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Will Other Global Firms Follow Clifford Chance to Oz?
The Asian Lawyer
Perhaps awhile, judging from the swift reaction of the two Magic Circle firms who might be expected to follow rivals Allen & Overy, which launched in Australia at the beginning of 2010, and Clifford Chance, which last week announced plans to merge with two boutique firms: Sydney's Chang, Pistilli & Simmons and Perth's Cochrane Lishman Carson Luscombe.
"Are we thinking of making a move into the Australian market? In a word, no," says Robert Ashworth, Asia managing partner of Freshfields Bruckhaus Deringer. "Basically, we take the view that that market is already well-serviced by large and sophisticated local firms."
Linklaters managing partner Simon Davies said unequivocally in a statement: "We have no plans to open an office in Australia."
Each of the four firms that have made a push into Australia recently has touted its move as part of a larger strategy for Asia, highlighting the greatly increased investment flows between Australia and China in particular. But others in the profession clearly remain skeptical of that vision.
"I have difficulty seeing this as part of a big trend," says Darryl McDonough, chief executive partner of Australian firm Clayton Utz, from which Allen & Overy recruited most of its current 21 partners last year.
McDonough questions whether the new entrants are really all following the same strategy, pointing out that Clifford Chance had been eyeing the Australian market for over a decade, long before China began pouring money into Australia's natural resources sector. On the other hand, he says, Allen & Overy's move was only made possible by the fact that that firm's current Australia managing partner, Grant Fuzi, lost his bid for McDonough's present job at Clayton Utz and decided to lead a team out.
"If that had not had happened, I question whether Allen & Overy would be here [in Australia] today," says McDonough.
Fuzi acknowledges the succession issues but says his role in Allen & Overy's Australia launch has been greatly exaggerated. "A firm like [Allen & Overy] doesn't make a move like this without undertaking a very deep analysis," he says. "They would be here, though you might be speaking to someone else."
Peter Charlton, Asia head for Clifford Chance, agrees that his firm has been long interested in Australia but says the nature of that interest has evolved since 1999, when Clifford Chance began a decade-long flirtation with 1,000-lawyer Mallesons Stephen Jaques. At the time, he says, the firm was mainly interested in having access to a steady supply of well-trained Australian lawyers who could staff offices across the firm, in Europe as well as Asia. Now the firm is firmly targeting the Asia-Pacific economy via Australia, says Charlton, though the human resource angle is still an important secondary benefit.
Freshfields' Ashworth says his firm just disagrees that Australia is a good way to tackle Asia, noting that many practices in the region are increasingly led by native Asian lawyers rather than expatriates. "We don't think that's the right strategy," he says. "We want to continue to focus on our existing offices in Hong Kong, China, Tokyo and Vietnam."
An issue for any firm eyeing the Australian market now would be the sky-high Aussie dollar, currently trading at just slightly more than the U.S. dollar but traditionally worth around 60-70 U.S. cents. That exchange rate means any revenue or profit from Australia, as well as cost, is currently higher than historical norms and could be subject to a sharp correction.
Such an abrupt change would be more of a problem for lockstep firms like Clifford Chance and Allen & Overy, who have or are planning to integrate Australian partners fully into their global lockstep. DLA Piper, which merged last month with its Australian alliance partner DLA Phillips Fox, has more flexible compensation, and Norton Rose deferred financial integration in its 2010 merger with Deacons Australia.
"It's definitely a reason not to be what you'd call full-service," says Clifford Chance's Charlton, whose firm's Australia offices will start with 32 lawyers, 14 of whom are partners. "We want to keep it quite lean and focus on the cross-border finance work and high-end domestic [mergers and acquisitions]."
But the leverage ratios typical of major firms can swell numbers quickly. Allen & Overy now has over 80 lawyers in Australia, with 21 partners.
The scale of the new entrants stands in contrast with that of the leading U.S. firms that have long maintained small but capable Australian offices to advise local banks and corporations on U.S. securities offerings. "Even though [Clifford Chance is] not as large as they've contemplated before, they're still pretty large," says Robert Chu, the head of Sullivan & Cromwell's Australia offices, which count around 10 lawyers between Sydney and Melbourne.
Chu says he does not expect the newcomers to go after the U.S. securities work for Australian companies that is currently dominated by Sullivan & Cromwell; Skadden, Arps, Slate, Meagher & Flom; and Sidley Austin. Rather, he thinks the success of the Magic Circle firms in particular will be judged on landing marquee resources deals involving Chinese state-owned enterprises. "I've not yet observed them on the really big deals," Chu says.
But Fuzi says Allen & Overy is already doing better than projected and has worked on $11 billion worth of deals since launching in Australia. He is confident that other firms will arrive to seek their share of the burgeoning market.
"I would be very surprised if, this time next year, we don't see another one of the big global law firms here," says Fuzi.