Change has been the only constant at the South African corporate firm Bowman Gilfillan since apartheid ended in 1994. Ten years ago, says the firm’s corporate head, Ezra Davids, he was the firm’s only black partner. Today, Davids, 48, has a lot of company: About a quarter of Bowman’s partners are from the country’s previously disadvantaged groups—black, South Asian, and mixed-race.
Davids, raised in a Northern Cape township and schooled at the country’s top universities on scholarship, is the outward face of 390-lawyer Bowman. He handles the firm’s relationships with its most important clients, including The Goldman Sachs Group Inc., Rio Tinto Limited, SABMiller plc, and Standard Bank Group Limited. And he is a regular visitor to the Wall Street and Magic Circle firms, cultivating close referral ties with them.
Early in his career, Davids did a stint in Bowman’s London office—it has since closed—and he confesses that he was tempted to stay on. But "today I’d rather be a lawyer [in South Africa]. It’s more exciting. Our laws are new. That, in itself, creates new opportunities."
Davids was among the 15 top South African corporate partners that The American Lawyer visited this past summer in Johannesburg. As a group they are notable for their youth, confidence, and diversity. That confidence appears to be justified: Since 2009, Bowman and its peer firms have been riding a wave of investor interest in South Africa and in sub-Saharan Africa generally. At the height of the global financial collapse, Davids says, "our greatest fear was that our international clientele would pull back from investment here. But the truth was the converse. We have never been busier." Now independent firms like Bowman are attracting attention from international firms looking to get a better foothold in the African market.
International firms are drawn by the fact that despite the global recession and the recent softening of commodity prices, investor zeal for Africa has not cooled very much. Chinese companies alone signed $5 billion worth of deals on the continent last year, while India announced plans for $5 billion in investments over the next three years. Brazil is not far behind; Vale S.A. also disclosed plans last year to invest $19 billion in Africa over the next five years. Meanwhile, North American and European companies increasingly view African markets as an important hedge against slowing growth in the Northern Hemisphere.
The greatest beneficiaries of the African boom are the three largest independent firms: Bowman Gilfillan, Webber Wentzel, and Edward Nathan Sonnenbergs Inc. A fourth, smaller firm, Werkmans, has also been busy. Leaders at these firms say that revenues, profits, and head count have all been surging for the past several years. All have deep ties to the nation’s mature mining, banking, and retail sectors. Their traditional South African clients were among the first to invest across sub-Saharan Africa. Meanwhile, the firms are winning new clients—foreign companies like Wal-Mart Stores Inc. and Industrial and Commercial Bank of China Limited (ICBC)—that increasingly view South Africa as a launching pad into the rest of Africa.
Edward Nathan Sonnenbergs (ENS), the largest firm, with 435 lawyers and scores of other professionals, has perhaps the greatest international name recognition. But Webber Wentzel, with 410 lawyers, has found new prominence via its skillful handling of several of the largest recent cross-border deals, thanks to a young and dynamic M&A team. The firm also has the largest private equity and mining groups. And Bowman, with 390 lawyers, also a top contender in the league tables, has been moving fastest to open branches across the continent.
For decades, South African firms were content to compete within their country’s internal legal market. But in the past five years, all three of the largest firms have unveiled grand new Africa strategies. Five or six years ago, "it was pretty unheard-of for these firms to do cross-border work," notes Norton Rose Africa practice head Julian Jackson, who helped spearhead his firm’s merger with independent South Africa firm Deneys Reitz in 2010. Today, he says, "it’s an absolute sea change in the South African legal market." The South Africans’ pitch to international clients: Their years of advising domestic clients on matters involving the less-developed areas of South Africa have prepared them well for advising clients in other African jurisdictions. Many global firms are also rethinking their South Africa strategy. Four international firms have recently formalized tie-ups with South African firms, betting that potential clients will be attracted by their combination of financial-center bench-strength and a local presence. The new entrants include DLA Piper, which formed an exclusive alliance with Cliffe Dekker Hofmeyr in 2005; Eversheds, which associated with Routledge Modise in 2008; Norton Rose, which joined with Deneys Reitz, utilizing a verein structure; and Baker & Mc­Kenzie, which acquired Dewey & Le­Boeuf’s 17-lawyer Johannesburg office on May 31. (And in September, SNR Denton, which has had an association with Johannesburg’s Glyn Marais since 2009, secured a second alliance with Cape Town energy law boutique KapdiTwala.)
See also: Groundbreaking Work
U.S. firms help file a first-of-its-kind class action in South Africa.
Appearances May Be Deceiving
Few U.S. firms have Africa offices, but that doesn’t mean there isn’t plenty of work.
