KWM’s Fuller: “No more mergers for now, our focus is on integration”

With the international legal community still abounding with scepticism around the concept of King & Wood Mallesons (KWM), the firm’s global managing partner Stuart Fuller finds part of his job is to deliver “proof of concept” both internally and externally.

It was exactly two years ago when Stuart Fuller first met The Lawyer in the London office of legacy SJ Berwin. The meeting took place just hours before he joined the London partners to crack open the champagne in celebrating the confirmed merger between King & Wood Mallesons and SJ Berwin (31 July 2013).

Two years on Fuller remains as optimistic and enthusiastic as ever.

Stuart Fuller
Stuart Fuller

“We had a strong year,” confirms Fuller. The firm saw global turnover increase by 3 per cent in 2014 to $1.03bn (£658.4m), although Fuller says on a like-for-like basis turnover was up by 8 per cent when adjusted for movement in exchange rates. Over two-thirds (71 per cent) of revenue came from Asia-Pacific – KWM’s Australian, Hong Kong and Chinese partnerships.

Revenue growth apart, another important metric to measure how well a newly-merged firm is doing is the amount of cross-selling activity between the founding firms.

Three years on from the merger between China’s King & Wood and Australia’s Mallesons Stephens Jaques (15 December 2011) and in the second year of the UK combination, Fuller says the firm worked on a total of 793 client matters that involved at least two parts of the network, representing a 130 per cent increase over the previous year.

Although 793 matters may be a small percentage in the thousands of transactions handled by a firm of 580 partners and 2,700 lawyers, KWM’s leadership is pleased to see some fundamental changes starting to happen.

“With footprints across Australia, Asia, Europe and the Middle East, clients have started recalibrating us from a group of strong regional firms to a global firm,” says Fuller.

In addition to a number of recent global panel appointments, Fuller says a growing number of clients have started working with the firm worldwide, including Macquarie, BHP Billiton, Telstra, and GE.

“Without the merger we may not have had these opportunities. By being present in more countries, it really has lifted the firm to a higher level,” he adds.

Internally, having done more actual work with colleagues in different parts of the firm, Fuller says there is also a stronger sense of belief among partners in the concept of “a global firm headquartered in Asia”.

“Our people can actually see it and feel it in terms of the benefit of the combination,” he says.

Of all the cross-selling activity, referrals from Europe into China and from Australian and China into Europe, particularly Germany, are equally strong. Australia, partially due to the high Australian dollar and a slower domestic market, received less inbound deals.

However, a raft of partner exits in KWM’s City base over the past 12 months has raised questions about how well the merger is doing in the UK (9 July 2015).

Fuller insists that the firm’s London office is performing strongly, adding that it saw a 10 per cent increase in revenue in the last financial year. He attributes the partner departures to a number of reasons, such as a hiring spree by US firms in London and ongoing performance management by UK firms.

“US firms have made an impact on a number of UK firms, particularly around the private equity and funds space. Some partners left because they don’t fit in the firm any more,” he elaborates.

The China story

What makes KWM unique is its deep roots in mainland China. Its Chinese partnership houses nearly 1,000 lawyers including 219 partners across 10 cities. In 2014, its China revenue grew by 20 per cent year-on-year to an estimated RMB2.4bn ($380m).

In the firm’s latest round of global promotions, China scored 24 new partners out of the 36 total globally, largest among all regions (15 July 2015).

“China saw very strong growth in the firm’s business and we have a strong crop of good senior lawyers there. It is important to bring them through to the partnership,” says Fuller.

A key rationale behind the concept of firms like KWM is to leverage legacy King & Wood’s relationship with its domestic clients and to capture the surging outbound investment from cash-rich Chinese companies.

But translating this trend into actual financial rewards proves to be a big challenge, not only for KWM, but for all global firms chasing Chinese outbound work.

Take Chinese-backed deals in real estate for example. Fuller says: “Many firms, including us, are doing work for Chinese companies and sovereign wealth funds buying properties overseas to diversify their portfolios. But if any firm tells you that their recovery rate is about 70 or 80 per cent, they aren’t telling the truth.”

Lower recovery rate apart, winning work in the first place also requires significantly competitive pricing. Fuller says the firm’s global leadership is providing full support to partners who want to bring in strategically important clients to the whole firm but need to offer “aggressive prices”.

“Having the necessary expertise and resources globally remains the most critical factor in winning work,” says Fuller. “Pricing is also a key deciding factor for Chinese clients. That’s no difference from Western clients.

“When a firm makes aggressive pricing for a project or client, it is an investment of the firm and it is for strategic purposes,” he adds. “When you promised the client a certain price, you have to vigorously manage cost and keep that price as best as you can.”

