Oil together now
9 January 2012 | By Joanne Harris
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Norton Rose’s mergers with firms in resource-rich Canada have really shaken up the local legal market. Joanne Harris reports
As the world’s insatiable demand for natural resources continues, a small number of countries and regions are really benefiting. The Middle East, Australia and South Africa all come to mind, as does Canada.
Canada is home to one of the world’s largest oil reserves, the Athabasca Oil Sands, estimated by the oil industry to be second in size only to Saudi Arabia. These reserves and the country’s other resources are drawing a growing number of investors from all over the world. In turn, those companies are beginning to draw in foreign law firms.
Although a handful of foreign firms have opened in Canada in the past, including Baker & McKenzie in 1962 and Shearman & Sterling in 1989, the country has never been a real draw for UK or US practices. That, however, could be set to change following Norton Rose’s arrival in June 2011.
Norton Rose’s announcement that it was to merge with Toronto-headquartered Ogilvy Renault, followed late last year by the follow-up merger with Calgary firm Macleod Dixon, has woken up the Canadian market.
“It’s a game-changer in terms of the legal landscape in Canada,” says Gowlings chair and CEO Scott Joliffe. “Those who dismiss it are going to wake up in a year or two and be quite surprised.”
Nobody is quite dismissing the move, although there are sceptics. They point, for example, to the fact that Norton Rose’s structure means Norton Rose OR (as the Canadian arm is known) is not financially integrated with the rest of the group.
“The collective view of the legal community would be that all these firms needed to do something,” says Stikeman Elliott partner Jay Kellerman, who heads the firm’s global mining group. “Time will tell whether their business model will work in the context of being able to draw significant work to Toronto.”
Heenan Blaikie co-managing partner Guy Tremblay sits somewhere between Joliffe and Kellerman in his view of the merger. While admitting that on a domestic, day-to-day basis little has changed, Tremblay thinks having a firm of the size and ambition of Norton Rose in the Canadian market is significant.
“If you rewind the cassette a few years the words ’globalisation’ and ’internationalisation’ weren’t in our vocabulary in Canada,” Tremblay says. “No one saw us on their radar screen, but things have changed and they’ve changed for the good.”
The firms joining Norton Rose are certain that it is the right move. John Coleman, formerly managing partner of Ogilvy Renault and now managing partner of Norton Rose OR, says Ogilvy Renault had been looking at its strategy in the context of the direction its clients were going in.
“The sectors that Norton Rose specialised in were, by and large, huge ones for Canada, and in a few cases were absolutely important for us and our clients,” Coleman says.
Clients were also top of Macleod Dixon’s list. The firm was established in Calgary a century ago and remains one of the biggest outfits in the Alberta city. Macleod Dixon had slowly developed its own international network, with offices in Russia, Kazakhstan, Venezuela, Brazil and Colombia as well as Calgary and Toronto. But according to managing partner Bill Tuer, speaking before the Norton Rose merger went live, Macleod Dixon’s partners had realised this was not enough.
“There was no grand plan suggesting that merger would be part of the strategy, but the reality was that, given our size in the market we’re competing in, it became obvious that, because we want to remain a player, a merger was the way to go,” Tuer explains.
He adds that Macleod Dixon was looking for scope, resource and scale to continue its internationalisation at a faster pace.
“Once Ogilvy made the move to Norton Rose that really did pique our interest, because of the scope and depth and internationalisation of that firm,” Tuer says.
From the Norton Rose perspective, Coleman says Macleod Dixon’s historic ties with the energy sector were important, as well as the South American offices.
“There was a symbiotic relationship, given the huge strength that Macleod Dixon had in the energy sector. From the group’s perspective Macleod Dixon’s terrific operations in Latin America are important as a foothold for the group in that important market,” Coleman explains, saying the stars were aligned to make the merger work.
The fact that Ogilvy Renault had entered talks with Norton Rose had already had an impact on the market. When news of the discussions broke in November 2010 insurance and litigation boutique Nicholl Paskell-Mede was also in the middle of merger negotiations with Clyde & Co. Despite being in a different legal sector, the Norton Rose-Ogilvy news was an incentive to those talks, says partner Robert Emblem.
“Norton Rose validated the strategy - it was a harbinger of things to come,” Emblem says.
He adds that for Nicholl Paskell-Mede, Clydes was “the perfect fit”. The UK firm brought some client overlap and also crucial was the international network the 15-partner Canadian firm was unable to develop by itself.
“When they came calling we were quite excited by it,” says Emblem.
He explains that in recent times many insurers from the Lloyd’s of London market have begun to move into Canada, requiring cross-border legal advice that the firm is better able to provide as part of Clydes.
The synergies grew when Barlow Lyde & Gilbert was added to the mix as, like Nicholl Paskell-Mede, BLG had a strong focus on professional indemnity.
In contrast to the Norton Rose OR model, Nicholl Paskell-Mede has been fully financially integrated into Clydes. According to Emblem this posed a number of regulatory issues due to Nicholl Paskell-Mede’s presence in more than one Canadian province; merging such a business with a UK firm had no precedent.
