For years O’Melveny & Myers has been viewed as an undisputed heavyweight among foreign law firms in the China market. But, like many global firms, O’Melveny is now figuring out how to navigate a shifting Asia landscape.
Under Asia head Howard Chao, the firm built a formidable practice advising multinationals doing business in China—tapping dozens of local lawyers working in the firm’s Beijing and Shanghai offices for help. (These Chinese lawyers were called legal consultants and were not typically counted in O’Melveny’s professional head count.) But it was in part due to them that O’Melveny became a go-to firm for inbound China work to rival earlier market entrants like Baker & McKenzie or the now-defunct Coudert Brothers.
Chao had led the firm’s Asia practice since the mid-90s, but the firm eliminated the role in 2011 in favor of an Asia management committee, which included Chao and the regional office heads. He stepped down as a partner in June to become of counsel and senior adviser on Asia. But, even before then, the China practice he built had been hit hard by the global financial crisis as well as the swift growth of large Chinese law firms. In that time as well, O’Melveny has been moving to catch up in other Asian markets and in certain practices where it has fallen behind rival firms. The shifting market and a series of departures and leadership changes—in the U.S. as well as Asia—have raised questions about the firm’s Asia strategy.
The firm has refocused in some areas, but O’Melveny chairman Bradley Butwin says the firm remains committed to a strong Asia practice, even with somewhat fewer lawyers on the ground in Asia.
“Today our Asia practice is more closely tied to the rest of the firm than ever before,” says Butwin. “We consistently work across offices and have common firmwide clients. That’s why the number of people we have on the ground in any given office is less important than it once was.”
O’Melveny’s current head count in Asia appears to be largely the same as it was in 2008. The firm says it currently has 101 lawyers in Asia, which is about even with the 98 lawyers it had five years ago, according to figures from sister publication The National Law Journal. But the firm acknowledges that those numbers don’t include the dozens of legal consultants it had during the heyday of its China inbound practice. At the same time, the head counts in Hong Kong and Tokyo are down. Where Hong Kong had 28 lawyers in 2008, there are now 20 in the office, according to O’Melveny’s website. In Tokyo, the number of lawyers over the same period has fallen to 14 from 27.
The departures have included a number of partners. In July, Hong Kong partner Gordon Ng and Tokyo partner Mangyo Kinoshita left for Dentons and White & Case, respectively. Last year, former Hong Kong restructuring partner Neil Campbell moved to K&L Gates, while Shanghai counsel Sean Tai became a partner at Paul Hastings. In fall 2011, former Japan head Dale Araki moved to Morrison & Foerster, and former Hong Kong managing partner Yi Zhang joined Gibson, Dunn & Crutcher. Also that fall, former Hong Kong partner Douglas Freeman and counsel Victor Chen both left for Fried, Frank, Harris, Shriver & Jacobson, the latter winning a promotion to partner.
A current partner attributes the slightly smaller Asia footprint to the fact that the firm’s new leaders are still finding their feet in Asia. “I think the new management is in a period of adjustment,” he says. “We need time for new management to know more about practice, the trends here, the market out here.”
Most former and current partners praised the growth the firm experienced under Chao. O’Melveny chair Butwin noted that Chao remained at the firm as senior adviser to the Asia practice and assisted with business development. The firm declined to make Chao available for interviews.
Asia has been a difficult market for many firms in the last five years. After Lehman Brothers filed for bankruptcy in 2008, foreign investment in China cooled off dramatically. O’Melveny acknowledges that a downturn in the China market led to many of the layoffs of its Chinese legal consultants at this time. The firm, which also conducted sizable U.S. associate layoffs around the same time, wasn’t alone in cutting back in China. Domestic firms and other international firms that had invested heavily in local hiring, such as Paul Hastings, also thinned their ranks.
Beijing managing partner Larry Sussman says the firm has more recently focused its hiring in China on lawyers it feels will be with the firm for the long term. He notes that the firm pays for some of its young Chinese lawyers to earn an LL.M. in the United States on the condition that they will return and work for O’Melveny in China for one or two years after finishing their degree. Such benefits would have been impossible to offer back when the firm had scores of legal consultants.
The firm still handles a considerable number of major inbound deals for multinationals in China, whether joint ventures or outright acquisitions of domestic enterprises. In April, O’Melveny advised U.S. lab services provider Charles River Laboratories International Inc. on its $27 million acquisition of a 75 percent stake in a Chinese affiliate. The firm also has an active practice advising U.S.–listed Chinese companies seeking to delist, recently advising online game maker Giant Interactive on a proposed $2.9 billion take-private transaction.
But the firm has noticeably lagged in the practice areas most highly touted by international firms in recent years: Hong Kong capital markets and outbound Chinese mergers and acquisitions. The firm is not inactive in those areas—earlier this year O’Melveny represented China’s BGI-Shenzhen on its $117 million acquisition of Complete Genomics, and it also recently acted for the underwriters in the recent $178 million initial public offering of Chinese classified advertising site 58.com.
But it has been less visible on the largest deals. In Mergermarket’s 2012 league table of China M&A, including both inbound and outbound transactions, O’Melveny did not rank among the top 15 advisers by deal value. It did rank 12th by volume, though, advising on 13 deals worth $9.2 billion. In the first three quarters of 2013, the trend has been even starker: O’Melveny ranked eighth by volume with 14 deals, but these were valued at just $1.4 billion. During that time, old China rival Paul Hastings advised Shuanghui International Holdings Ltd. on its $7.1 billion acquisition of Smithfield Foods Inc., the largest Chinese acquisition ever in the United States.
O’Melveny wants in on the big deals. Sussman says it is an “open secret” that the firm is currently actively recruiting capital markets and mergers and acquisitions partners to bolster its practice.
“It should be known that there’s a transactions expansion play active in Hong Kong and a pretty big one right now,” he says.
The firm has also made a substantial push to diversify its practice beyond China. It opened in Singapore in 2008 and launched an Indonesian alliance with Tumbuan & Partners in 2011. O’Melveny was also an early firm into Seoul last year.
Litigation is also part of the firm’s strategy in Asia. The firm has a litigation partner, Bingna Guo, in its Beijing office, and its China securities litigation task force includes 14 other partners, most of whom are based outside China but travel there frequently to work with local clients facing U.S. litigation. Butwin also points to U.S. litigation that the firm has successfully handled for Korean clients like Samsung Group, Asiana Airlines Inc. and SK Hynix Inc.
Butwin says any other decisions O’Melveny makes in Asia will be guided by long-term interests.
“We don’t make short-term investments and short-term decisions,” he says. “We were a first mover in China, the mainland. This is not a new flavor of the month for us, so we’re actually less focused on short-term swings.”