Global 100: Kick for the finish in Asia

Despite slowdown in China’s economy, Global 100 firms’ interest in Asia shows no sign of winding down with significant moves following another active year.

China’s slowdown has been a focal point of international headlines across the past 12 months as its tumultuous 2015 spilled into 2016. For Dentons, which took on 4,000 China lawyers at the start of 2015 through its landmark combination with Dacheng Law Offices, China’s faltering couldn’t have been more ill-timed. However, Dentons’ exposure in Asia is shared by many Global 100 firms and the attitude is certainly that it is a marathon not a sprint – growth for many firms in the world’s second-largest economy and across Asia shows no signs of abating. Anyway, a slowdown in China is a relative term, with many law firms still expanding.

Meanwhile, Hong Kong, Shanghai, Seoul and Singapore continue to attract interest, as firms looked to mergers, tie-ups, associations, lateral hires and even internal spin-offs in a bid to expand across the continent.

Echoing the wider desire to grow, White & Case London executive partner Oliver Brettle puts it into perspective: ‘We do see Asia as somewhere we need to continue to make investments as seen recently in Indonesia and in corporate/private equity in Hong Kong and we will continue to make investments, but it’s a challenging and competitive market for us as it is for most other firms.’

Rival hub

Significant interest in Singapore’s burgeoning legal market continued over the past 12 months. Firms continue to make the most of the Singapore authorities’ considered efforts to support its legal market and a large increase in foreign direct investment into the region in recent years. Months after acquiring a significant part of Bingham McCutchen, Morgan, Lewis & Bockius announced its combination with Singapore’s 80-lawyer Stamford Law to create Morgan Lewis Stamford, which went live in April 2016. The combination is regarded as one the first examples of true integration between a local and international law firm in the region, with Morgan Lewis moving away from the two most popular routes to entering tie-ups in the city – a joint legal venture or a foreign law alliance (FLA).

‘We see Asia as somewhere we need to continue to invest, but it’s a challenging market.’
Oliver Brettle, White & Case

It was also revealed in March that Eversheds, which has had an office in Singapore since 2009, is currently in talks with Singapore’s 76-lawyer Harry Elias Partnership. As talk of its merger looms, Eversheds chief executive Bryan Hughes stresses the importance of both Hong Kong and Singapore to international firms. ‘It doesn’t have to be either Hong Kong or Singapore, does it? Hong Kong is massively important and we have a significant offering there. It is a major financial hub. It is almost the Western gateway into China, and also very important in terms of China’s outward and outbound investment. Singapore is equally important, but more for South-East Asia. It gives you a gateway into India and also links up to other parts of the region.’

Meanwhile, Dentons has continued its rapid growth across Asia in the first half of last year with the announcement it had created a tripartite union with 200-lawyer Singapore firm Rodyk & Davidson and Australian practice Gadens, which had over 500 lawyers, late last year. A combination with Gadens and Rodyk & Davidson takes lawyer headcount to well in excess of 7,000 lawyers. Last year proved to be a breakthrough year for Dentons, with six law firms across the US, China, Australia, Singapore, Colombia and Mexico agreeing to join in a merger spree unprecedented in the legal industry.

But although popular, mergers and unions were not the only means of entering Singapore’s legal market. Herbert Smith Freehills (HSF) entered into a Singapore alliance last year. HSF arranged an FLA, joining forces with its ‘best friend’ Prolegis, allowing both firms to retain independence, while integrating marketing, billing, client service and legal services.

Notably, Hogan Lovells brought in Ashurst’s head of corporate in Jakarta to its Singapore office at the time it entered into a new association with three-partner Indonesian law firm Dewi Negara Fachri & Partners in June in a bid to strengthen its offering across Asia.

While there is continued interest in Singapore, Sidley Austin’s managing partner for Asia-Pacific, Tom Albrecht, does not believe the hub will challenge the importance of China for international firms any time soon. ‘Singapore has to rely on its geographic position – nicely situated among Thailand, Malaysia, Indonesia, India, Philippines – in order to draw in financial services, legal services. It will have a long-term bright future. It is not going to, in my judgement, pass China for at least for the next 20, 30, 40 years, because of the sheer size of the Chinese economy, but they will co-exist very nicely.’

Pace setter

As the Chinese communist party continues to prioritise legal reform, particularly in updating its commercial laws, firms continue to flock to the region, albeit 2015/16 moves pale in comparison with Dentons and Dacheng’s combination.

Interest has been steady in Shanghai, but Baker & McKenzie remains the only global law firm providing Chinese law through a Shanghai Free-Trade Zone (FTZ) tie-up after combining with local firm FenXun Partners at the start of 2015. Other firms are seeking out innovative ways to deal with the city’s FTZ rules, which permit domestic law firms to tie up with international giants and practise local law.

After scoping out the local market for a suitable target to form a joint venture with, Linklaters decided this year to go it alone. Talks with the most serious contenders, Shanghai Capital Law & Partners and Shanghai Kai-Rong Law Firm, fell through at the end of 2015, leading Linklaters to make plans for a group of Shanghai lawyers to spin off into a new best-friend firm before acquiring the firm when regulations allow. The new practice is expected to include around ten of Linklaters’ 30 Shanghai-based lawyers by the end of the year.