"Our clients were saying, ‘What are your plans for Africa? Can you help us there?’ " says Koen Vanhaerents, chair of Baker’s Europe, Middle East, and Africa practice. "Whether that will translate into huge revenues later remains to be seen. But it’s about being there for the future, being ready for opportunity." Baker plans to grow the office, the firm’s 70th, to about 50 lawyers in the next year; it likewise opened another office in Casablanca in July to handle an increase in North African work.
For its part, Norton Rose’s move into South Africa was driven by the recognition a few years ago that Africa-sided work was generating 6–8 percent of the firm’s revenues, up from one or two percent a decade earlier. "We said, ‘Hang on, this is a very significant area for the firm,’ " says Raj Karia, a London-based partner in Norton Rose’s Africa practice, "and you know what? If you’re going to be in Africa, you’ve got to focus on South Africa."
South African lawyers say that it is only a matter of time before another independent firm or a large domestic group joins up with another global firm. The interest is evidently there: Baker wasn’t the only contender for the Dewey office, says Wildu du Plessis, whose group joined Dewey from Werkmans in early 2012 and then went on to Baker & McKenzie. Four other U.S. firms negotiated with the group as Dewey collapsed. In July, China’s King & Wood, which only last December announced a verein-structured combination with Australia’s Mallesons Stephen Jaques, was said to be meeting with law firms, according to several South African lawyers. (King & Wood’s chairman did not respond to emailed inquiries.) And Linklaters, which has more than 200 active deals on the continent and an active Asia clientele, confirmed in August that it was in advanced talks with Webber Wentzel about an exclusive alliance.
None of the international firms with a presence in South Africa would say whether their local offices are profitable. But DLA’s 2005 tie-up, in particular, has clearly raised its visibility. "They’ve definitely enhanced their reputations here," says a Webber Wentzel lawyer. DLA was top-ranked in volume of South Africa–sided transactions for the past three consecutive years, advising, among others, South African mining company Metorex Limited in its acquisition last year by China’s Jinchuan Group.
But enthusiasm for South Africa is not shared by all. Some leading Africa practition­ers at global firms told us that they do not believe that South Africa is actually the best way to gain a foothold in the rest of the continent. "Historically and politically, there have not been very good links between South Africa and the rest of Africa," says Vinson & Elkins London office head Alexander Msimang, who has handled scores of oil and gas deals and financings across the continent, particularly in West Africa. (V&E does not have an office on the continent.) "For the first half of many new African governments’ existence," he says, "South Africa was the enemy state" to newly independent nations. Also, most African nations’ commercial codes are modeled on En­glish or French contract law; South Africa’s contract law was adapted from Roman-Dutch law.
There is also the internal challenge of melding financial platforms and cultures. International firms with LLP structures may be deterred by the market in Johannesburg or Cape Town, where the top hourly rates—$600–$800—are far less than those found in London or New York. "How are you going to marry a developing country’s firm with a developed one?" wonders ENS’s Richard De La Harpe, who handled the groundbreaking deal for Metorex on behalf of China’s Jinchuan. "How are you going to regulate profit distributions?" Most firms that have forged al­liances have done so by ring-walling local profits.
For their part, some of the independent South African firms currently enjoying unprecedented profits are wary about a global alliance. Referrals from Wall Street and Magic Circle firms make up a major chunk of the independents’ revenues. A tie-up with any one would harm the rest of those relationships. It would be difficult for a single network to replace that lost revenue.
Also, the independents "really didn’t get hit by the worldwide recession," says corporate lawyer Ian Hayes, who in September decamped from DLA Cliffe Dekker Hoffmeyr to cohead the corporate and commercial practice at ENS. "If you’re part of an international law firm, you’re going to feel the hit more. And the Dewey experience is not going to help."
That said, the dynamic could change. "Look at the Australian legal market," says ENS deputy chief executive Mzi Mgudlwa. "If you asked firms there two years ago what attitude they had toward international alliances, you’d get a very different answer than you would today." The biggest game-changer, he and others say, would be the entry of a top-tier U.S. firm—or a Magic Circle firm like Linklaters—into the South African market.
"At present, we think our model’s the right one," Mgudlwa adds. "But we are keeping a watch on the landscape."
And, increasingly, international firms are keeping an eye on them. Here’s a closer look at three of South Africa’s leading independent firms.
Edward Nathan Sonnenbergs’s chairman Michael Katz was astounded by the number of meeting requests that he fielded from global firm leaders who were attending a recent mining conference in Johannesburg. "All the major firms from Australia, the United Kingdom, the United States, and Europe were there. They all wanted to meet with me," he says, marveling. "And the constant theme was that the Eurozone was stagnating at the ­moment."
If one South African firm can be said to have the greatest name recognition abroad, it may be ENS, South Africa’s—and indeed Africa’s—largest law firm. ENS, and Katz himself, has had a guiding hand in many trailblazing South Africa–sided deals. ENS is regularly tapped via referrals by many of the major Wall Street firms. And Katz, 67, remains its biggest draw, though he has begun to step back slightly to spend more time managing the firm.
