Ashurst has embraced Australia with the Blake Dawson merger - but is Australia ready to embrace Ashurst?
A few years ago, in a simpler and more innocent age, Blake Dawson Waldron undertook a brand makeover. The “Waldron” disappeared from the name; black and a refreshing pale turquoise were adopted as the official firm colours and stylish cartoons from The New Yorker’s Charles Barsotti were brought in to accompany marketing ephemera. The rebrand was not without its setbacks – it later emerged that there was an adult entertainment industry actor also operating under the name “Blake Dawson” – but the key point was that everyone knew and understood the brand. There was the occasional argument over where exactly the firm stood within the top tier pecking order, but no one doubted that this was a top tier entity with a particularly enviable resources practice and well capable of making its mark in other areas too.
Now Ashurst is in town, bringing with it a technicolour palette which symbolises the confused market reaction to the merger. The turquoise has disappeared from the brand, but no one is quite sure what the new official colours are. Insiders in the Sydney offices in Grosvenor Place report that one wall has mysteriously turned purple, while another is green. Business cards are red, except when they are blue or orange. No one can explain why. For outsiders, the firm is equally enigmatic in matters of substance. Who exactly is Ashurst and what do they represent?
The market reaction in Australia appears to be mixed. There are some lawyers who are not only familiar with the firm but also comment favourably on its depth of expertise in certain key specialisations, such as energy & infrastructure. Equally, however, there are others who are underwhelmed by the merger and do not understand the logic behind ceding the Blake Dawson brand. Nor, for that matter, can it be assumed that the firm fares conspicuously better in Asia. “I would describe Ashurst as obscure, but not without strengths,” murmured one source at a rival Hong Kong firm.
The firm appears to have acknowledged the brand recognition problem, embarking upon an extensive marketing campaign. There is an endearing honesty about the manner in which managing partner John Carrington has not attempted to spin his way out of the issue, but has instead vowed to work hard to explain the move to the market.
But beyond the brand recognition, there is another challenge – building a narrative around the new Ashurst and what it is trying to achieve. This is something Mallesons managed to do with distinction – there can be little doubt about the purpose of the King & Wood tie up – but the Ashurst merger is less easy to characterise.
Last year, former Mallesons CEP Robert Milliner warned against what he described as “UK-centric” or “U.S. centric” mergers in an era where the “old world” is declining in economic relevance. Given that Ashurst derives less than 10% of its revenues from Asia, it would be easy to place the Blakes-Ashurst merger within that narrative. Nor is this the kind of UK-centric merger that many were expecting and perhaps more prepared to accept: there is no Magic Circle prestige to soothe away that trademark Australian cynicism. This is a difficult merger to explain, so all the more reason to analyse carefully. Has Blake Dawson seen something which the critics have missed?
Blake Dawson is a firm which has always followed its own instincts rather than popular sentiment and it has made a number of unfashionable strategic decisions in recent years. It opened an Adelaide office during the GFC in late 2008; it launched in Tokyo in 2009 as the notoriously fragile Japanese economy emerged from the worst recession since the second world war and now it has completed the trifecta by linking with a firm with heavy European exposure firm at a time when Europe is paralysed by the sovereign debt crisis. The latter two moves in particular run contrary to the usual narrative which consigns Japan, Europe and the U.S. to a bygone era of economic hegemony which has now been displaced by the rising stars of China and India.
Much has been written about the fact that the size of China’s economy has already exceeded that of the individual economies of UK, France and Germany and, by depending on which set of predictions are used, will overtake that of the U.S. at some point in the next decade. The IMF predicted last year that, on an adjusted measure of purchasing power, China could overtake the U.S. as early as 2016.
In the face of these predictions, it is easy to forget that according to World Bank statistics, the European Union and the United States have a combined GDP of over US$30 trillion, accounting for nearly half the global economy. China accounts for about US$6 trillion and the much maligned Japanese economy accounts for US$5 trillion. There’s life in the “old world” yet.
From the lawyer’s point of view it is the flow of capital, not pure GDP which is key and undoubtedly China remains the safest bet for the international law firm on the expansion path. But chasing the Chinese workflow is not a one-dimensional play: there are at least two sides to every transaction and that is where the “old world” continues to be relevant. According to private equity firm A Capital, Europe was the leading destination for outbound Chinese investment in 2011, accounting for 34% of all M&A activity. That seems surprising given the Chinese fixation with raw commodities – particularly in Australia – however, investors are said to be moving up the value chain with a particular focus on strategic industries such as high end manufacturing and chemicals. Resources still account for half of all outbound investment, but this proportion declined by 10% in 2011. In an interview with the Wall Street Journal, an A Capital representative conceded that these trends may be partially opportunistic, but also represented a real shift in Chinese investment patterns.
Whether regarded as standalone economies or as part of the Chinese investment story, Europe and the U.S. will continue to be relevant to the aspirations of would-be international law firms. Viewed this way, there is nothing anachronistic about Blake Dawson identifying markets in Europe as an avenue for growth. The emphasis in strategy may be different from King & Wood Mallesons, but the world view is the same. Asia is still the goal, but within a global context.
Whether the new Ashurst succeeds in becoming a premium global player and indeed the exact role of Blake Dawson in this pursuit remains to be seen. However, this is a serious attempt to build a truly international practice at a time when firms have only their intuition to guide them on the ultimate state of play. Time – and the client – will be the ultimate adjudicator on this enterprise.
Full service model
Last year ALB used the term “post Norton Rose model” to describe a pattern which was emerging in international law firm mergers of the time. Norton Rose had swallowed Deacons whole, but subsequent entrants Allen & Overy and Clifford Chance proved to be far more selective, adopting only the practices and jurisdictions which suited them. Corporate and banking and finance were in vogue; expertise outside the core focus could be obtained via referral. Large national firms also seemed to sense which way the wind was blowing, slimming down their partner numbers and running the ruler over less profitable practice areas. Suddenly “full service” did not necessarily mean a full service offering.
Someone forgot to tell Blake Dawson. The firm has continued to grow its partnership in recent years and has maintained a depth of expertise across a spread of practice areas. Some clear dividends have emerged – for example, the firm’s native title work with Santos in the early stages of the Gladstone LNG project in Queensland was a factor in it winning a longer term key advisor role on the project. Blakes was a notable high flyer on the FY2011 revenue tables, recording 8% growth which is partly attributable to the firm’s diversity of practice areas such as IP, employment law and insolvency. Carrington has told ALB that the firm has no intention of relinquishing any part of its breadth or depth in the Australian market and, if anything, is likely to grow further.
All of this runs contrary to the popular theory that top tier firms will slim down and replace their full service national practices with smaller but more lucrative high end specialisation. The mid-tier firms who have been eagerly anticipating the exit of top tier firms from large swathes of the national market are likely to be disappointed. The post Norton Rose model may be one way of conducting a merger, but it is clearly not the only way.
This story carries a minor postscript of interest. The two firms will vote on a full financial integration in 2014 and, reading between the lines, it appears that it is up to the Blake Dawson partnership to close a 10% disparity in profitability between the two firms. John Carrington is confident that this goal will be achieved – revenues and profitability are on an upward trajectory – but these are unpredictable economic times. That’s something to keep an eye on come July.
NEXT TIME: Is Allens sitting on the fence?