Illustration: Daniel Hertzberg
The recent spate of megamergers that has transformed the top of the Australian legal market has posed a tough question for mid-tier firms: Should they link up too? So far, most are saying no. By remaining independent, these firms hope to pick up work that their bigger competitors can't handle anymore because of merger-produced client conflicts. But mid-tiers are still finding ways to grow, either by acquiring smaller firms, or by scooping up defecting lawyers from the megafirms.
Several mid-tier firms, including HWL Ebsworth Lawyers (345 lawyers), Sparke Helmore (281 lawyers), and Johnson Winter & Slattery (150 lawyers) have all emphasized that they plan to focus on the domestic market. Corrs Chambers Westgarth managing partner John Denton has been particularly vocal that his 550-lawyer firm intends to be the leading independent firm. "We try to make sense of what is happening in the market and see if [it means] we need to change our business strategy, but it doesn't," Denton says.
Peter Slattery, managing partner of Johnson Winter, takes a similar position. "We don't feel that the alliances are necessary, because general counsel [in Australia] are far from needing to buy services from a global brand, even if it is for a complex deal."
Over the past 18 months, four of Australia's Big Six have merged with international firms. Three chose U.K.based partners: Freehills merged with Herbert Smith, Blake Dawson became part of Ashurst, and Allens Arthur Robinson (now Allens) entered into an exclusive alliance with Linklaters. Mallesons Stephen Jaques, meanwhile, formed a verein with China's King & Wood. The remaining two Big Six firms Clayton Utz and Minter Ellisonhave said that they have no current merger plans.
Smaller local firms have also been pulled into the merger mania. In 2011 Sydney's 17-lawyer Chang, Pistilli & Simmons and Perth's 15-lawyer Cochrane Lishman Carson Luscombe merged with Clifford Chance. And this past August, Pittsburgh-based K&L Gates announced that it was in merger talks with Sydney's 283-lawyer Middletons.
Several mid-tier firms have benefited from the mergers by taking on lawyers looking for a new home. "There is no doubt that those firms that have merged will start to focus on more lucrative practices," says a Sydney-based legal recruiter who declined to be identified. "So it's natural for them to just shed practices that don't make as much. Where do these partners go? The smaller boutiques with stronger practices, of course."
After being acquired by DLA Piper in 2011, Phillips Fox lost about 12 lawyers to HWL Ebsworth and Adelaide-based Thomsons Lawyers. In March 2011 Stephen Kerr, the former head of Freehills's commercial contracting team, left to join HWL Ebsworth. And this past August, Maddocks hired former Ashurst partner Lucille Scomazzon as a partner in its commercial practice in Sydney.
But while mid-tier firms have managed to attract some senior partners who want independent control over their practice, there's a challenge in hiring at the lower levels, because some junior lawyers want the chance to work internationally. According to Slattery, that problem isn't a new one. "Global firms have always been hiring graduates by pitching their global platforms," he says. But Slattery adds, "Some young lawyers are concerned about being lost in the system in a very large firm, and they know that there is more direct contact with partners here, so they are still coming to us."
In addition to picking up refugees from the megafirms, smaller firms are also expanding by merging with each other. In 2011 Gilbert + Tobin (a former alliance partner of King & Wood) acquired Blakiston & Crabb, a 30-lawyer Perth-based energy and resources boutique. In March 2012, Middletons acquired 25-lawyer Flower and Hart in order to break into Brisbane. Likewise, Tresscox Lawyers, a 90-lawyer Sydney-based firm, also acquired Macrossan Lawyers in August to help double its head count in Queensland. And in October, Brisbane-based law firm HopgoodGanim launched its second national office by acquiring Perth's eight-lawyer Q Legal.
The merger wave, it's clear, is still washing over Australia.