Kangaroo Courting

Australian firms are turning their backs on organic growth and taking to the catwalk to find global suitors. Abigail Townsend talks to players undergoing the makeover magic required to woo the perfect match.

The Australian legal market has traditionally been ignored by the rest of the world. Not quite part of Asia, too distant from the US, and practically invisible to Europe.

But if the Australian firms have their way that is all going to change. Getting noticed in the big wide world is becoming a national obsession, with firms jostling to be the prettiest girl on the block when the foreign firms come calling.

Globalisation is the word of the moment – international partners and marketing men are practically falling over themselves to drop it into the conversation. And the only way the Australian firms can get in on the latest legal trend is through overseas merger.

Take, for example, leading banking practice Mallesons Stephen Jaques. Although it is officially keeping tight-lipped and Clifford Chance is keeping its cards close to its chest about the on-off courtship, senior insiders claim that yes, the talks will resume and this time, a deal will be cut.

While there are no guarantees, it is telling that Mallesons is pushing for a resumption of talks, particularly as insiders believe they initially collapsed because the Australian firm was unable to come up with an offer Clifford Chance could accept.

The Australian firms know that the only way to continue growth is through international merger. Organic development alone will not do the trick.

John Colvin, chief executive officer at Blake Dawson Waldron, says: “There is no way that an Australian firm can build a global network, it just cannot be done. Most of the major deals flow out of New York and London-Europe where there are already highly established relationships between the investment banks and firms.

“There is no way an Australian practice can make a dent in that, it would be really stupid to try.”

Colvin’s sentiment is particularly pertinent because Blake Dawson is one of the few firms that has set up operations outside Australia and Asia. And it is one of only three firms, along with Mallesons and Minter Ellison, to have a London office.

Mallesons’ international partner Gerald Ryan echoes Colvin, even though the firm is in the process of selecting another partner to join London resident Timothy Blue.

Ryan says: “We are doing as much as we can in terms of organic growth. But providing a first-class service by organic growth is, I think, limited. You can only do it in niche areas.”

Mallesons is not alone in its merger aspirations. Minter Ellison, after a period of up to five years to bed down its recent growth, will look to the UK and US for possible merger partners.

And Peter Hay, Freehill Hollingdale & Page’s national executive chairman, says: “The firm sees itself in the medium term as being part of a global network.”

But there is nothing more concrete than lofty sentiments and the rest of the world is too busy addressing its own backyard to consider Australia.

Even Clifford Chance, whose global aspirations have sent it into some far-flung corners – the latest being Jakarta – remains cautious to the extreme about any Australian merger.

While it admits it will continue to keep an eye on the region, and that it left the door open when the Mallesons talks collapsed, it refuses to confirm any plans to get back round the discussion table.

So for now, Australian practices must continue putting their own ship in order and wait for the rest of the world to take notice.

It has been a busy 12 months. Minter Ellison spent 1999 aggressively buoying up its partnership. It ended the year with 38 new partners, 25 of which were lateral hires.

Hot on its heels was Blake Dawson, which appointed 66 new associates in the summer. Baker & McKenzie appointed a new Australian managing partner and Freehill Hollingdale & Page recently merged its IP arm with Carter Smith & Beadle.

On 1 February, Deacons merged all its associated offices and is now focusing on rebuilding its Canberra practice. Its most recent announcement was the end of its 10-year association with US practice Graham & James.

The split was amicable and insiders believe it was pushed for by Graham & James as it continues its own merger talks with an un-specified fellow US firm.

But the removal of an exclusivity arrangement leaves Deacons in a stronger position should it decide to start looking for full merger partners.

Colvin says: “What seems to be the case is that the firms that are not national and do not have big resource bases [are losing work]. Now it is really mandatory that they behave nationally. Major companies see through federations.”

Another part of the beautifying process is Asia. As the economy continues to recover, more and more people in Australia, from politicians to lawyers, can see a growing need to position the country’s economy alongside that of Asia.

Ryan says: “The fundamentals are very clear. We did not go down in the bust in Asia and we have not had a boom so we should be able to continue quite strongly. The role that we would play in a global firm would be in Asia. There is a strong English influence there.”

Most of the major firms already have operations in Asia and many of them, such as Mallesons, are increasing their presence.

