Red giant

If merger goes ahead, this Chinese superfirm will be a global game-changer

In China the proposed merger of Jun He and Zhong Lun is a deal the like of which has never been seen before. Previous mergers between Chinese firms have been mostly among mid-tier firms, such as that between Shanghai’s Boss & Young and Joinway earlier this year.

Another main form of consolidation sees large Chinese firms acquiring smaller outlets to expand their domestic networks – a model used by the likes of Dacheng and legacy King & Wood.

The significance of a deal between Jun He and Zhong Lun, considered two of the three top Chinese firms, is being compared with two magic circle firms merging.

Both firms have a record of high-profile transactions, with Jun He focusing more on foreign investment and capital markets matters and Zhong Lun specialising in real estate, projects and domestic M&A deals.

Their clientele is also complementary to a degree. Jun He has traditionally put the emphasis on serving foreign investors and institutions, while Zhong Lun has built a long list of strong domestic clients.

Both have also been spreading their wings. Back in 1993 Jun He became the first Chinese firm to open an office overseas as it set up in New York. In 2010 it opened another US office in Silicon Valley.

Zhong Lun, on the other hand, chose Tokyo as its first location abroad in 2006. It then opened in London and New York in 2012 and 2013 respectively.

To broaden their horizons Jun He joined Lex Mundi in 1997 and Zhong Lun joined TerraLex in 2013. Jun He is also a longstanding member of Slaughter and May’s best friends network.

The merger, if it goes ahead, will naturally change the dynamics of the firms’ international referral relationships. Conflict of interest matters will deter some business partners, but the combined firm’s enhanced strength and coverage would make it an attractive ally.

Lawyers on the ground have speculated that the King & Wood Mallesons SJ Berwin (KWMSJB) link-up triggered many firms to think long and hard about their strategy, and put tremendous pressure on legacy King & Wood’s closest domestic rivals.

International firms that have worked with either or both firms see the move as a natural progression. Some have drawn parallels between what is happening in China now with the UK market in the 1980s, when Clifford Chance was formed by a merger between Clifford Turner and Coward Chance in 1987.

But if the combined Chinese firm goes the same way as KWMSJB, the impact on the global market will be even more groundshifting.