Announcements of acquisitions and divestments will be posted as they occur.
25/11/16 Tension as King & Wood Mallesons contemplates Europe exit….. AFR 24.11.2016
The European arm of global firm King & Wood Mallesons may exit the global empire after partners in the region failed to commit to an intense recapitalisation program.
The stalemate could force a dramatic end to the saga surrounding a £35 million ($59 million) blackhole in its European and Middle Eastern offices.
After six months of efforts, European partners voted against a final recapitalisation bid involving a 12 month commitment and £14 million in contributions. They are now considering their options, including mergers.
KWM is not alone among firms facing an unfolding drama: Ashurst partners are coming to grips with a move to annual profit distribution, DLA Piper are handling the shock resignation of local leader John Weber and others are busy shutting down rumours of merger talks.
A new survey polling the leaders of some of the nation’s most prominent law firms, KWM among them, shows the difficulties faced by law firms in the intensely disrupted legal services market.
More than half – 60 per cent – elected strategic focus as the most important part of the role. The remaining 40 per cent put “people” at the top.
Profit seen as king
Overwhelmingly, and apparent in the crises seen at a number of firms, the leaders saw profit as king and their most important driver, one noting that “you can’t eat revenue or receivables”.
Profit was the primary financial responsibility for 90 per cent of the surveyed leaders, far surpassing turnover and partner remuneration.
KWM chief executive partner Sue Kench disagreed with the vast majority of her peers on the profit point.
“In my view culture and people are king and profit is an outcome,” she said.
Eaton Capital Partners partner Justin Whealing, author of the survey, said that “profit and people is what keeps law firm leaders awake at night”.
Interestingly given global headaches for some, 5 per cent said their ability to make key decisions was limited by the large size of the firm and offshore senior positions; another 30 per cent said it was influenced by culture. None thought it was “frustratingly lacking”.
“Large firms depend on culture: without it they are just a web of mutual self-interest,” said one.
Mr Whealing’s survey polled leaders at 20 of the nation’s most prominent law firms, including KWM’s Ms Kench, Maddocks’ Michelle Dixon, Clayton Utz’s Robert Cutler, Baker & McKenzie’s Chris Freeland, Herbert Smith Freehills’ Sue Gilchrist, Squire Patton Boggs’ John Poulson and Gilbert + Tobin’s Danny Gilbert.
Technology the big disrupter
In a sign of the disrupted times, new law innovator Keypoint Law’s Warren Kalinko and PwC Legal’s Tony O’Malley were among those polled.
Tellingly, 75 per cent of respondents thought the extensive global network of accounting firms was attractive to clients or their different model would appeal to some.
Only 25 per cent wrote them off as no real threat; one admitting they have scale, client cover and cross sell and “should never be taken for granted”.
But more than any other, the biggest change expected in the coming five years was in technology (50 per cent), not global firm domination (20 per cent) or boutiques (30 per cent). Artificial intelligence was backed as a positive change bringing greater efficiencies by almost two thirds.
On remuneration, 30 per cent view equity partner cuts as unsustainable or due to fall over time; the remainder see them as “fair”.
“Disruption is going to be the norm and you have to be nimble and agile to survive,” one leader noted.
Mr Whealing said as clients were becoming more sophisticated, they were becoming more wedded to key people over firms, giving high performing partners “a large amount of leverage”.
KWM considers options
For KWM, the fate of its European arm will take more time to resolve. In a statement, KWM said “regrettably, insufficient value of new capital was committed”.
After six months of recapitalisation talks, the final bid came last weekend as European partners considered a plan to stay for 12 months and stump up a reported £14 million, supplemented by a contribution from their Asian counterparts.
They overwhelmingly voted against the option.
“The firm will continue to service the needs of clients, operating on a business as usual approach. The [Europe, British and Middle East] Partnership Board and management are considering a range of strategic options, including mergers, in conjunction with the firm’s bankers and financial advisers.”
The firm operates as a Swiss verein, which means the European arm could separate relatively cleanly and drop the KWM brand, leaving the Chinese and Australian entities intact.
While some in the industry consider such a move would bring untold damage to the firm’s strong brand, others view it as the only way to cleanse the firm of its European troubles, particularly following the departure of a number of top-earning talent.
Sources say the tie-up was troubled from the start.
SJ Berwin, the firm with which KWM merged to build its presence in the region, was a silver circle firm that London lawyers say was generally lacklustre but had outstanding individual partners in particular areas.
