If you are going to finally do a global merger, it would be fitting for one of the most distinctive City practices to hook up with the great outlier of the Global 100. That is what is on the agenda for SJ Berwin as it this summer mulls an outline deal to combine with King & Wood Mallesons (KWM), the ground-breaking union between the top commercial law firms in China and Australia.
And what an outlier KWM is. When large mergers happen in the profession, a received wisdom among clients and peers soon takes hold. But since KWM was formed in March 2012, creating a 2,100-lawyer Asia-Pacific giant, consensus has resolutely failed to emerge. For some, it is a world-beater with an unmatchable position in the most powerful economic region of the 21st century. For others, it is a desperate act by two firms who had saturated their domestic markets and faced the awkward reality that their businesses won’t easily go global. After all, Australian and People’s Republic of China law travels badly and the increasingly heavily-lawyered and fee-sensitive Asia-Pacific region is currently struggling to live up to expectations.
Perversely, there is a good deal of substance to both readings. What is agreed is that the logistic, operational and cultural challenges of putting together a slick operation like Mallesons with a 20-year old law firm are huge.
Aside from the regulatory issues blocking financial integration, the decision to wall off KWM’s Chinese IT system from the Australian practice to deal with confidentiality issues is very problematic from a client perspective. KWM remains the great unknown of the Global 100 – the firm as easy to imagine blazing a trail as crashing and burning.
So it is just as well that SJ Berwin has a reputation for individualism and willingness to take risks. The expectation is that the UK firm will make a decision by the autumn on whether to proceed with the deal – current indications are that the balance is tipping moderately in favour of it going ahead.
Much of the attraction is freedom. Having decided that it couldn’t on its own credibly switch from European to global player, SJ Berwin pursued a US merger, notably with Proskauer Rose. Now there is little appetite for the loss of identity an effective US merger would entail. In comparison, KWM offers the chance to join something genuinely unique and, potentially, globally potent. With KWM considering more financially-separate deals in markets including the US, Canada and Singapore, what is emerging is a new model: global elite law firm as federation. Rather than being subsumed SJ Berwin hopes to be an influential force in a new kind of global titan. The question is whether the desire for autonomy is a good enough reason to turn away from a US union. The poor record of US takeovers of City practices does indicate there is more than sentimentality to the premium SJ Berwin places on its independence. But it shouldn’t kid itself on just how daunting the challenge it would face as part of this new federation would be. Competing against firms as variously effective as Freshfields Bruckhaus Deringer, Latham & Watkins and DLA Piper will be a far greater challenge than KWM’s post-merger rhetoric has so far conceded, however distinctive the sales pitch.