The merger between King & Wood Mallesons and SJ Berwin was given the green light by partnerships from all sides earlier today. The ground-breaking $1bn deal, which will go live on 1 November, has also received wide support from the Chinese legal community.
Despite being in comeptition with King & Wood Mallesons in the domestic Chinese market, many lawyers in China have welcomed the move as strengthening links between the UK and China.
“King & Wood [Mallesons] is to be congratulated on this significant deal, which has made history in China’s nascent legal industry,” said Jonathan Zhou, partner of Shanghai-headquartered Fangda Partners. “King & Wood has been making progress on all major fronts in the domestic market in recent years. It’s pioneering international move has opened up new space of imagination among Chinese firms wanting to expand their global reach.”
Zhong Lun’s international managing partner Robert Lewis also admires King & Wood’s vision and its ability to follow through on that. “This is a major achievement. I don’t think there is any other Chinese firm that could pull this off, so King & Wood is to be congratulated,” he said.
Annie Wu, a partner of Beijing-based JT&N added: “I am very proud that at least one Chinese firm is making its mark across the Chinese border. King & Wood will face a lot of challenges to expand globally, but whether it succeeds or not, they have set a role model for other Chinese firms. This development will inspire others to come up with their own strategies and models to achieve globalisation.
“I do think the expanded footprint in Europe and Australia will help King & Wood in pitches for outbound transactions. But the flip side is that the firm will lose some international referrals.”
Dacheng, one of China’s largest firms, has been pursuing its own global strategy by signing cooperation agreements and setting up strategic alliances with numerous firms around the world (19 January 2012). The firm’s managing partner Wang Zhongde sees globalising Chinese firms as inevitable.
“Chinese firms will and must become global players because China is expanding its role, involvement and importance in the global economy. “I’ve already seen deeper and closer collaborations between the Chinese legal profession with their international counterparts,” Wang said. “The ways they go about to achieve that will vary from firm to firm.”
A partner at another national Chinese firm said the tie-up would be beneficial to the image of the Chinese legal profession. “King & Wood Mallesons’ merger with SJ Berwin is significant because it’s the first time a Chinese firm has combined with a major UK firm. It’ll make the world sit up and take notice of the fast-growing and evolving Chinese legal profession,” he said.
Much of the congratulatory responses and excitement is perhaps mingled with strong sentiments of national pride among China’s lawyers. However, no one is underestimating the challenges ahead for the merged firm when it comes to integration and culture issues, and some are yet to be convinced by the rationale behind this deal.
“I take my hat off to them [KWM] for doing the deal but I don’t understand the rationale and can’t see the value,” said a partner of a large Chinese firm. “How many SJ Berwin partners have more than 10 per cent of business that is China related, and how much outbound investment from China is going into UK? There is just not enough business case to justify the merger, which is a huge burden to carry particularly give the volatility in the global markets, including Australia, China, and the UK.
“We don’t expect to see more competition from the merged firm in the market, partially due to SJ Berwin’s very small exposure and low brand recognition in China,” the partner continued. “Instead of increased competition, we think it is a net positive for King & Wood’s domestic competitors up and down the chain. The merger with a sizeable UK-based pan-European firm means King & Wood has become a competitor to firms from the UK, US and Europe, who will no longer be comfortable working with King & Wood Mallesons in China.”
However, there are also market observers who believe the merger will produce minimal benefits for both sides, but equally will have minimal negative effects.
“The merger is structured as a Swiss Verein, which means it doesn’t cost any party much money to do the merger and each partnership can remain relatively independent in their day-to-day operations and keep their existing structure and management. There is nothing much to lose for everyone,” said another partner.
“It will take a long time before a judgment can be made on whether this is a successful strategy. But what King & Wood did is to take the important first step and kick-start the reaction. Without this trail-blazing move, we will never be able to find out if it is going to work,” he summed up.
To find out more about why SJ Berwin chose to merge with a Chinese firm read our analysis: Berwin in a China shop