1. CLIFFORD CHANCE
ALB’s top pick for a firm to watch in 2011 is a firm which is not yet even in the Australasian market – but for how long will it stay away?
The most famous story of 2010 was the story which never eventuated: the putative arrival of a second Magic Circle firm in the footsteps of Allen & Overy. According to the market rumour mill, Clifford Chance and Linklaters were the most likely suspects but silver circle firms were also reliably rumoured to be investigating their options. All of this innuendo may have been sign of a market overstimulated by the sensational circumstances of Allen & Overy’s Australian entry, but the rumours appear to have germinated from one fundamental seed of truth: international firms are expressing an interest in the Australian market and have made several approaches to local firms to pursue that interest. That is a situation which has given rise to a seemingly endless string of rumours: Gilbert + Tobin, Chang, Pistilli & Simmons and Cochrane Lishman are among many firms which have been named as potential Magic Circle partners while a partner raid on Mallesons, Freehills and Blake Dawson was said to be imminent. It would take a brave commentator to untangle this skein and make an unambiguous prediction, but the present market mood can be summed up thus: a second international firm will arrive this year, and it is more likely than not to be Clifford Chance. Don’t be surprised if a US firm decides to plant the flag down under either.
Widely regarded as the incumbent market leader, Mallesons is the firm which has the most to lose from any shake up of the top tier caused by new international entrants and an increasingly aggressive mid-tier. Add a tough operating environment into the mix, and it’s going to be a highly challenging year for CEP Robert Milliner and his team.
While the Australian economy has a buoyant feel to it, the market for premium legal services is likely to remain tight and Mallesons has budgeted for only “small” revenue growth for FY2011. “Because the broader economy is doing well relative to other economies, there’s an automatic assumption that flows through to the legal services sector,” observes managing partner Tony O’Malley. “But there is a bit of a disconnect – so even if energy and resources, infrastructure is booming and that’s a result of great terms of trade with China and other importers and so on – that does not always translate into the sort of work we do. There are going to be peaks and troughs in market activity, but in terms of overall levels, there’s not going to be substantial growth. So we really need to be focussed on the opportunities – resources, regulation of banks and corporates, funding issues, consumer protection and there are three or four others where we’re trying to position quite aggressively.”
One strategy which Mallesons will not be pursuing is to shore up revenues with “volume” work, which means that the firm will be more exposed than most to fluctuations in the market. “Because the market’s tightened up so much, you have to make a call,” says O’Malley. “You can chase the volume if you want – a couple of firms have done that, they’ve moved their price point. Now our view is that ultimately the clients are the best people to determine where you as a firm can add value. What are clients are saying to us is that on the more strategic, market transformational deals, that plays to our strength. So that’s where we’re focussing – but in terms of not having as much of that general day to day commercial operational work it does expose us a bit more to peaks and troughs.”
Ultimately, that means being more aggressive in the pursuit of the top deals. “You can’t just wait for the growth to come – you’ve got to go find the growth these days,” says managing partner Stuart Fuller. “In the new reality you have to position for deals a lot harder and we are quite aggressive around alignments and positioning ourselves for deals that make a difference. Bankers will pitch ten deals, of those three might go into execution and one might actually close. So getting the right alignment around the right deal in the sector is incredibly important.”
There is also the possibility of the further poaching of Mallesons talent, either by new market entrants or by firms such as Gilbert + Tobin. While Mallesons has the depth to sustain a certain level of poaching, the deeper question is whether the firm needs to investigate taking certain steps, such as reviewing its adherence to a lockstep partnership structure, to compete for talent. It’s a question which is already being pondered by the management team.
“We certainly don’t ignore the threat and it’s certainly something we’ve turned our mind to as a management team and as a firm,” says Tony O’Malley. “While there’s clearly fundamental support for the lockstep structure, I think that part of our dialogue over the next couple of years will be about whether the system that we have in place will maintain and attract the top talent in the market. And I don’t think that’s a discussion that’s fully complete yet. Given how wedded the firm is to lock-step, it’s not a short journey - it’s not an easy conversation, but we will make sure that dialogue happens within the business. ”
3.ALLEN & OVERY
Allen & Overy celebrated its Australian inauguration with a dream publicity run and plenty of intrigue – but now managing partner Grant Fuzi says it’s time to return to basics.