Although they are yet to make significant inroads, there are other firms that have an eye on the prize when it comes to China. Quinn Emanuel Urquhart & Sullivan opened the doors to its eight-lawyer Shanghai arm in August, adding to its existing China offering in Hong Kong. Clifford Chance is circling China, considering potential merger candidates, alongside HSF, which is also looking for a China opening through an FTZ combination, unveiling its new strategy, ‘Beyond 2020’, which focuses on how to tackle both China and the US. Allen & Overy (A&O)’s new management team, Wim Dejonghe and Andrew Ballheimer, has also been vocal about the firm’s desire to grow in Asia along with building substantive US law capability in the region.

Meanwhile, Dentons continues to work on integrating with its huge Chinese practice, with Dacheng indicating earlier this year it would restructure its practice to reduce the number of profit pools from 15 to five in a move that the firm hopes will motivate the partnership to cross-sell clients.

But with growth comes the question of sustainability and London’s co-managing shareholder of Greenberg Traurig Maher, Fiona Adams, is wary that Asian markets, particularly Hong Kong, are lawyered. ‘As with all crowded legal markets, including London and New York, it is very difficult and not all firms will survive in their current form. There definitely needs to be change, there will be consolidation as it’s difficult to see how the existing firms are going to continue to fight in this competitive market.’

Meanwhile, activity in other areas of Asia paled by comparison last year. South Korea continues to be a popular target, with White & Case launching an office in Seoul last summer and A&O launching an international office in the city, although the firm will not offer Korean legal advice and will continue to work with local relationship firms. Meanwhile, Latham & Watkins announced in February that it had submitted an application for a foreign legal consultant office and also signed a lease in the One IFC tower in the financial district of Yeouido. However, Ashurst, which first signalled its intentions to set up a base in South Korea back in 2011, said in January it had put its plans to launch in the country on ice, following the departure of a team of partners led by its then Tokyo managing partner John McClenahan, who exited to head King & Spalding’s launch in Tokyo.

Down under

In contrast to the moves into China and South-East Asia, Australia – not so long ago the epicentre of Global 100 activity – is losing the considerable attraction it held just a few years ago. The weakening Australian dollar along with the fact that many deals between international players and leading domestic firms have already taken place, has given the impression that Australia is losing some global clout. This is evidenced by the performance of Australian independents – in 2011 there were five independent firms in the Global 100; this year there are none. MinterEllison, which was the highest grossing Australian firm in the 2011 edition with $441.5m (against an AU$-US$ exchange rate of 0.8777), now posts revenues of $322m.

Despite this, there was some movement, including Dentons’ union with Australian firm Gadens, while Clyde & Co and Hogan Lovells confirmed growth in the region last year. Clydes picked up five partners in Sydney, who joined the firm with another 25 lawyers, all from Lee & Lyons. The firm also hired a further two partners from Norton Rose Fulbright in February 2016 increasing its Australia practice, which launched in 2012, to 23 partners and around 120 legal staff in four cities. Meanwhile, Hogan Lovells confirmed it had trebled the size of its Australia offering in March, recruiting four new partners to expand its operations in Australia, hiring Scott Harris from DLA Piper, Richard Hayes from King & Wood Mallesons and Gilbert + Tobin duo Andrew Crook and Ros O’Mally, bringing the firm’s partner headcount to six in Australia.

However, news that Skadden, Arps, Slate, Meagher & Flom was to shut its Sydney branch in the first half of this year after nearly three decades of operation was a notable development. The closure of Skadden’s only base in Australia, which opened in 1989, follows a review of the firm’s Asia-Pacific offering that found the office’s clients could be serviced out of Singapore or Hong Kong. Clifford Chance also saw significant departures from its management team early this year as Australia founding partners Mark Pistilli – who also heads the Sydney base – and Danny Simmons stepped down from their roles.

Meanwhile, three years on from its merger with Blake Dawson, Ashurst has seen a further power shift towards Asia with the announcement its next global managing partner would be Sydney-based banking partner Paul Jenkins, who joins chair, New Zealander Ben Tidswell, at the helm, splitting his time between London and Sydney. After taking on the role in June, Jenkins has led a shake-up of the firm’s management structure, which means the majority of leadership roles are now split between partners in Ashurst’s London and Australia-based offices.

Clearing hurdles

While Asia still drives growth for many Global 100 firms, it is by no means universal, with some firms steering clear of the market volatility and complicated law firm regulation in the region. Peter Burrell, head of disputes at Willkie Farr & Gallagher in London, says the firm has no interest in Asia. ‘It’s not true that firms want to be out there – some firms have walked out of Asia. It’s very unprofitable, volatile work: you need to be in a lot of places for a client. Following the rate pressure is extreme. It’s very difficult.’

Nonetheless, of the top 25 firms in the Global 100, half have more than 50% of their lawyers outside either the UK or the US, with a significant chunk of those lawyers based in Asia. Despite the negativity coming out of the region, there is still revenue to be found.

Chair of Morgan Lewis Jami McKeon says the firm has seen growth across its Asian offices and now is the time to tough it out. ‘In some areas of the market, Asia has been experiencing less robustness. But cross-border, tax, litigation, investment management, funds work, competition work and advisory work – all those areas are growing in parts of Asia. Singapore and what it’s doing in the international arbitration space is a source of growth.’ LB

madeleine.farman@legalease.co.uk

 

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