Foreign raiders target maturing market

IF the arrival of Allen & Overy to Australian shores with branches in Sydney and Perth caused ripples in the legal world last year, then the February decision by another major UK law firm, Clifford Chance, to do the same has stirred the waters further.

The pair’s asymmetric assault on the national market has challenged the status quo at the top end of a sector that has remained relatively unchanged for the past decade.

While both have taken slightly different approaches, their strategies appear remarkably similar – using a small number of existing Australian lawyers to create bases in the financial and resources capitals of Australia.

Allen & Overy opened just under a year ago, poaching key players from major law firms to start its business. In Perth, it has four partners, with a big focus on the resources sector.

Clifford Chance has instead opted to bring two boutique players into its global partnership. In Perth, seven-partner practice Cochrane Lishman Carson Luscombe will join Clifford Chance at the beginning of May.

The decision to go boutique and open in Perth as well as Sydney came as a surprise given rumours there had been more than a year of merger discussions with major Australian law firm Mallesons Stephen Jaques.

The overseas assault is not just from the so-called ‘magic circle’ elite of London’s legal world.

After a long-running alliance, Australian firm DLA Phillips Fox is going a step further in May and fully integrating with UK-based DLA Piper. It will change name on the same day.

And Norton Rose Australia has had more than a year in partnership with Norton Rose LLP, to form Norton Rose Group. Canadian law firm Ogilvy Renault and South Africa’s Deneys Reitz will join the group in June.

Global deals

All these firms recognise major benefits in having an international network to challenge the top Australian law firms.

“Merging with an international law firm allows us to draw on international experience as and when required,” said Norton Rose partner Jenni Hill, who heads the firm’s Perth office.

“In the past five years we have seen the rise of international transactions in Australia, we’ve seen this with particularly the Chinese investment into WA and there are very few transactions that don’t have an international aspect involved.”

Almost everyone who discusses the arrival of the UK firms in Perth comments on how the market has matured, with a rise in international deals to a level that appears sustainable.

Big rises in commodity prices have created value in mining companies. In turn, the capital required for these increasing large players is also rising, prompting them to turn to offshore markets for the funding they need.

Allen & Overy’s partners in Perth are kept busy working for Fortescue Metals Group, an iron ore miner that did not exist a decade ago. FMG’s funding is largely from the US and its customers are in China.

Oil and gas, too, is growing rapidly, and already dominated by multinational players.

Local debate

Freehills head of Perth office Jason Ricketts acknowledges that the beachhead the global law firms had formed in WA has generated discussion.

“I would be lying if I said we were not watching it carefully,” Mr Ricketts told WA Business News.

However, the Freehills partner believes the current moves are little more than a rebadging of existing business whether they are former partners of big law firms or boutiques merging with the global giants.

“The people who are here now have always been in the market, they are (existing) competitors,” Mr Ricketts said. “We are competing in the same markets for the same projects as we have for a while.

“The jury is still out on what these changes mean for the future.”

Furthermore, Mr Ricketts points out that Freehills has offices in the region, which have become increasing useful to the Perth firm as the legal work has become more international in nature.

“The market is maturing,” he said.

“We certainly have noticed that we are doing a lot more work with our office in Singapore.”

But not everyone is so relaxed about the influx of foreign giants into what was, until recently, a second-tier national market.

Blake Dawson Perth managing partner Paul Riethmuller is one who has warned that the foreign majors are likely to be very competitive when it comes to getting on panels. Mr Riethmuller highlighted the international nature of the work where the threat is largest.

In those cases, Australian national firms played a secondary role to a lead firm due to their place on the ground here.

Will it all unravel?

With the Perth market unusually busy in a globally depressed legal market, is it possible the major law firms will lose interest when London and New York improve? And what about the local end of the deal? Achieving international benchmarks might seem easy when the Australian dollar is at parity with the greenback and competitive with the pound, but what happens when it retreats?

Cochrane Lishman Carson Luscombe partner Michael Lishman said the reasons for the merger were sound, beyond short-term opportunism on either side.

For his firm, Mr Lishman said that having been competitive as a start-up boutique had whet the appetites of the founders to seize what seemed like a big growth opportunity.

And, he added, it provided a very strong pathway for the younger people in the firm.

As for economics, they stack up.

“Currently with the high Australian dollar, Australian charge out rates are aligning with those in Asia,” Mr Lishman said.

“Consequently the economics of a merger makes sense at this time.

“However, given the possibility of a correction in the dollar to more historical levels at some point, there is a sound strategic reason to keep the Australian operations lean and focused.”

DLA Phillips Fox partner Allan Drake-Brockman echoed those sentiments.

“We based all our planning on the exchange rate two years ago,” Mr Drake Brockman said.

“We are not being required to operate as if we are London or New York partners, but when it comes to the crunch we do compete very well.”

Outside those operating in Perth already, not everyone is a believer in the Perth story.

Two other magic circle law firms contacted by WA Business News, Linklaters and Freshfields Bruckhaus Deringer, said they had no plans to launch in Australia, let alone the west coast.

They said they were happy with their existing Asian operations and Australian alliances.

“There are no plans to set up an office in Australia as that market is well catered for by local firms with whom we have strong relationships,” a Freshfields spokesperson said.

“We also don’t see it as a credible stepping stone into Asia where we already have a leading practice.”