When Allen & Overy first opened its Sydney office in February 2010, the firm took a lease over a single floor of Circular Quay’s Gold Fields House and assumed that would suffice. That single floor has since become two floors, then three floors and now the firm is expecting to move to new premises altogether. These kinds of prosaic details give credence to managing partner Grant Fuzi’s claim that the firm’s first year in Australia has “exceeded all expectations.” However, Fuzi prefers not to disclose any revenue targets for FY2011, pointing out that the firm’s budgeting for 2010 had already proved to be overwhelmingly conservative and far below actual performance.
Fuzi had previously set a target size of 30 Australian partners by 2013, a goal which he says the firm is likely to meet a year or so early. “We currently have 20 partners and there will be a small, select number of laterals this year,” he says. “There are areas where we are actively pursuing [recruitment], others we are just sitting back and watching.”
But this is peripheral to what Fuzi says will be the real focus of 2011: organic growth and bringing in the next generation of lawyers, something which he says is almost an “exclusive focus” for himself. The firm’s ten Australian graduates will be flown to London for two weeks to learn about banking & corporate practice. “It is a huge investment to train people. We commit to provide all of our people, everywhere in the world, the same world best practice,” says Fuzi.
Allen & Overy is widely known for its finance and capital markets capabilities, but Fuzi says the firm’s Australian corporate and M&A practice has also been strong. “What’s been very interesting is that the market’s initial reaction was to focus on us as a banking and finance firm, but what actually is transpiring is that the corporate practice is absolutely going gangbusters,” he says. “I think the problem we face is that because A&O is regarded as the leading finance and capital markets firm, our top corporate practice often gets lost in the PR. But if you look at Australia, of the 20 partners we have, 13 of those are corporate – it shows the size of the corporate practice.”
Fuzi says that A&O will continue to target “significant, complex” deals both of a domestic and cross-border nature. “We are not after clients to give us all of their work – there are other firms out there better set up to do the routine work and volume work,” he says. “We’re very clear in our focus – we are there to do the work where we can add value to the client.” It is a similar strategy to that employed by Mallesons in its pursuit of market-transforming deals, although Fuzi says that the matter is not always clear cut: “If you’re a strategic purist, in a perfect world we only would act on those big market transforming deals, but it is not black and white,” he says. “We’d look at it on a case by case basis – we might have a very important client who has given us a big strategic deal but also has a smaller routine deal – we might do that for example, because of the relationship.”
4.COLIN BIGGERS & PAISLEY
Stories of the rising mid-tier may be something of an industry cliché, but there’s no smoke without fire
Colin Biggers & Paisley appears in the Watchlist as a representative of the rising mid-size firm category.
It is difficult to single out one firm for this category because there are many firms which match the criteria: to cite but three examples, Maddocks, Mills Oakley and Hall & Wilcox are all firms which have performed strongly throughout the GFC and continue to challenge the notion that only national firms are capable of performing top tier work.
Like CBP, the noteworthiness of these firms is not necessarily radical growth in FY2011 – although they may well achieve this - but rather a continuation of what has been achieved over the past five years: consistent revenue growth, intelligent recruitment and a development of top tier expertise. CBP itself has grown revenues by nearly 40% over the past four years and is budgeting for another 10% growth in FY2011. The firm is expecting to add another two to three partners to its ranks, depending on the availability of talent. “Recruiters will tell you that there are many stars in the large firms who are looking for a different environment – it’s no longer about simply being big,” says managing partner Dunstan de Souza. “It’s no longer about size – it’s about how good you are.”
CBP is also notable because of its investment in an equity partnership with Dubai-based Lutfi & Co, an operation which is not financially integrated with CBP in Australia. That joint venture has grown from six lawyers to 14 over the past three years and is said to be producing “steady, but not enormous, growth.”
5. WEBB HENDERSON
Could this fledgling trans-Tasman telecommunications firm be the next Gilbert + Tobin?