Those partners have been beating a path to the door in the past year; more are rumoured to be stalking the corridors of rival firms in search of a new home.
This week has also seen rival firm Ashurst confirm a new distributions policy, moving from quarterly to one single annual payment to partners from May.
“This completes the process of harmonising partner payment arrangements that we discussed at the time of merger,” said an Ashurst spokeswoman.
25/11/16 Australian legal profession in a good place say leaders…Australian Lawyer 21.11.16
The Australian legal profession’s leaders are optimistic about its future despite disruptive technologies such as artificial intelligence.
A poll of 20 Australian managing partners by Eaton Capital Partners found that there was generally high sentiment on the future for their own firms and the wider profession. The leaders were selected from various sizes of firms including boutiques and global law firms.
On artificial intelligence, just 15 per cent thought it would have a significant impact on the profession while 60 per cent said it would meet clients’ needs on efficiency.
That said, technology overall was considered to have the most significant impact on the profession over the coming 5 years by more than half of respondents; while the dominance of global law firms (30 per cent) and boutiques and specialists taking work from full-service firms (20 per cent) are also pressing concerns.
The leaders put strategy as their top priority – 60 per cent said that while 40 per cent said it was people – they also highlighted the importance of a good culture within the firm.
Flexible working is a key component of that culture with most managing partners saying it was offered to all employees.
Participants in the survey included Sue Gilchrist, the head of Herbert Smith Freehills in Australia, Baker & McKenzie Australia managing partner Chris Freeland, Clayton Utz managing partner Robert Cutler and the long-term head of Gilbert + Tobin, Danny Gilbert.
Back-office functions playing bigger strategic role for law firms
Law firms are looking to differentiate themselves in an increasingly competitive market by making traditional back-office functions part of the strategic mix.
Research by HBR Consulting shows that client service and engagement was viewed as the top criteria for selecting outside counsel by in-house teams and law firms are increasingly demonstrating their efficiency and flexibility to win business.
“Leading law firms are holistically looking at the entire lifecycle of a client relationship – from the outside counsel selection process all the way through the billing process – and are leveraging client perspectives to drive change within their organizations,” said HBR president, Nick Quil. “Areas that may have traditionally been viewed as ‘back-office’ support functions, such as IT and procurement and billing, are becoming strategic points of differentiation for many law firms.”
According to HBR’s survey, 40 per cent of law departments plan to increase their use of technology to automate routine tasks, enhance work processes and support data analytics in the near future.
17/11/16 Profit trumps everything, as managing partners eye opportunities via global ructions
Sydney, 18 November
Profit trumps everything, as managing partners eye opportunities via global ructions
Profit and people is what keeps law firm leaders awake at night, but Brexit and Artificial Intelligence (AI) offers the prospect of a new legal dawn, an exclusive survey of law firm heads by Eaton Capital Partners has revealed.
Eaton Capital Partners (ECP) invited 20 high profile Australian managing partners to complete a survey in early November comprising 10 multiple choice questions.
The Survey canvassed the heads of global, national, boutique and ‘NewLaw’ firms on financial, cultural, strategic and competitive matters.
Participants included Sue Gilchrist, the head of Herbert Smith Freehills in Australia, Baker & McKenzie Australia managing partner Chris Freeland, Clayton Utz managing partner Robert Cutler and the long-term head of Gilbert + Tobin, Danny Gilbert.
A clear majority of managing partners (60%) said that the most important part of their job was strategic in nature, with the remaining respondents (40%) naming people.
“If you take your eye off strategy – and how to respond to the changes coming our way – the other (people, financial and reporting) short-term issues won’t matter much,” said one managing partner.
Profit (90%) was seen overwhelmingly as the most important financial consideration, dwarfing turnover and partner remuneration. Personal relationships between the client and key partners (70%) was also viewed as being significantly more important in retaining and gaining clients than Quality of your service (30%).
“As clients become more sophisticated, they become more wedded to key people rather than firms,” said ECP partner Justin Whealing. “That gives high performing partners a large amount of leverage when talk turns to equity partnership points and salaries, or indeed, if they are courted by other firms.”
Whilst law firm heads did rate strategy as being more important than people, the establishment and maintenance of a good culture was highlighted as a critical responsibility.
“Large firms depend on culture. Without it they are just a web of mutual self-interest,” said one respondent.