“In terms of hammering out the details for a deal like this, because it’s not something that’s done often it does take time,” he says.
So far, nobody else has tried to follow Norton Rose or Clydes into Canada through merger. The only other new entrant into the country last year was Paul Weiss Rifkind Wharton & Garrison, which came into Toronto in a quiet way, with the hire of two Shearman partners. The Paul Weiss office is now up to seven lawyers, all US-qualified rather than Canadian.
Both DLA Piper and Allen & Overy (A&O) have been rumoured to be in talks with Canadian firms. A&O, however, put the plans on the back burner in favour of a focus on Australia, while DLA Piper is making a second attempt on the jurisdiction following the collapse of its 2008 discussions with Fasken Martineau.
Tremblay says that “many other” firms are looking at Canada and is convinced that some will move in through mergers.
The globalisation movement is not all inbound, however. Last year also saw international expansion by two Canadian firms as Gowlings opened a Beijing office and Heenan Blaikie went to Paris.
The Paris play for Heenan Blaikie was, like so much else in Canada, focused on natural resources. It provided an entry-point into Africa, maximising the contacts of Heenan Blaikie counsel - and former Canadian prime minister - Jean Chrétien.
Tremblay reports that the first year was slow, but adds: “I’m now satisfied with our cruising speed.”
Fasken Martineau is another Canadian firm with a Paris office and African aspirations although, unlike its rival, Fasken has an office in Johannesburg. Managing partner David Corbett says growth has been the focus for both offices recently. The firm is also looking at possible new offices in regions such as Asia, the Middle East and South America, Corbett confirmed.
Meanwhile, Joliffe says the Beijing venture has so far been successful.
“Our three people on the ground in Beijing are quite busy responding to enquiries both from Chinese and Canadian companies,” he says. “It’s not our plan to become a large entity in Beijing. Our plan is really more to facilitate the business between China and Canada.”
According to Joliffe, the workflow goes both ways. “There’s a great deal of interest and investment on the part of Chinese companies into Canada, and in particular in the Canadian commodities market,” he says. “That’s led to quite a bit of work for us in assisting Chinese companies in making their investments in Canada. There’s also an increasing interest on the part of Canadian companies in investing and doing business in China, which has given us the need to advise Canadian companies on how to go about it.”
Gowlings has an office in Moscow too, which to date has focused predominantly on IP law. Joliffe reveals that expanding the team into more general commercial work is an option under consideration.
Expansion has also been the theme of the year for the firm’s London office, which most recently picked up Pinsent Masons’ project finance head Nicholas Iliff - the latest in a string of senior lateral hires.
Another Canadian firm with an existing international presence is Stikeman Elliott. Kellerman explains that the firm decided to go international some time ago, opening an office in Hong Kong before closing it a decade ago and moving into Sydney instead. The Sydney office has ridden out several storms and is now in expansion mode, having just added mining partner Quentin Markin to support managing principal Brian Hansen.
Stikemans Sydney only practises Canadian law, but despite the fact that through its 2010 merger with Deacons Norton Rose is also present in Australia, Kellerman believes the firm has a first-mover advantage there. “You can say we had great vision but were 10 years too early,” he says. “We stuck it out and were able to continue to work away at it.”
Kellerman points to the 40-something Australian-headquartered companies now listed on the Toronto Stockk Exchange (TSX) as a good reason for Stikemans to be in Sydney. He thinks more will follow, as the exchange is fast establishing itself as a leading capital market for resource-focused companies.
Canadian firms are also moving domestically, with one main destination - Calgary. The fact that Norton Rose chose to merge with a Calgary-headquartered firm is significant. The city is the closest financial centre to the oil sands - although the Alberta provincial capital Edmonton is geographically closer - and where companies investing in this sector are setting up.
“It’s not nearly as mature a legal market as the economy out there would generally require,” says Emblem. “There’s the opportunity for someone to come in and take something and grow it, and be able to offer legal services to a number of these medium and even larger oil and gas companies and do good business.”
He adds that Clydes is considering expanding westwards into Calgary, as the insurance industry is also interested in the opportunities there.
“The fact they have that busting economy isn’t only good for Calgary, where a lot of the legal work is funnelled, but it’s also an engine in the Canadian economy,” adds Tremblay.
It is that “busting economy”, fuelled by the oil sands, that firms such as Norton Rose and Clydes - and doubtless others to follow - want to take advantage of. The difference between now and a couple of years ago is that Canadian firms are more likely to welcome the foreigners’ advances.
Globalisation has been the theme of the year for the Canadian legal market, and looks set to continue beyond 2012. As international firms scramble for the work generated by Canada’s rich natural resources, will domestic firms keep up or be swallowed up by the new arrivals?
Toronto Stock Exchange, equity finance
2010-11: volume up, value down
New issuers listed
2010 - 155
2011 - 189
2010 - 8,644
2011 - 6,564
IPO finance raised (C$m)
2010 - 8,644
2011 - 6,564
Real GDP (market prices C$, third quarter 2011)
Annual inflation (October 2011)
Population (July 2011)
Life expectancy at birth
Unemployment rate (November 2011)