What Australia offers for US firms
15 February 2010 | By Matt Byrne
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After A&O took the plunge, what are its US rivals doing about Australia?
Weil Gotshal & Manges has found a distinctly cheaper way of accessing the Australian market than Allen & Overy (A&O).
Last month the US firm welcomed Freehills projects partner Jim Theodore to its headquarters as he kicked off an indefinite residency in Weil’s New York office.
Theodore, along with Freehills associate Miles Wadley, has relocated to help strengthen the longstanding informal relationship between Weil and the Australian firm. Specifically, Theodore’s move is being characterised as a project on which both firms are collborating to jointly pursue cross-border infrastructure mandates.
The plan, which was mooted last year, was partly the brainchild of Weil New York partner and M&A co-chair Fred Green, who saw Theodore’s move as a good way to take the informal referral relationship between the two firms forward.
It was then confirmed by an internal email from Weil executive partner Barry Wolf. “Jim and Miles bring to this endeavour a wealth of experience in the infrastructure practice, particularly in public-private partnerships and private finance initiatives. While these financing methods are still considered ’emerging’ in the US, their use is commonplace in much of the world, including in Australia. We expect to see a significant increase in PPP- and PFI-related work in the US over the next few years.”
“We hope it will be helpful in introducing us to the right people in Australia,” adds Weil London-based partner Peter King.
Certainly, as a way of beefing up a presence in the Australian market, it should prove cheaper, if less dramatic, than A&O’s full-blown entry via the hire of 17 partners, primarily from local firm Clayton Utz. For its part, Weil currently has no plans whatsoever to set up shop in Australia.
This May The Lawyer will publish the latest edition of its Transatlantic Elite. With the merger between Hogan & Hartson and Lovells set to go live in the same month, one of the key themes of the issue will be the drivers behind transformative tie-ups.
But as A&O’s decision to open in Australia highlights, there are more ways to skin a roo than a full-blown merger. The way the wind is blowing, flights to Australia may soon be featuring considerably more senior lawyers hunting for their own big bolt-ons Down Under.
In the last Transatlantic Elite, The Lawyer pinpointed 16 firms that it argued would be the ones blazing a trail over the next decade in terms of market coverage, top talent and profitability. Of The Lawyer’s ’Sweet Sixteen’, only Skadden Arps Slate Meagher & Flom and Sullivan & Cromwell currently have offices in Australia.
Both have relatively minimal presences. Skadden holds the Australian fort with a two-partner Sydney base headed by corporate specialist Adrian Deitz, which is little more than a representative office.
Sullivan’s base is slightly more substantial, with one resident partner, two special counsel and around half-a-dozen associates spread across its two Australia outposts in Melbourne (established in 1983) and Sydney (2001).
Now the question is whether A&O’s bold strategic move will encourage other international firms to follow suit? Most lawyers’ ears will have pricked up at the story, mainly because Australia is a nice place to go and work.
More seriously, at a stroke the magic circle firm has become the only global elite player with a serious number of lawyers in Australia and the only one with an outpost in Perth (a key centre for mining).
Judging from the responses from some of the other denizens of the Transatlantic Elite, however, there is unlikely to be a stampede to Sydney.
“It makes no sense,” insists a senior partner at one of the elite firms. “Australia’s not a very big market. A&O clearly has a strong finance practice, so presumably it’s seen opportunities to expand that into Australia. But Australia’s a very well-served market.”
The partner is equally damning about the perceived broader rationale behind A&O’s Australian adventure, that it is a jumping-off point into Asia.
“If you want to go to Asia you go to Asia,” he argues plausibly. ”Australia isn’t a gateway into Asia. We won’t be going.”
The question for this group of top international firms is whether they feel that Australia is a place they need to be? In other words, is it important strategically to them?
A quick ring around the Transatlantic Elite firms suggests that, while most see Australia as an important market, particularly from the point of view of mining and natural resources, few if any are planning to follow A&O.
All maintain relationships in Australia that up till now have worked well enough. Few see the need to extend that by opening up offices on the ground.
“Most firms looks at Australia now and again because it’s perceived a big legal market,” says a partner at another of the Transatlantic Elite firms. “But it’s full of very good lawyers doing an excellent job. There’s no doubt Australia’s an increasingly important legal market and that most firms are planning how to grow their Asian businesses - but not necessarily via the Australia back door.”
An extra dimension worth throwing into the mix is that Australian firms have done a particularly good job of opening up the Pacific Rim economies. Several have moved successfully into markets such as Malaysia and Indonesia in a way that UK firms have on the whole been unable to.
“That does make Australian firms more attractive,” says one US partner. “But it’s a long road for a shortcut.”
Inevitably, in the way law firms operate, A&O’s move will have people revisiting their views on the Australian market, with the Clifford Chance-Mallesons Stephen Jaques talks high up most people’s guesstimates of where the next deal may be.
But with Australian firms generally far less profitable than their UK (and US) counterparts, making the numbers work is a major stumbling block.
“They’re quite big firms to fit in, so cherry-picking makes more sense,” argues one US partner.
That said, most US firms already have plenty on their plates dealing with the aftermath of the recession and rebuilding after one of the most turbulent periods on record.
Launching a new Australian office might persuade the troops that a firm still has strategic ambition, but ultimately, in the current market, it is more likely to be a distraction from the main event.