Three quarters of managing partners said that flexibility is championed and offered to all employees, with only one respondent saying had to be earned with tenure and responsibility.
Glass half full
The upper echelon of the legal profession globally is under assault via competitive, technological, political and economic shocks. Despite such conditions, law firm heads were surprisingly optimistic when it came to the long-term outlook for their firm and the Australian legal sector as a whole.
Managing partners viewed Artificial Intelligence (AI) as providing opportunities, rather than decimating its junior ranks. Almost two thirds of law firm heads (60%) said that AI will ensure greater efficiencies which clients will welcome. No one considered it a threat, and only 15 per cent of respondents though that AI would not have a significant impact on the profession.
“AI is a technology that will make the delivery of legal services at the top end more efficient and to the lawyer take out the tedium of repetitive tasks,” said one law firm head.
Technology was also cited by half of all respondents as having the biggest impact on the profession in the next five years, with its long-term legacy being the undermining of the traditional large law firm model. Domination of the market by global firms (30%) and boutique and specialist firms taking work away from larger full-service firms (20%) were also cited as pressing concerns.
“The traditional large law firm model built on leverage, timesheets and time spent in the office is dead,” said ECP partner Justin Whealing. “Technology is accelerating that change. It enables lawyers to work in multiple environments and gives clients the opportunity to push for cost savings, and to compare the performance of firms they engage with against set internal benchmarks.”
The assorted legal leaders also saw that Australia could be a net beneficiary of Brexit. Forty per cent of respondents saw Brexit as an “opportunity”, which would see increased demand for its firm’s lawyers. Fifteen per cent of respondents saw Brexit as “positive”, with large corporates looking further afield than Europe for growth. Forty per cent of respondents also said Brexit would have a negligible impact on their firm.
Law firm heads also felt confident in their own skin. Sixty five per cent of respondents feel they have the confidence and trust of the partnership to lead, devise and implement strategy.
Whilst optimism abounded, the assorted respondents, which included PwC Asia-Pacific legal head Tony O’Malley, noted the muscle that has come with the push of large, global consultancy firms into the legal arena.
Seventy five per cent of respondents rated large, global professional services firms as being a real threat to their firm’s market share, given the ‘Big 4” accountancy firms in particular offering an integrated service to clients, and a different model to prospective lateral partners. Sixty five per cent of law firm heads feel they have the confidence and trust of the partnership to lead, devise and implement strategy.
“I am supported by an executive committee, but our relatively new governance model moves us away from a consensus model to a model where elected leaders have the authority to lead, devise and implement strategy,” said one law firm head.
For further information, please contact Justin Whealing, Partner, Eaton Capital Partners, on 02 9191-9897 or 0431850391. Email: email@example.com
Eaton Capital Partners would like to thank the following survey participants
|Allen & Overy
|Baker & McKenzie
|King & Wood Mallesons
|Clyde & Co
|Crowd & Co
|Gilbert + Tobin
|Herbert Smith Freehills
|Squire Patton Boggs
|Johnson Winter & Slattery
|Wotton + Kearney
*Eaton Capital Partners is currently advising and has taken equity in Crowd & Co.
A Note about the survey…
- ECP invited 20 law firm managing partners to take part in the survey
- The Survey consisted of 10 multiple choice questions
- All questions were compulsory, and all managing partners answered every question
- Managing partners had the additional option of providing comments after every question
- The survey was open from 4 PM Friday 28 October until 4PM Friday 4 November 2016
- The survey was anonymous.
About Eaton Capital Partners
Eaton Capital Partners (ECP) specialises in corporate advisory, impact investment, mergers and acquisitions, strategic law firm consulting including specialist legal recruitment and search.
ECP’s legal division has worked with a number of global and national law firms in a strategic capacity recently, with its services including the placement of senior partners and assisting clients with international and domestic expansion. Recent firms ECP has worked with include Jones Day, Hogan Lovells, Squire Patton Boggs, Reed Smith, Gilbert + Tobin and Keypoint Law.
Eaton Capital Partners was founded by Dr Stephen Moss.
Stephen, the current chairman and a partner at ECP, has had a distinguished career in the professional services sector. He was a partner and managing partner of PwC for 14 years. He advised many Australian law firms over the 1980’s and 1990’s in their nationalisation and transition into businesses. Notably, Stephen advised Clayton Utz as they formed a national partnership in the mid-1980s and he also advised Freehills in its national integration over 1998 – 2000.
