When the flow of deals began to slow in Asia in late 2011, with both mergers and acquisitions and capital markets work seeing significant declines, one region managed to sidestep that downturn.
“The significant exception was Southeast Asia, which remained relatively buoyant,” says Clifford Chance Asia managing partner Peter Charlton, pointing to the relatively high levels of activity in Singapore, Indonesia, Vietnam, Malaysia, Thailand and the Philippines.
“Given that trend, depending on the footprint of your firm, you probably would have experienced growth in Southeast Asia in the last 18 months relative to the rest of Asia,” he says.
That time period has seen several large transactions in Southeast Asia. Last year Duane Morris’ Singapore joint law venture represented Heineken N.V. on its successful $4.6 billion bid for Asia Pacific Breweries Ltd. from conglomerate Fraser & Neave. Baker & McKenzie is currently advising Thai retailer CP ALL Pcl. on its $6.6 billion purchase of discount warehouse chain Siam Makro Pcl. And Allen & Overy is advising the Bank of Tokyo-Mitsubishi UFJ Ltd. on its proposed $5.75 billion acquisition of a majority stake in Bank of Ayudhya Plc., Thailand’s fifth-largest bank.
But can an uptick in Southeast Asia really make up for a slowdown in China?
Charlton, along with the other partners interviewed for this story, declined to discuss hard numbers earned by his firm in Asia. But he did say that the firm’s percentage of revenue growth in Southeast Asia between 2007 and 2012 outpaced that of Asia as a whole.
In an interview with the Am Law Daily in July, Allen & Overy global managing partner Wim Dejonghe credited the firm’s expansion in Southeast Asia with helping to offset slowness in China and Hong Kong. He said the firm was looking at a number of emerging markets with higher growth potential, citing office openings in Turkey and Morocco along with Southeast Asia.
Allen & Overy Hong Kong partner James Grandolfo, whose capital markets practice focuses largely on Southeast Asia, says an overemphasis on China may have hurt some firms.
“Other firms that have come out here have shown a big commitment to China, but that may not have been the best strategy because it hasn’t been that busy,” Grandolfo says. “But Southeast Asian markets have been busier, at least on capital markets side.”
Jones Day Singapore managing partner Sushma Jobanputra says expansion in Southeast Asia is a classic hedge for firms. Like any good portfolio manager, she says, law firms need to diversify.
“Being in Asia you can’t just focus on China,” Jobanputra says. “You need to be able to take the peaks and troughs of each country.”
Herbert Smith Freehills has tripled the size of its Singapore office in the past three to four years, notes partner Nicola Yeomans. “We have formed the view that there are incredible opportunities in the region, and we have gotten a very strong mandate [from senior management] to grow that business,” she says.
Yeomans points out that many parts of Southeast Asia are at an earlier stage of development than China. The potential for higher growth going forward is exactly why firms are targeting it for expansion.
“Southeast Asia is perhaps more emerging and investment is being made into capturing the opportunities in this market,” she says, adding that clients are now demanding that region be a part of any firm’s Asian platform.
Many firms that had neglected Singapore before are now turning around. Morrison & Foerster and Freshfields Bruckhaus Deringer, which both closed offices in the city-state years before, both returned last year.
Allen & Overy Asia Pacific senior partner Thomas Brown says he agrees with Dejonghe that emerging markets can serve to fill the gaps left by slowdowns in more developed jurisdictions. However, he thinks Allen & Overy, which opened a Singapore office in 1992, is better able to pull it off because of its long experience in the region.
“I suppose we are fortunate in having the advantage of being more off the block than others,” he says. “The longer one is in a market, or in a region, I suspect that improves the profitability of a business if you’re managing it properly.”
Given the ultracompetitive Hong Kong and China markets, Paul Hastings Hong Kong managing partner Derek Roth says it makes sense for firms to look elsewhere in the region for an edge. For Paul Hastings though, that edge was in Seoul rather than Singapore. Roth says the firm’s new Korea office has been highly successful, despite a large number of new entrants.
“That’s been a huge home run for us rather than going into market where there’s a lot of competition and people have already moved,” he says.
Still, many lawyers say the smaller scale of Southeast Asian economies mean they can’t meaningfully serve as a hedge against a slowdown in China. The Chinese economy is ten times larger than that of Indonesia, Southeast Asia’s largest.
“I think there are people who think the market is bigger than it is,” says David Zemans, the Singapore-based Asia head for Milbank, Tweed, Hadley & McCloy. “If you think there’s so much work that it’s going to fall off the trees, you’re sadly mistaken.”
Baker & McKenzie Asia managing partner Winston Zee also has his doubts about Southeast Asia as a hedge. “Is it big enough to replace China? I would say no,” he says. “If you really want to be a significant law firm in Asia, you need to be both in China and Southeast Asia.”
Freshfield Bruckhaus Deringer Asia managing partner Robert Ashworth says his firm is not looking at Southeast Asia as a counterweight to other Asian markets. He notes that much of its work in the region stems from Chinese and Japanese investments there.
“We see Southeast Asia as complementary to China and North Asia,” he says.
U.K. firms may have a stronger motivation than their U.S. counterparts to seek out emerging growth markets in Asia, since their core European markets remain slow. Meanwhile, the U.S. economy is widely expected to pick up steam in the coming year.
Vinson & Elkins Asia head Jay Cuclis points out that U.S. growth has benefited the firm’s offices in Beijing and Hong Kong. The shale gas boom, in particular, has attracted huge interest from Asian energy companies looking for potential investments.
“Our hedge has been in that direction,” he says, “and that’s where we see significant activity now and for the foreseeable future.”