After the announcement of the merger between Dentons and Chinese firm Dacheng, the two firms’ management speak about the opportunities for the future – and why they believe the tie-up is ground-breaking.
Dentons global chair Joe Andrew recalls being in London as a young lawyer in 1986 and witnessing the “once-in-a-lifetime” passage of Halley’s Comet overhead. The experience clearly stayed with him; nearly 30 years later, Andrew is using it as a comparative metaphor when announcing to staff the merger of Dentons with Chinese firm Dacheng.
“This combination is a once-in-a-lifetime opportunity,” he declares. ”It doesn’t just transform our firm, it transforms the entire profession.”
The deal was not an obvious one. Last year, in an exclusive interview with The Lawyer, the chairman of Dacheng, China’s largest law firm, laid out his vision for his firm’s global future (2 May 2014). Peng Xuefeng talked about the way in which Dacheng had been structuring itself for international expansion – but said a global merger was still some way off.
“There is still a huge gap between Chinese and international firms in many respects,” he said. “I don’t think the Chinese profession has matured enough to the level that they will start going abroad and make mergers and acquisitions in a big wave.”
But less than a year later, after being courted by Dentons, Dacheng is set to go global in a big way. The merger between the two firms, to be formally signed at a ceremony next week, will create the world’s largest law firm by lawyer numbers with over 6,500 lawyers (22 January 2015). Combined revenue will be in the region of $1.7bn (£1.13bn) – Dentons bringing turnover of $1.3bn (2013 figures), while Dacheng produced revenue of around $400m in the 2014 financial year.
Dentons’ management have been open for some time about their desire to expand upon the 2012 merger between SNR Denton, Salans and Fraser Milner Casgrain (28 November 2012) to add weight in Asia Pacific.
Global CEO Elliott Portnoy says China was the obvious target for the firm and that its clients had expressed their desire for Dentons to expand on its presence in the region – the firm has offices in Beijing, Shanghai and Hong Kong but like all foreign firms is limited in its ability to provide local advice.
“Your ability to meet the needs of Chinese private and state-owned enterprises in the UK, Middle East, Africa, Canada, US and Europe is an imperative for every law firm,” Portnoy says, adding that Dentons’ clients wanted it to be able to offer a “broader and deeper” service not just in Beijing and Shanghai but elsewhere in China. Dacheng meets that need with 50 offices around the country, far more than most of its rivals.
More important that geographical presence, according to both sides in the merger, was cultural fit. Since its 2012 merger Dentons has prided itself on being ‘polycentric’ – a term greeted with bemusement and amusement by many, but intended to reflect the firm’s breadth across the world. Each region has its own chair and CEO, with the global board presided over by Portnoy and global chair Joe Andrew, both from the US.
Peng says Dacheng had been built on similar lines, and describes his happiness on discovering a potential merger partner with a similar strategy.
“Dacheng decided to become an international law firm in 2008,” he says. “We had approached a number of international law firms and we’ve had a number of international law firms also approach us to discuss the possibility of a combination. The reason why Dacheng eventually chose Dentons to do this combination is because I believe the value system of the two firms are very similar, and the vision of the leadership of the two firms is very similar, and the philosophy of the development of the two firms is exactly the same.
“As part of Dacheng’s development and expansion strategy, not only domestically but also internationally, we’ve adopted a fairly flat management philosophy,” Peng continues. ”The philosophy is all about polycentricity – no dominant culture and no dominant headquarters.”
Although Portnoy claims that “internal organisational structure is of no particular importance – it’s how you relate to clients”, there are still integration issues to work through for the combined firm. The management is due to sit down after next week’s signing ceremony to begin bashing out the details, which will include navigating the regulatory hurdles to bringing lawyers in overlapping offices together. Those offices include Beijing and Shanghai as well as New York, Paris, Singapore, Los Angeles, and Moscow, where Dacheng launched 18 months ago (19 August 2013).
“We see the people in these overlapping geographies as being uniquely placed to facilitate this integration,” adds UKMEA CEO Matthew Jones, pointing out that Dentons has already been through a similar process after combining the London, Moscow, New York and Paris offices of legacy SNR Denton and Salans.
The firm is expanding Dentons’ existing global board to include members from its new Asian verein member. Andrew will remain as global firm chair and Portnoy as CEO, with Peng taking on a new position of global board chair. There will also be an Asia CEO, with the appointment still to be confirmed.
The enlarged firm will also have to decide what to do with its many referral partners. Both firms have relationships with independent firms in many jurisdictions, and Jones says these will have to be looked at, although they will not all come to an end.
“In most cases we do see a migration towards the Dentons operation,” he admits.
Some parts of the world are likely to look on the merger more favourably than others. Africa, for instance, is a region where Chinese companies continue to invest heavily and Jones says the merger has been greeted enthusiastically by Dentons’ South Africa office – opened just last year (9 April 2014).
Expanding geographies may also provide opportunities for the firm’s younger generation. Peng says secondments between China and other parts of the world is certainly “part of the plan”, adding: “Exactly how this can work will depend on the associate development plan of each office and the needs of the clients.”
Particularly on the Dentons side of the merger, the firm’s management is particularly proud of what they see as the historic nature of the deal. Indeed this is the first tie-up between a Chinese firm and a Western-dominated firm, although many will argue that the equally historic merger between PRC firm King & Wood and Australia’s Mallesons Stephen Jacques in late 2011 (24 November 2011) and the follow-up merger with SJ Berwin (31 October 2013) was as great a step.
“This combination reflects what it is to go global,” believes Jones. “Without China, a firm can’t properly call itself global.”
“Every law firm would want to do what we’ve actually accomplished,” says Andrew, with pride. “It’s the Holy Grail of everything a law firm wants to do.”