Strategic moves

A recent series of mergers in the Australian legal market is a sign of ambition rather than a return of the volatility of the last recession, reports Patrick Stewart. Patrick Stewart is a freelance journalist. Last month, Freehill Hollingdale & Page, a top Australian commercial practice consummated its marriage to Perth firm Parker & Parker, catapulting it to the number one position by size in the country. Earlier this year, another major firm, Blake

Dawson Waldron, swallowed up Sydney-based tax practice Rosenblum & Partners, the latest in a string of strategic acquisitions by the firm. So is the Australian legal market getting ready for another shake-up?

Australia's commercial firms are prospering, but not so long ago, the upheavals of law firm mergers and a damaging recession concentrated minds at partnership meetings. In this context, the moves by Blake Dawson and Freehills may be isolated cases.

Parker & Parker is one of Perth's top practices and the opportunity to snap it up provided a way for Freehills to strengthen its position in the city. As for Blake Dawson's move, Justin Shmith, the firm's London resident partner, says it had considered a full-scale merger with a practice of a similar size, but opted instead for smaller strategic acquisitions.

Michael Whalley, London resident partner at Minter Ellison, says mergers with smaller firms have not been common, possibly because their culture is often seen as incompatible with that of larger firms. The last notable merger took place in 1996, between Allen Allen & Hemsley and Brisbane firm Feez Ruthning, both of which were already affiliated as part of the Allens Arthur Robinson Group.

But, according to some lawyers, the recent moves highlight some of the underlying tensions in the market. Greg Hammond, London resident partner at Malleson Stephen Jaques, describes the market as “competitive and overserviced” and says firms are adopting different strategies to deal with this environment. He predicts further strategic moves.

A number of factors are forcing the pace. Structural changes in the Australian economy and its regulatory system could change the number of lawyers needed in different places, according to Holland. In addition, competition for prime transactional work has become intense, a trend likely to continue.

A number of practices, such as Clayton Utz, have provided a strong challenge to top-tier firms. Accountancy firms, meanwhile, are stepping up their efforts to break into high-premium legal work. Arthur Andersen is the most notable example. It set up in Sydney two years ago as Sharwood Eyres & Willkie, taking on a team of defectors from Blake Dawson. Since then, it has opened in Melbourne and changed its name to Andersen Legal. Although many believe the firm got off to a slow start, the threat is taken seriously.

Foreign firms are also viewed as a potential, albeit more distant, threat. UK firm Baker & Mckenzie, with offices in Sydney and Melbourne, has built up a good reputation. A few other firms have set up, including Coudert Brothers and Skadden Arps Slate Meagher & Flom, but their operations remain small.

There is, as yet, little real competition from the foreign brigade, a situation that is unlikely to change overnight. But Allens' managing partner Steven Walker predicts: “As UK and US firms become more aware of the Asia-Pacific region, we will face increased competition from them.”

There are already signs of well-known international firms devising Asian strategies which take Australia into account. US firm Graham & James and Hong Kong's Deacons brought local firm Sly & Weigall into its network, prompting the Australian firm to change its name to Deacons Graham & James.

Firms will want to ensure that they are not left behind in this competitive environment. Walker says: “Australian firms have learnt very rapidly in the past two or three years that they must continue to compete very aggressively in standards of services delivered.”

A big question exercising the minds of the main commercial firms is how to define their role in the global market. Asia was identified at the start of the decade as a potential growth area. But Australian firms' track record in the region has been patchy.

Ambitions have now been scaled back and firms are taking a much more realistic view of the Asian market. Project finance, in particular, is viewed as an area where many Australian practices believe they can have a role to play alongside US and UK firms in Asia.