Stephen was also one of the original founders of AdventBalance, a leading flexible services legal provider in the Asia-Pacific.
Prior to joining ECP, Justin Whealing was the editor of Lawyers Weekly. He is a regular contributor and speaker at legal events and seminars, and is often featured in the mainstream and legal press.
29/06/16 The table wasn’t round, but we had a ball!
Tuesday 28th June 2016
Earlier this month Eaton Capital Partners (ECP) and Macquarie Bank broke bread with senior mid-tier law firm leaders. What they said provided much food for thought…
Size and money still matters, but there is pressure to maintain current levels on both fronts.
That was one of the key messages when six of Australia’s most senior mid-tier law firm partners sat down with a couple of corporate heavyweights at an event hosted by Macquarie Bank and ECP Legal.
When MC Justin Whealing asked if the mid-tier firms are feeling pressure from “the bottom-up”, ie the ‘NewLaw’ firms offering an alternate to the large law firm model via differentiation on leverage, billings, culture and technology, Henry Davis York (HDY) head Michael Greene responded in turn with his passionate thoughts on the topic.
“The smaller/mid tiers don’t have as much leverage. They don’t have an army of lawyers that they can use for a project with a big client,” he said, adding that he is more likely to see global firms competing in his space given those firms have sought to diversify into areas dominated by the mid-tier in Australia, as they have found the market at the top-end tough to crack (and in many cases shrinking too).
Like HDY, Kemp Strang has cut its teeth as a pre-eminent banking and finance firm. Kemps head Michael Joseph made the point that despite the arrival of the global law firms looking to act for the large financiers, they had not had much impact on his firm’s practice.
“International firms don’t have a competitive advantage in doing work for financial institutions,” he said. “They are not really a threat to the Kemp Strang banking & finance and insolvency practice.”
Greene and the other senior lawyers around the table: Stephen Trew, the head of Holding Redlich’s workplace relations and safety group; Michael Joseph, Kemp Strang’s managing partner; Peter Hegarty, an insolvency and restructuring partner with Thomson Geer, and Damian Ward, a restructuring and insolvency partner with Mills Oakley; all knowingly nodded when senior DibbsBarker financial services partner Peter Luke made the point that firms of all sizes are being squeezed on price.
“We are finding that we are competing with firms on cost,” he said, adding there had been some “ridiculous cost-cutting mechanisms” put in place by competitors.
Luke also made the point that big law alternative legal services programs such as Minters’ ‘flex’ model and the ‘Orbit’ program run by Corrs is a symptom of large law both responding to client concerns and seeking to reduce cost.
The death of the lawyer is greatly exaggerated
Artificial intelligence, and the associated topic of the importance of relationships with clients was discussed with much vigour by the private practice lawyers and the additional guests around the table, which included Grant Thornton tax partner Ben Matthews, Macquarie Bank corporate and asset finance general counsel David Markell and Macquarie Bank director Ian Marshall.
“Macquarie doesn’t run a [formal] panel, rather, it has a set of “relationship” firms, probably 50 firms globally,” said Markell. “What you’re looking for is expertise in the key areas that Macquarie requires. What’s in a [law firm] name? Not a lot.”
“It is less of an attraction from the client perspective; it’s important in attracting the talent going into the firm. That’s where there is more value in the name these days.”
Previous ECP Legal research has shown that law firm leaders believe it is almost a struck match between clients following the lawyer rather than the firm.
Such sentiment has encouraged some old faces in the professional services sector to make a large push into the legal space by attracting ‘star’ names.
“PwC Legal has recalibrated the lateral partner market,” said Greene. “It adds an additional challenge to firms like HDY to have a player with a large balance sheet with a mandate to lead an aggressive partner recruitment campaign.”
Internal battles shape external perceptions
Whilst the vagaries of the lateral partner market and intense pressure for graduate roles were discussed, there was also an acknowledgement on the increasing importance of non-lawyers in firms.
Mills Oakley partner Damian Ward said that law firms and lawyers now need to be adept at sales, marketing and legal work.
“The [business development role] is to provide expert guidance and expertise in relation to things like tailored events, brand awareness and discussion forums,” he said. “Certainly only as a supplement to the partner’s business development work. We want to know what our client’s drivers are, what their objectives are, etcetera”
With the legal market and ‘war for talent’ white-hot, there was an acknowledgement around the table that the large law firm model, and its associated culture and learned behaviours, was under assault.