KWM’s global executive committee, headed by Fuller, is the body that oversees and approves this type of investment. Over the past 12 months, Fuller says the executive committee backed about six such strategic transactions.

However, KWM can no longer claim it is the only global firm with significant coverage in China, as Dacheng and Dentons sealed a merger deal at the beginning of 2015 (22 January 2015).

Fuller regards Dentons Dacheng as a very different combination to his firm, but expects the growing number of Sino-Anglo-Saxon tie-ups to be a driver for the firm’s further development.

“We are two very different firms, and we operate on very different models,” says Fuller. “But it’s good to see more Chinese firms taking such a move. Now I can tell my partners that we’re no longer the only one in the market, and we have to work even harder.”

Asking whether there will be more Chinese firms merging with their global counterparts, his answer is certain.

“There will be more to come for sure. If the managing partners of the top firms are not thinking about it, they’re not doing their job right,” says Fuller.

“Luckily, we always have that first mover advantage as we’ve already spent four years getting to know each other well and working with each other. No one can take that away from us and we will always be four years ahead,” he adds.

Singapore plans

In February 2015, KWM opened its first new office as a global firm in Singapore (3 February 2015). The office, which operates as a foreign law practice, is currently manned by three partners relocated from China and Australia.  

Back in 2012, prior to signing the deal with Chinese firm King & Wood, legacy Mallesons Stephen Jaques was also negotiating a deal with leading Singaporean firm WongPartnership. However the Singaporean firm decided to walk away from the deal (17 May 2013).

“Often it all comes down to the right time to do something. People would have understood the deal better if we had proof of concept and more track records. But we’ve decided the Singapore market is important enough for us to go along,” says Fuller.

Fuller is not ruling out further expansion in the South East Asia hub through local tie-ups.

“Having local capability is a must for us and local depth is important to our clients. We would like to have local law capability and the options including a formal law alliance or joint venture. It will happen at some stage in the future,” Fuller reveals.

“Singaporean firms are highly admired and recognised. Consolidation in that market will continue and it is a difficult force to hold back.”

Integration, instead of mergers

Fuller knows very well that being an unconventional global firm can attract many market rumours, particular around the firm’s next merger target and destination. But he refutes speculation about further mergers in Europe or US, maintaining that the firm’s current focus is on integration.

KWM is seeking other ways to build up its US law capability. The lack of a US base arguably hinders it from becoming a true global firm. A series of lateral hires and relocations signal its new approach to tackle the issue.

For example, it has recently hired a number of US qualified Chinese lawyers in Hong Kong, including Davis Polk & Wardwell counsel and former JP Morgan China general counsel Christine Chen and former Linklaters counsel Hao Zhou. In addition, to further strengthen its Hong Kong capital markets practice, it also made two senior partner hires, including former Linklaters Asia managing partner Sili Shao from JP Morgan and Herbert Smith Freehills partner Gary Lock.

As a result of the US law push in Hong Kong, KWM is currently acting as issuer counsel on the IPO of two Chinese clients, acting on all PRC, HK and US law.

Last October, in a bid to boost its funds offering in the US, it moved Hong Kong funds partner George Pinkham and London-based private equity managing associate Parik Dasgupta to New York.

Fuller’s other key priority is to integrate the existing four members of KWM’s network, including building a single partnership and remuneration system for all four verein members.

“We’ve always said we will be fully financially integrated as is written in our merger documents. But we didn’t set out a specific date to achieve that,” he explains.

“Our approach is working from outside in. We use clients as a force for good,” he continues. In other words, KWM’s leadership hopes to connect and bring people together by working alongside for common clients and on transactions.

The firm also initiated a project called ’Transformation’ to make the Chinese practice consistent with its Australian and UK counterparts. As part of the programme, Chinese lawyers are provided with training in English language and English document drafting.

“We still have quite a distant to go from the ultimate goal. We’re always awed by how much more work needs to be done, but we are comfortable that the firm is on an upward trajectory and the growth momentum is here,” he enthuses.

Hard work ahead for sure, but Fuller and his partners can at least look forward to a week of fun in China at the beginning of September. Shanghai will play host to the firm’s 2015 annual global partners conference, and 93 per cent of the 580 partners have confirmed their attendance.

“It is crucial to be in China to be able to understand China,” believes Fuller. “The market changes so quickly and there’s still a gap between the reality and people’s perceptions on China. This conference will provide some partners a new experience and introductory on China, while for other partners it will be about familiarisation.”

While the entertainment provided remains a secret and Fuller is determined to keep it a surprise, KWM’s European partners may want to start practising using chopsticks and saying “ni hao”.