Back in 1988, an ambitious young lawyer named Danny Gilbert opened what was to become one of Australia’s premium law firms – a journey which was facilitated in part by the new opportunities created by the blossoming telecommunications sector. 20 years later, there are certain parallels between that story and that of Webb Henderson, which ironically derives its name from ex G+T partner Angus Henderson. Again it’s a new technology which is driving clients to this firm - surge in demand for advice on broadband has seen this firm grow from 4 to 6 partners and from 9 to 18 lawyers during 2010, bringing in A$6.4m for the year. 30% revenue growth is expected for FY2011.
NBN Co, which receives advice on access-related work and regulatory undertakings to the Australian Competition & Consumer Commission, is the firm’s biggest client but the firm also boasts a remarkably diverse range of blue chip clients ranging from SingTel Group, the Qtel Group and the Vodafone. 40% of the firm’s revenue is derived from outside Australia and New Zealand and, remarkably for a firm so early in its development, a Singapore office has already been established.
Henderson says that the firm’s priorities for 2011 will be to recruit more quality staff and expand on current opportunities, particularly in Singapore. “We would like to build up our Singapore office with more staff, more business development so our Asian client base can be hosted out of our Singapore office,” he said. However, the firm’s ambitions extend beyond the Asia-Pacific – Henderson says that the plan for the next two to three years is to seek out other office location opportunities, with the Middle East or Europe being potential targets. “We call it a global boutique strategy – we are trying to take our specialist premium services into these markets – we think it’s an opportunity for a unique offering where you’re offering a very specialised service,” he says. “But we wouldn’t go up there and say ‘build it and they will come.’ We’d definitely want a base profit level - I think we would have a baseline revenue which would support the office and then build from there. We’ve already done that in Singapore.”
Equally ambitiously, the firm is eyeing expansion into other areas. “Our NZ firm office does infrastructure, energy, aviation and other regulated sectors such as media – so we would look to replicate the same strategy in Australia and offshore by building those practices,” said Henderson.
After the fabled annus horribilis of 2010, Clayton Utz will be looking return to the front foot with some smart promotions and lateral hires – a journey upon which the firm has already embarked - and a new CEP in corporate/ M&A partner Darryl McDonough. This is a formidable firm which rivals will underestimate at their own peril – but will the strategic decisions made following last year’s raid pay off? Only time will tell.
7. DLA PHILLIPS FOX
Magic circle antics and the enviable Norton Rose publicity machine meant that the manoeuvres at DLA Phillips Fox didn’t receive as much attention as they normally would have in 2010. The Adelaide office, now rebranded with the somewhat unfortunate name of Fox Tucker, has parted company with the firm but the New Zealand arm looks set to remain. But if the market whispers are correct, it will soon be crunch time for the most important evolutionary step of all: full financial integration with associate firm DLA Piper.
8.MACPHERSON + KELLEY
Last year, ALB drew attention to the trio of M+K, Integrated Legal Holdings and Slater & Gordon – three very different firms which shared in common an aim to fundamentally transform legal practice at the mid-market and private practice level. Managing director Damian Paul’s plans to build M+K into a national practice have progressed rapidly over the past year, which raises the interesting question: what’s next on the agenda at M+K?
9. HARMERS WORKPLACE LAWYERS
Harmers has been a leader in the employment law field for many years, but now there’s a new competitor on the scene. Add the fact that this new competitor is the headed up by no less than star ex-Harmers partner Joydeep Hor, and there’s a fairly compelling reason to keep watching the Harmers v People & Culture Strategies rivalry unfold in 2011. Who will take out the ALB award for Employment Firm of the Year?
10. LANDER & ROGERS
With nearly 50 partners, Lander & Rogers is among the 30 largest Australasian law firms by lawyer numbers, but with a growth trajectory which resembles that of a much smaller firm – 20% revenue growth and 31% fee earner growth in FY2010, which makes it the sixth fastest growing firm in Australasia. Landers will be looking for particular growth in the Sydney market in 2011, setting ambitious trends of growing fee earners by 20% in this market and revenues by 25%. Corporate advisory and property, projects & infrastructure are among the areas tipped to grow.