become market leaders in many jurisdictions,”
Another reason behind the establishment of the new panel is the significant changes in Australia’s legal industry.
“We’ve been working with a lot of firms for a long time, but in the past two years several relationship partners have moved to different firms and a good number of international mergers have taken place,” Salter adds. “It’s the right time to reassess their ability and establish a separate international panel.”
As Salter highlights, there has been an unprecedented movement of partners among firms in Australia and the talent market is expect to remain fluid for some time.
An obvious trend sees partners leaving traditional top-tiers that have recently become part of global firms to join either start-up international firms or upcoming mid-sized Australian ones.
HSF’s Australian office is among the latest to suffer from partner exits. Recently, a dual-partner litigation team from the Anglo-Australian firm moved to Quinn Emanuel to launch the US firm’s first presence in Australia, and a team of five employment partners are leaving to set up US rival Seyfarth Shaw’s Sydney and Melbourne offices.
Competition for good corporate partners has also intensified among leading mid-tier firms in Australia as they jockey for position in the top-end national space vacated by firms that have merged with global players.
Now the country’s fourth- largest independent firm, Corrs Chambers Westigarth has apparently had a revolving front door of late. The firm has lost a good number of partners to large rivals such as Minter Ellison and Norton Rose as well as to mid-tier players such as Johnson Winter & Slattery and HWL Ebsworth. However, it has hired a few new partners from the likes of Allens.
Excitement created by the partner moves, new openings and tie-ups apart, the legal services industry in Australia in general had a challenging year. Demand at the top end of the market, such as large corporate and capital markets transactions and energy and resources projects, has been flat, if not in recession.
Total turnover of the top eight Australian firms is predicted to decline by 5 per cent, compared with the previous year.
Like many of his counterparts, Allens chief executive partner -Michael Rose is expecting a flat 2012/13 for his firm. The firm’s work in areas such as banking and domestic M&A has been flat, and it has been responding to the shrinking market and Australia’s two-speed economy by managing cost, equity and headcount.
Even for fast-growing mid-tier firms the past year has been a tough one. Melbourne-based Maddocks, for example, reported an 11 per cent increase in turnover for the 2011/12 financial year, but expects 2 per cent growth in 2012/13.
Many firms are hoping Australia’s federal elections in September will bring more certainty to the country’s economy and things will pick up again for the new financial year.
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