Freshfields on Australia: the A&O way is not for us

Konstantin Mettenheimer

Freshfields Bruckhaus Deringer and Linklaters will not follow Allen & Overy (A&O) to Australia, as signs of a strategic divide emerge within the magic circle over the best way to target Asia.

A&O announced last week that it was launching two Australian offices to tap investment flows between that jurisdiction and China and Japan, improving its Asia-Pacific reach (The, 8 February).

The growing strategic importance of the Asia-Pacific region has been underscored by magic circle firms’ decisions to send senior partners there, obtain local ­practising licences and make ­Australian lateral hires. A significant proportion of the magic circle firms’ total ­revenues now stem from Asia (see table, right).

But Freshfields joint ­senior partner Konstantin Mettenheimer argued that opening in Australia was not necessarily the best way to tap the potential of the wider area.

“[Australia’s] a strong economy with a very good existing legal infrastructure,” he said. “However, the domestic ­market is ­relatively small and it’s very well-­serviced by sophisticated and competitive local firms. It’s also difficult to position ­Australia as a gateway to Asia due to the distance and differing timezones.”

Linklaters will not be ­following in A&O’s footsteps either. A partner at the firm said the main obstacle was the supply of local lawyers and the lower levels of ­profitability.

“It’s a good opportunistic move for A&O, but you’ll not see Linklaters following suit,” said the partner. ­”Australia’s very well-served by lots of very strong local firms. It’s not going to move the needle for A&O’s profit.”

But Clifford Chance, which held merger talks with Australia’s Mallesons Stephen Jaques in 2008, until the recession aborted plans that would have ­doubled its Asia offering (The Lawyer, 8 ­December 2008), was less resolute in its opposition to an Antipodean launch.

Managing partner David Childs said: “Australia’s an interesting ­market – it’s very competitive with very high-quality law firms. We employ a lot of ­Australians [so we’re aware of the quality]. It’s clear that things are moving eastwards. We’d never say never to ­anything.”

A&O’s decision to launch in the country through ­making 17 lateral hires will see its Asia-Pacific footprint grow to 64 partners, overtaking the rest of the magic circle and placing it in ­second place behind Norton Rose (see graph, above).

But while Norton Rose chose to open through a full-scale merger with ­Australian firm Deacons (, 23 June 2009), A&O ruled out a tie-up with a local outfit.

A&O Asia head Tom Brown said: “From our ­perspective, I don’t think a merger would have been right. [It would have involved] too many ­locations and been too full-­service, when our model is to focus on high-end cross-border work.”

He added that if Clifford Chance or any other ­competitors were to open in Australia it would “probably be an endorsement that we’ve got the strategy right”.

He added: “We’re in ­pretty uncompetitive territory. I’d expect that people would be looking. The fact has caused such a stir.”