A View from South Africa

The South African legal market is unique in many ways. To start with, in Johannesburg we have so far seen the arrival of only one international law firm, and though others are looking around they have so far made very little impact. Also, last year we saw a world first when an investment bank bought out one of the local law firms. But in plenty of other ways we are doing much the same here as everywhere else.

The South African market is extremely hectic at the moment. M&A activity is continuing at a frenetic pace and most of the law firms are very busy.

We are looking at a two-tier economy over here, with the financial services industry booming and other elements of the economy such as manufacturing for example really battling. The textiles and clothing industries are having a particularly hard time.

But the larger corporate law firms are busy with both local and foreign M&A, in to and out of South Africa, and there is a lot of industry restructuring. With our new Competition Act there’s a huge amount of additional work going on surrounding the issues that it raises, so generally things are pretty hectic.

Just like a lot of economies the world over, legal firms are battling to get skilled commercial attorneys because there is a real shortage of them.

There are not that many around who have got four or five years experience because a lot of them have gone into merchant banking, joined clients or emigrated. Like elsewhere, it is a mixture of a lot of things and it is having quite a dramatic effect on the salaries.

Firms are paying employees even more because they are desperate to keep them, and firms are investing heavily in training attorneys to try and boost the growth from within. It all costs a lot of money.

But unlike the rest of the world there is not much talk of mergers around here at the moment – it seems to have settled down compared to last year.

The end of 1999 saw Edward Nathan & Freidland, one of the larger firms over here, bought out by investment bank Nedcor. That was a unique relationship, but like elsewhere PricewaterhouseCoopers linked up with top 10 South African firm Bell Dewar & Hall about six months ago.

The most recent link-ups just happen to have been mergers with accountants, but there have been a few fair size mergers of law firms. It all comes down to convergence of various facets of the financial sector, and I think it’s probably a trend that is starting.

The banks are looking to buy out law firms, so when those happen it is really about money more than anything. And firms over here tend to have quite complex sets of referral relationships with other international firms, so they prefer not to get into bed with one specific legal partner.

That means the international firms are not yet making a big move into the South African market. Clifford Chance was talking to Edward Nathan before it got bought out, and it was over here a while back visiting quite a few firms.

The foreign law firms quite often come out here on courtesy visits, so you cannot necessarily say that it’s significant.

But US firm White & Case is the only one that is out here at the moment. It really came in specifically for privatisation work where it has got quite an expertise. I think it is quite expensive to set up unless you have got a client business here or come out to do a joint venture with one of the local firms.

At the moment, link-ups with accountants and banks seem to be the way law firms are going, and that is causing quite a reaction. But you look at all the deals done and never do you see the accountants as legal advisers. It’s not like in France where they are dominant.

The association with PwC has not made a huge impact on the market – the reason they did it was probably to attract more offshore work, but I don’t know whether it has had that effect.

What remains to be seen is whether the accountants and banks will continue to march ahead taking over law firms, or whether, just like the rest of the world, big New York and London firms are on their way in.