Katz has overseen an unprecedented period of growth at the firm: Last year, he says, ENS grossed $120 million, 30 percent more than in 2010. Even in 2009, at the height of the country’s nine-month-long recession, revenues grew by 15 percent. Margins are currently a lofty 56 percent. Major clients include ABSA Bank Ltd, BHP Billiton Limited, the Johannesburg stock exchange JSE LTD, Sasol Limited, and Gold Fields Limited.
ENS has been at the vanguard of some South African firm trends. It struck the country’s first major domestic merger, between Cape Town–based Sonnenberg Hoffmann & Galombik and Johannesburg’s Edward Nathan, in 2006. The other independent firms soon followed with their own cross-country mergers. Then, in 2008, the firm merged with a 100 percent black-owned commercial firm, Mahlangu, Nkomo, Mabandla & Ratshimbilani, at the time making it the firm with the greatest number of black lawyers in the country. Today, roughly 20 percent of its lawyers are from formerly disadvantaged groups.
And the firm continues to expand. According to Mzi Mgudlwa, ENS’s partnership ranks grew by 34 in the first nine months of this year, including 23 laterals. Among the new hires are three lawyers from DLA Cliffe Dekker Hofmeyr, including its South Africa corporate and commercial department head, Ian Hayes. In August, drawing talent from the top local firms, ENS opened its first two African offices outside its home country, in Rwanda and Burundi. They are fully integrated with the South African firm, rather than structured as an association or ve­rein. The firm says it plans to open more later this year.
The mergers and lateral expansion, says Katz, have given the firm the breadth and depth it needs to tackle the largest deals. Today, "we are at the level of any white-shoe firm in the United States or the U.K.," he boasts. In 2010, for instance, ENS advised Massmart Holdings Ltd. for both corporate and competition matters related to its $2.4 billion acquisition by Wal-Mart, the largest U.S. inbound acquisition in South Africa’s history. (Webber Wentzel and Linklaters represented Wal-Mart.) And in April it helped a South African investment consortium close on a $1.4 billion deal to acquire South African steelmaker Scaw South Africa (Pty) Ltd. from mining giant Anglo American plc.
"Wal-Mart isn’t coming into South Africa because of our 50 million people," says Mgudlwa. "It’s the rest of the people on the continent. They’re using [South Africa] as a springboard."
Not all of ENS’s forward-thinking moves have been successful. In 1999 the firm’s corporate and tax department agreed to be bought out by—and become essentially the in-house legal department of—Nedbank Group Limited, one of the nation’s "big four" banks. (ENS is incorporated as a company; professional services firms can be bought and sold under South Africa’s Companies Act.) But clients, many of whom banked elsewhere, fled to other firms, and so did many top partners. Just five years later, Nedbank sold the firm back to its former ENS partners for an eighth of the price.
At a time when profits and revenues are soaring, ENS appears less likely than others to seek a global tie-up. "There’s no one firm that can give us sufficient revenue that would justify the loss of referrals from other firms," says Katz. "That’s still our view."
Webber Wentzel has had a busy few years. Its M&A group, co-headed by Christo Els, helped advise Wal-Mart on its Massmart acquisition; that deal finally closed this past March after a 15-month regulatory and court battle over labor and competition issues.
Els also had a hand in two billion-dollar-plus inbound deals last year: advising Webber’s longtime client Anglo American in the acquisition of the remaining stake in diamond producer De Beers S.A. for $5.1 billion; and advising Brazil’s Vale on its unsuccessful bid for South African mining company Metorex.
The Wal-Mart deal, in particular, has been a momentous one for the firm. "For the first time, our regulators were dealing with labor and procurement issues," says Annabel Parry, Els’s deputy on the deal. "For us, it did feel like the deal of a lifetime."
The surge in corporate work has fueled a period of unprecedented growth for the 410-lawyer Webber. Even at the peak of the country’s recession in 2009, firm revenues grew by 4–5 percent. And last year, revenues jumped 13 percent. Margins have consistently been around 48–49 percent. The firm expects double-digit growth in revenue and head count over the next two years, according to Deepa Vallabh, a management board member.
Webber has focused intensively on gaining more Asian clients since 2007, when Els was tapped by ICBC in one of the first Chinese deals in South Africa, the acquisition of a $5.5 billion stake in Standard Bank Group. In June, Els and other Webber partners spent 10 days in China meeting Chinese firms and potential clients. They were joined by colleagues from a 14-nation African legal alliance, the Africa Legal Network, which the firm officially joined in January to bulk up its African expertise.
