International firms taking a local Saudi partner is a common routine but is it always the best move for both parties?
There was a curious instance of sponsor-swapping in Saudi Arabia towards the end of 2012. In December 2012 Linklaters entered into a relationship with Abdulaziz AlGasim Law Firm, which had been Allen & Overy’s (A&O) best friend in the kingdom since 2007.
It had been public knowledge for some time that A&O’s future with Abdulaziz AlGasim was uncertain. As far back as June 2012 The Lawyer reported that the magic circle firm was mulling what to do as its contract with its sponsor firm was coming up for renewal. When the two signed the deal in 2007 – giving A&O its first foothold in Riyadh – it was for a five-year stint and so, as the firms entered a one-year rollover period they began to discuss whether to stay together.
Clearly, there was not much to discuss and by December Abdulaziz AlGasim was locked into a deal with Linklaters, which was making its first foray into the kingdom. At the time Abdulaziz AlGasim’s managing partner told The Lawyer: “We have a high regard for Allen & Overy but came to the understanding that it would be best to pursue our strategic goals independently. We’ve known about Linklaters for a long time, they’ve been active in [Saudi Arabia] and we’re looking forward to working with them.”
A spokesperson for Linklaters added: “We’ve been doing transactions in the Middle East for over 30 years and established our office in Dubai in 2005, and in Abu Dhabi last year. We’ve been very successful in developing our Saudi practice and this arrangement with Abdulaziz AlGasim Law Firm will allow us to further extend our already very active practice.”
This was just the latest in a long line of international moves by Linklaters in 2012. The firm had signed an exclusive alliance with South African firm Webber Wentzel earlier in December and forged an alliance with Allens Arthur Robinson in Australia in April.
But A&O didn’t waste any time plugging the gap in its international network. A few days after the Linklaters deal was announced, A&O tied up with a Saudi Arabian firm led by one of its own partners. Zeyad S Khoshaim Law Firm is led by Zeyad Khoshaim, who joined A&O as a partner in 2010 from Abdulaziz AlGasim. It was a characteristically savvy move by A&O.
A&O senior partner David Morley said at the time in a statement: “Our association with Zeyad underscores A&O’s commitment to Saudi Arabia. Zeyad’s practice is strategically aligned with A&O’s and we trust our association with him will enable us to better serve our global and regional clients.”
A&O also moved its Riyadh-based partners – banking partner Julian Johansen and corporate partner Johannes Bruski – over into Zeyad’s law firm.
The news about A&O and Linklaters’ sponsor-swapping was enriched by the recent history of the two firms. In November 2011 The Lawyer reported that A&O was holding exploratory tie-up talks with Linklaters’ joint venture partner in Singapore for 10 years, Allen & Gledhill – widely regarded as the jurisdiction’s top player. As a result Allen & Gledhill split from Linklaters, but when talks between A&O and the Singapore firm broke down in March 2012 all three went their separate ways.
Whether this was at the back of Linklaters managing partner Simon Davies’ mind when deciding to work with A&O’s former Saudi sponsor, can only be a matter of speculation.
But intriguing as the situation is, sources on the ground in Saudi say few international firms can operate in the region for any length of time without going through multiple local sponsors. One partner at an international firm on the ground calls it “the dance of the Saudi partners”.
“Generally with these relationships it comes down to the expectations between foreign parties and local lawyers – how the partnership operates and how revenues are spun off,” adds the partner.
Another partner at an international firm in Saudi Arabia says his experience in the kingdom has led him to question whether the sponsor-firm model is effective.
“If I were a young, aspiring Saudi lawyer, it’s not a model I would pursue,” says the partner. “Firms always say their interests are aligned, but it’s still two firms trying to work together and, as much as they try to make things work, it often doesn’t. There will be conflict of vision, strategy, quality control or real control.
“[The situation with Linklaters and A&O’s old sponsor] is funny: one firm fails with its sponsor and another thinks it can do well. The firms aren’t that different – why will this sponsorship work any better?”
The next few years will show whether the firms have managed to jump off the sponsorship roundabout or whether, in the not-too distant future, the search for a suitable partner will start again.
Key figures: Saudi Arabia
GDP (2012): $727.3bn
Inflation (2012): 2.9%
Population (2012): 29m
Life expectancy at birth: 74
Unemployment rate (2012): 5.5%
Source: World Bank, Central Department of Statistics