Merger mysteries

For Mallesons, whose Australian straitjacket meant its overseas practice cost $60m (£39m) in the past 10 years, it’s a high-stakes venture. Questions remain for the combined firm, many of which are outlined by Asia editor Yun Kriegler in this week’s feature (page 18). Here are just a few:
1. How is K&W Mallesons going to institutionalise the client base? When Mallesons’ management reported its due diligence to its partners prior to the vote it was already clear K&W did not have the same number of core clients; the Chinese firm operates on a more transactional dynamic. While K&W has a top reputation and reach in China, the market there is markedly more price- than relationship-driven. Institutionalising clients takes a lot of management time and expertise; how are the Aussies going to tell the Chinese how to do it?

2. How is management going to foster mobility? Mallesons sources describe this as “vexed”. The Herbert Smith deal requires Freehills partners to move around the network, but K&W Mallesons has not been able to be so prescriptive. Instead, the firm is having to budget for travel expenses of AUS$2.5m in the first year.

3. What are the trust levels like? Mallesons partners wanted a contractual commitment around ‘step-changing expenses’, but management said this was not possible. If the Australian side is making the bulk of the donations in terms of management skills and knowledge transfer - as acknowledged in the merger negotiations - what’s to stop K&W from walking away? Given modest revenue assumptions (Australian turnover to grow in 2015 by $25m), where is the real growth likely to be?

K&W Mallesons has changed the game in Asia with its bold move. As Herbert Smith would agree, the really hard work starts here.