The arrival of specialist international firms has added another dynamic to the fast-changing Australian legal market
Lawyers and clients were able to breathe a sigh of relief as the period of extraordinary political instability and low business activity in Australia finally came to an end with September’s federal election.
“The change in government has removed some uncertainty for boardrooms and investors,” says Clayton Utz chief executive Darryl McDonough. “In the past four weeks we’ve seen significant changes in the corporate environment and an upturn in activity in the corporate area.”
According to firms on the ground, a number of projects and business decisions that were put on hold prior to the election have resumed and there is a will among companies and banks to compete transactions.
The recent A$440m (£260m) IPO of online currency exchange operator OzForex on the Australian Securities Exchange is a case in point. It is the first major IPO and listing in Australia since 2011. Clayton Utz acted as the issuer’s counsel.
“Economically, things have been much tougher than a few years ago,” says McDonough. “One can only hope the change in government will result in a higher level of investor confidence.”
A survey by National Australia Bank published back in July showed that business conditions had slumped to a four-year low. The country’s law firms felt the pinch, as many struggled to achieve revenue growth. Ashurst Australia, Clayton Utz and King & Wood Mallesons, for example, saw turnover fall by 2.4 per cent, 4.1 per cent and 3.2 per cent respectively in 2012/13.
Due to the tough market conditions and the integration process in merged firms there is a perception that the big players in Australia are getting leaner.
DLA Piper’s Australian offices, for example, had 107 partners at the end of July, down 6 per cent from 114 partners a year ago. Herbert Smith Freehills’ (HSF) Australian partnership saw a reduction of more than 10 partners in the past year, and Ashurst Australia, which will fully merge with its UK ally on 1 November, has seen seven partner departures so far this year.
“There’s quite a bit of partner churn in newly merged firms,” says one partner in a large Australian firm. “The general view is that the global firms don’t need that many partners in Australia so they’re cutting back, and some Australian partners may not be on the boards of merged firms. Also, some lost sight of the high costs involved in mergers and their profitability slumped. This may be another thing driving partners to leave.”
Despite an overall dip in the number of partners, competition for talent in certain areas remains fierce among merged firms. Recently, DLA Piper hired corporate partner David Ryan in Sydney from Ashurst Australia, while HSF took on Brisbane financial partner David Lyons from Norton Rose Fulbright.
Another trend that defines the year in Australia is the entry of specialist international firms that have a strong offering in particular practice areas.
US litigation boutique Quinn Emanuel Urquhart & Sullivan is one of the latest foreign arrivals. In early September the firm officially opened its Sydney office with former HSF partners Michael Mills and Michelle Fox.
“The Australian market is ripe and long overdue a specialist international business litigation practice,” says Mills. “As the legal market matures Australian companies are looking to specialists for the world’s best practice. This is not just for transactional matters such as M&A, financing and infrastructure projects, but also litigation.
“The changing client demand has driven firms to merge and has also made some leading partners at large firms to consider the benefits of the specialist model.”
Employment-focused US firm Seyfarth Shaw and UK technology, media and telecoms (TMT) specialist Bird & Bird are two other notable new entrants.
The former launched in Sydney and Melbourne in June by hiring eight partners from three firms, HSF, Ashurst Australia and Arnold Bloch Leibler, while the latter entered a co-operation agreement with Sydney-based TMT boutique Truman Hoyle in March.
“We’ve started to see large international firms specialised in particular areas competing in the local market – it’s the start of a trend,” says Seyfarth Shaw international chair Darren Gardner, who oversaw the Australia launch. “Generic full-service commercial firms will find it more competitive and more difficult to grow in Australia.”
He explains that the panel appointments for certain areas, such as employment and industrial relations, have different requirements from transactional work. In addition, specialist firms do not carry the overheads of underperforming areas, have more flexibility in pricing and are available to devote resources to expert areas more quickly and efficiently.
“We’ve been looking at the Australian market for some years,” says Gardner. “Previously, it was quite hard to attract people from the top national firms. With the revolution in the past few years there’s more chance to recruit leading lawyers who are more open to other options.”
Although Australia will not be the answer for everyone, it is developing into a competitive and flexible market. And that can only be a good thing.
Key facts: Australia
Annual inflation: 1.7%
Population (2012): 22.7m
Life expectancy at birth: 82
Source: World Bank, Australian Bureau of Statistics