“You need to reward collaboration as opposed to the lone ranger,” said Holding Redlich’s Stephen Trew, adding that such collaboration should also foster the next generation of law firm leaders.
Thomson Geer’s Peter Hegarty said that press coverage over whether Thomson Geer would list on the stock exchange or not might interest the commentariat, but there was no change to how he approached his work.
Whilst such market talk has not influenced how Hegarty approaches his job, Macquarie’s Markell said clients do note how law firms differentiate themselves.
“The remuneration model [of a law firm], does that matter?” he asked himself, before answering…
“Yes it does.” “Are we [a law firm] going to list? Are we going to float? I am interested.”
Grant Thornton tax and accounting specialist Ben Matthews, who counts many large law firms as clients, made the point that a good firm equals a good brand in the marketplace, and that can go a long way.
Whilst the table over which lunch was served was square rather than round, the conversation was anything but conservative or circular in nature.
The legal profession, with apologies to Ernest Hemingway, is a moveable feast, with the size and breadth of the final banquet table still to be determined.
What is known, is that no law firm wants to be left, bowl in hand, fighting for the scraps from the top table.
5/02/16 Partners spoilt for choice jump ship
AFR_Friday 5th February 2016
By Mirianna Papadakis
Law firms are struggling more than ever from preventing their top performing partners walking out the door with their best clients in tow.
Mid-tier and boutique firms are soaking up partners that the top tier are shedding amid a grind on profits and remuneration, new partner appointments and opportunities.
Some leave because of cultural problems within a firm or insufficient investment in their practice. Others are attracted to the flexible working conditions of new legal secondment services and the remuneration and clients at accounting firms, or the model or global reach of alternative market competitors.
“Partners are spoilt for choice with global platforms in the domestic market,” Gadens litigation and dispute resolution partner Ben Allen said.
Mr Allen, who recently moved to Gadens from Norton Rose Fulbright, said the key reason for his move was because of the Gadens’ tie-up with international firm Dentons.
Of the big firms that did not take on any lateral partners in the second half of 2015, Allens, Clayton Utz and Herbert Smith Freehills lost more partners than they appointed, according to the to the Australian financial Review’s bi-annual Law Partnership Survey.
Ashurst also had high partner turnover, losing 20 partners but putting on 10 new partners, including four lateral hires during calendar 2015. Norton Rose Fulbright similarly lost 17 partners but put on 12, including eight lateral hire partners.
Herbert Smith Freehills and HWL Ebsworth grew partner numbers over the past year. Herbert Smith Freehills did not take on any new lateral partners in the second half of 2015, while HWL Ebsworth continued growing its pool by recruiting three external equity partners and four salaried partners.
King & Wood Mallesons, which also increased its overall partnership, took on two lateral equity partners in the second half of 2015.
The beneficiaries have been midsized firms. Colin Biggers & Paisley recruited five new salaried partners, DLA Piper four equity partners, Mills Oakley Lawyers seven new salaried partners, and Moray & Agnew five salaried partners. Thomson Geer and Gadens recruited two lateral partners, while Baker & McKenzie, Matldocks and Piper Alderman all took on one.
Dunstan de Souza, managing partner at Colin Biggers & Pasley said uncertain economic times were making firms more conservative in decision making. “Appointments used to be more opportunistic, now they are more strategic” he siad.
“We have a clear, defined vision and that requires us to recruit, but we won’t take people, even though they might make us money, if they don’t achieve our strategic objectives, are a good cultural fit and the financial outcome over time makes business sense.”
DLA Piper managing partner John Weber said the firm focused on strengthening its mergers and acquisitions, private equity and equity capital markets work ‘We’ve had 18 lateral partner hires over the last 18 months or so,” he said.
Eaton Capital Partners partner Justin Whealing said firms were more judicious and much less likely than a year ago to take a punt on who they sought out for a lateral hire.
“They might only want a specific name or a shortlist of three to four people, whereas a year ago firms looked at broader options for new M&A partners,” he said. “And clients are becoming less wedded to law firms and more wedded to relationships.”
Some relationships were institutionalised, for example in banking and finance, but top players in areas such as corporate and M&A could pack up and go where they wanted because their reputation and quality of work ensured solid client relationships.