February 8, 2010 11:07 AM

In Surprise Move, Allen & Overy Plants Flag Down Under

Posted by Anthony Lin

With its Monday announcement that it is opening offices in Sydney and Perth with 17 locally recruited partners, British legal giant Allen & Overy is clearly making a major push into Australia.

The newly hired group counts 15 former partners of Australian firm Clayton Utz, including corporate group managing partner Michael Reede, banking and finance head Grant Fuzi, real estate practice leader David Wilkie and Perth office head Geoff Simpson. The other two new Allen & Overy partners are Aaron Kenavan, most recently an investment banker in the Sydney office of JPMorgan Chase but previously a mergers and acquisitions partner with Australian law firm Freehills, and Chris Robertson, a Freehills finance partner.

The move by Allen & Overy, one of London’s Magic Circle of leading corporate firms, highlights the growing conviction among U.K. firms that Australia presents a potentially lucrative route into the expanding Asian markets.

Ore- and energy-rich Australia has seen its own economy increasingly intertwined with that of resource-hungry China during the past few years, while Australian mining concerns have been among the top destinations for investment by Chinese state-owned enterprises.

"Our decision to launch in Australia underlines the increasing importance of Australia in the global and Asia-Pacific economies,” Allen & Overy senior partner David Morley said in a statement. “We see significant opportunities for high-end, cross-border M&A and finance work in the private and public sectors, particularly in the energy, mining and natural resources sectors.” (The American Lawyer tackled these trends and what they meant for the Australian legal community back in this October feature.)

Allen & Overy is not the first British firm to set its sights on Australia. In January, London-based Norton Rose completed a merger with 500-lawyer Australian firm Deacons. Previously, Magic Circle firm Clifford Chance discussed an even larger merger with 1,000-lawyer Mallesons Stephen Jaques in 2008. Those talks utlimately collapsed in the wake of the global financial meltdown. In both instances, the goal was to have large numbers of Australian lawyers provide U.K.-based firms greater “weight” or “critical mass” in the Asia-Pacific region.

Allen & Overy's decision not to pair with an Australian firm but rather poach some top local talent has no doubt ruffled feathers in Sydney and Melbourne. Top Australian firms--including Mallesons, Freehills, Allens Arthur Robinson, Blake Dawson, and Clayton Utz--have historically had strong referral and secondment relationships with their British counterparts. These strong ties were thought to be one of the main reasons Magic Circle firms had not opened in Australia before, despite opening offices almost everywhere else in the world.

They “don’t need to be here,” Freehills chief executive partner Gavin Bell told The American Lawyer in an interview last summer. “If they need work done here, they know they can get it done through one of the relationships they have.” Bell did not return a call seeking comment yesterday.

“It has surprised a lot of people,” says Don Boyd, the former chairman of Deacons and current managing partner of Norton Rose Australia. “It sounds like they see a lot of the same things as we did but the way they’ve gone about it has surprised people.”

Clayton Utz chief executive partner David Fagan says he was disappointed in the departures but said the firm was “in excellent shape and continues to be one of the strongest-performing firms in the market.”

Mallesons chief executive partner Robert Milliner played down the competitive threat. “Our depth of talent and full service capability is what underpins our market leadership and this announcement doesn't change that value proposition,” says Milliner. “Competition is a good thing and Mallesons thrives on it, so we will always be keen rivals for any player in the market, existing or new.”

One of the partners making the move, speaking on condition of anonymity, says Allen & Overy’s plan grew out of unique circumstances--the dissatisfaction key partners felt with management succession at Clayton Utz--and was unlikely to be replicated by other Magic Circle firms any time soon. But this defector also says he believes full-fledged mergers between U.K. and Australian firms will never work.

“These firms are too big,” the partner said of Australia’s major firms, many of which have around 1,000 lawyers. “They’re oversized for their market and a lot of their domestic practices nobody would want.” Allen & Overy’s plan is to focus only on high-end cross-border work, stressing its global reach, and staying away from Australia’s highly competitive domestic market.

In its announcement, Allen & Overy said it sought to position itself as “a smaller high-end law firm that is integrated into a broad global network.”

The move is likely to reinvigorate debate within the Australian legal community about the best strategies lawyers there can employ to succeed in an Asia-dominated future. Australian firms have significant regional advantages in deals involving China, being almost in the same time zone and having a large Chinese immigrant population from which to draw bilingual legal talent. Salaries and fixed costs are also much lower than at U.S. and U.K. firms.

On the other hand, billing rates are also lower, and many Australian firms have been wary of investing heavily in Asia practices and offices to compete head-to-head with British and U.S. firms that have already established large offices in China. Among Australian firms, Mallesons has perhaps made the strongest commitments to Asia, with offices in Hong Kong and China. On the other hand, other firms have preferred to rely for global business on referral deals with major U.S. and U.K. firms. Clayton Utz had no offices at all outside of Australia.

Allen & Overy’s move is not without risk. Though far smaller than the domestic firms, Allen & Overy will still have a sizable presence with 17 partners. Some observers question exactly how much high-end cross-border work Australia, a country of 22 million, can produce. Allen & Overy will also face competition for some of that work not only from the large Australian firms but leading U.S. firms like Sullivan & Cromwell and Skadden, Arps, Slate, Meagher & Flom, which have maintained small but capable offices in Australia since the 1980s.

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