More than the other independent firms, Webber appears to be gaining traction in South-South deals across Africa [see "Nouveau Riche"]. In July, for example, the firm served as lead international counsel to India’s Jindal Steel & Power Limited in its $116 million acquisition of Canada’s CIC Energy Corp., a company developing coal assets in Botswana. (That’s just one of several Indian matters it has handled recently.) And Webber represented Vale in a $2.5 billion purchase of mining company BSG Resources Limited in Guinea, a 2010 deal in which there was no international counsel involved, according to Webber senior partner David Lancaster.
Webber also has a well-regarded 20-lawyer private equity practice handling both transactions and fund formation. It recently acted for The Carlyle Group L.P. in raising a South Africa–focused fund, and has done similar work for Bain Capital, LLC for years. "It’s a good time to be in the funds formation space," says John Bellew, head of the funds formation team. "It’s easy to raise funds for agribusiness, mining, and infrastructure in Africa."
Internally, Webber, like its peers, is working to diversify its partnership ranks in advance of a new charter that the Law Society of South Africa is drafting that is expected to compel such moves of law firms. Currently, some 17.5 percent of voting partners are from formerly disenfranchised groups. In a process that should speed up the internal transformation, eight in 10 new hires come from these groups. "We’ve got a lot of pressure from our clients, who have scorecards of their own to think about," says Vallabh. "But at this stage, it’s also just the right thing to do."
Bowman Gilfillan, with 390 lawyers, is the third-largest independent South African–based firm. It has been the first and fastest to move toward an integrated pan-African model of legal services. Its strategy: to be nothing less than the leading pan-African firm, says Ezra Davids, head of its 70-lawyer corporate department. "We want to be the firm people come to for African deals," he says.
The process began in 2003, when partners plotted out the firm’s next decade. The result was a "transformational charter" prioritizing work in sub-Saharan Africa and shifting firm ownership toward formerly disenfranchised groups. In 2008 Bowman joined forces with Nairobi’s Coulson Harney; the 19-lawyer office is fully integrated with Bowman financially (though under South African Law Society rules, the two firms are not allowed to form a single partnership).
In April new firms in Tanzania and Uganda formally associated with Bowman. The firm expects to announce another office by the end of this year, and three to five more by 2015. But with 54 countries in Africa, "you need to work out where your clients are going and where we can add value," says Jonathan Lang, an English law–qualified former Allen & Overy partner who joined Bowman in 2004 to spearhead the Africa practice.
The Africa strategy was largely driven by the needs of the firm’s domestic banking, retail, and infrastructure clients, many of which began looking for new opportunities outside South Africa years ago. Lang, for one, helped longtime client Standard Bank Group acquire a Nigerian bank, IBTC Chartered Bank PLC, in 2006 for $1 billion and a Ken­yan bank, CfC Bank Limited, in 2008.
The firm’s M&A team "is stretched beyond belief," says Bowman’s chairman, Jonathan Schlosberg. Early this year, Bowman acted as lead counsel to U.S. insurer Marsh Inc. in its $133 million acquisition of insurance brokers Alexander Forbes and Afrinet, both active across a swath of sub-Saharan Africa. It was tapped by South African paint company Freeworld Coatings Ltd. in the first and only hostile takeover by a Japanese company outside of Japan, its $260 million buyout by Kansai Paint Co. and delisting from the Johannesburg stock exchange. It was the sole adviser to South African investment holding company Shanduka Group in its sale of a $255 million, 25 percent stake to China Investment Corporation. In outbound deals, it was lead adviser on Airports Company South Africa’s successful bid in February for a $9.2 billion contract to upgrade São Paulo, Brazil’s airport ahead of the 2014 World Cup. And last year the firm advised a Rand Merchant Bank private equity fund on the financing of a new $250 million Nigerian shopping mall, West Africa’s largest.
The firm has aggressively bulked up its premium practices via lateral recruitment, building a top-tier banking and finance practice with the aid of a 2010 lateral, Lionel Shawe, the former banking practice head at Deneys Reitz (now Norton Rose). Other top laterals include the former chair of the corporate boutique Werkmans; Cliffe Dekker Hofmeyr’s competition head (now DLA Cliffe Dekker Hofmeyr); and, this March, DLA Cliffe’s banking and finance cohead.
Bowman has also been among the fastest firms to change the complexion of its own ranks. By 2014, according to the firm’s charter, at least a third of its partners should be female and a third should be "black." Currently 30 percent of its shareholders are female, and 23.5 percent are from other minority groups.
Despite a recent softening of world commodity prices and problems in Europe, Schlosberg is bullish on the country’s—and his firm’s—prospects. Firm revenue has surged 575 percent since 2003, and profits per partner rose 150 percent over the same period. "World crises don’t faze us here in South Africa," he says. "Change is something that happens to us all the time."