Norton Rose-Deacons merger: UK firm pinpoints Asia without diluting profit
29 June 2009 | By Kit Chellel
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Norton Rose, which last Tuesday won Law Firm of the Year at The Lawyer Awards, announced a tie-up with Australian firm Deacons the same day in a bid to jumpstart its Asia expansion plans.
It will be one of the few unions between a UK and an Australian firm. However, Norton Rose chief executive Peter Martyr has stopped short of full financial integration.
Although the management of the two firms will merge, Deacons’ partners will not join the Norton Rose partnership and there will be no profit-sharing.
Martyr, who will run the combined firm, said: “We’re not going to be sharing instantly - we’re going to work on that over a period of time.”
But there is no defined timetable for full financial integration, suggesting that Norton Rose would like to retain the option of not sharing profits if the tie-up does not meet expectations.
Martyr added: “There’s a road map to full business integration; there’s an open road to profit-sharing. We’re going to constantly review it.”
Martyr pointed out that Deacons was one of the fastest-growing firms in Australia. In the three years prior to 2008, it achieved cumulative revenue growth of 20 per cent, taking turnover to £106m.
The only UK firm to operate a fully integrated office in Australia is shipping and commerce specialist Holman Fenwick Willan, which has seven partners in Melbourne.
Holman commercial director James Huckle said: “It’s a difficult market to operate in. It’s very competitive and rates are typically much lower than in the UK.”
Norton Rose has made it clear that Asia is the driving force behind the Deacons deal.
Martyr said that the firm had an impressive list of Asian clients and that Australian lawyers were vital in terms of getting a foothold in the region.
“You can’t build a big practice in Asia from London. Australia’s where all the good lawyers are,” he added.
But H4 Partners consultant Alan Hodgart pointed out that relatively few Australian firms had successfully cracked the Asia market. “Good luck to them,” he said. “But building an Asia practice from Australia has proved difficult for others.”
The tie-up was instigated by Deacons. The firm hired a consultancy to find possible UK partners and began negotiations with Norton Rose last year. Deacons chief executive partner Don Boyd said the firm decided in 2006 that it needed to break into the international market.
Huckle at Holman said one of the issues facing Martyr and Boyd would be how work is divided between the two firms.
Given that there will not be profit-sharing, it will be a challenge to ensure that work is referred fluidly between the two firms.
There is also the problem of the gulf between UK and Australian rates.
“If they have a dual-listed client, how are they going to deal with Deacons doing work for £300 an hour and Norton Rose doing it in London for £500 an hour?” said Huckle. “Who’s going to do the work if there’s a big corporate deal - London or Australia?”
Whatever the problems, the partners of both firms were sufficiently convinced by the benefits of a tie-up to vote in favour of the deal, encouraged by a shared belief that Asia will be one of the first regions to emerge from the recession.
Martyr said: “The partners supported where I was headed. I think we’re going to find that Asia is rocking along pretty well by the end of this year.”
The bottom line
There are compelling reasons not to share profits, given the gulf in profitability between the UK and Australian firms.
Average profit per equity partner (PEP) at Norton Rose was £517,000 when the firm released its financial results for the 2008-09 year.
Most Australian firms do not release a profit figure, but PEP at Deacons is thought to be between £350,000 and £450,000.
Deacons and Norton Rose will, however, contribute to a single pool to be used for bonuses and expenses.
Targeting asia from Australia
Deacons has 137 partners, the vast majority in Sydney, Brisbane, Melbourne, Canberra and Perth.
However, its presence in Asia is small, with just a handful of partners in Indonesia and Singapore.
By contrast, Norton Rose has offices in Hong Kong, Beijing, Shanghai, Tokyo, Bangkok and Singapore, with 33 partners.
Deacons does have an association office in Hong Kong, but it is a separate business entirely, although it has run a referral relationship with the Australian firm for 17 years.
Deacons will now terminate the association with this Hong Kong arm, but the firm’s Hong Kong chief Lindsey Esler said the split was amicable.
One market source expressed surprise that Norton Rose had not chosen to merge with the Hong Kong office, which is the largest independent firm in the jurisdiction.
“My first reaction was, ‘they’ve got the wrong one’,” he said. “Deacons doesn’t really have a big Asia practice. Deacons Hong Kong makes more strategic sense.”