So it looks unlikely that the firms will tackle the London market. And as one of Minter Ellison’s resident London partners Robert Hanley points out, with a number of firms looking for merger partners, setting up in London could prove unnecessary.

Hanley adds that Minter Ellison has been able to continue to expand its London operation since its inception in 1974 because the office offers both UK and Australian capabilities.

But he is at pains to point out that it does not compete with UK firms. “We act for Australian clients coming into the UK. We do not compete with the UK firms but it helps us pay for the office.

“The others will struggle because the only work they do is Australian law advice for UK firms and it is hard to make a profit. You need to have the transactions,” he says.

Overseas offices are an expensive

commitment for the cost-conscious firms, whose clients pay considerably less for their services compared to London or New York rates.

This goes some way in explaining why only three of the big six have lasted the course in London. Freehills, Corrs Chambers Westgarth and Allens Arthur Robinson have all shut their offices over the last few years.

But Ryan argues that Australian firms have a lot to offer, including “Asian experience, low costs and an absolutely blue chip client base”.

Added to this are the upcoming changes to the market. Under guidelines being discussed by the New South Wales Law Society, firms will be able to limit liability, disband partnership or float as a company as a way of raising outside capital.

Many of the top tier will adopt some, if not all, of the changes as and when they are introduced.

The firms are therefore following a more US-style of management, drafting in chief executives, many of which are not even trained as lawyers, to look after the business.

As Ryan says: “Previously it was just people [to manage] but there is now a very high technology investment and when you are dealing with large amounts of money people want firms run as businesses.”

Many believe that within the domestic market there is still room for considerable consolidation. Colvin says: “The big eight is now the big six and I feel we will end up with the big four in the next three or four years.

“The really key thing here is the globalisation process. There is going to be 10 or 12 major global brands and if you are not part of a global network then you are relegated to a secondary position.”

But Ryan argues that some firms will be able to carve out successful roles. “The market is sorting itself out to have a small group of leading firms.

“The law business generally will change because of the new technologies that are available and there is scope for small players to run very successful practices using that technology.”

Whatever the future for Australian firms trying to hang onto their hard-won places in the legal market, all will have to look onwards and upwards and end the previously insular attitudes that have dominated the market for so long.

Ryan says: “There is considerable pressure from clients to provide a global solution. We are in a globalised world and Australia is behind and out of step with other jurisdictions.”

Though that could well be starting to change.

THE TOP 10

Minter Ellison 286 partners. Offices in Adelaide, Brisbane, Canberra, Hong Kong, London, Melbourne, Perth, Sydney and New York.

Freehill Hollingdale & Page (to be known as Freehills as of 1 July) 218 partners. Offices in Brisbane, Canberra, Hanoi, Ho Chi Minh City, Melbourne, Perth and Sydney.

Mallesons Stephen Jaques 188 partners. Offices in Beijing, Brisbane, Canberra, Hong Kong, London, Melbourne, Perth, Port Moresby, Singapore, Sydney and Taipei.

Clayton Utz 186 partners. Offices in Brisbane, Canberra, Darwin, Melbourne, Perth and Sydney.

Phillips Fox 171 partners. Offices in Adelaide, Auckland, Brisbane, Canberra, Hanoi, Melbourne, Perth, Sydney and Wellington.

Blake Dawson Waldron 167 partners. Offices in Brisbane, Canberra, London, Melbourne, Perth, Port Moresby, Shanghai and Sydney.

Corrs Chambers Westgarth 114 partners. Offices in Brisbane, Bundall, Canberra, Sydney, Melbourne, and Perth.

Deacons Graham & James (to be known as Deacons as of 1 July) 97 partners. Offices in Bangkok, Beijing, Brisbane, Canberra, Guangzhou, Hanoi, Ho Chi Minh City, Hong Kong, Jakarta, Melbourne, Perth, Shanghai, Singapore, Sydney and Taipei.

Allens Arthur Robinson Group 95 partners. Offices in Adelaide, Bangkok, Brisbane, Gold Coast, Hong Kong, Jakarta Melbourne, Perth, Port Moresby, Shanghai, Singapore and Sydney.

Dunhill Madden Butler 43 partners. Offices in Brisbane and Melbourne.