I’ve read four news items in the last 24 hours that, frankly, would make any law firm managing partner ponder on whether there was any value in opening an international office or two.
1. PWC’s 2015 Annual law firms’ survey
The UK continues to subsidise international offices and exchange rates have further accentuated the imbalance this year. UK profit per all partners is ahead of international by 74.4% (2014: 65.8%) in the Top 10 and 88.5% (2014: 66.8%) in Top 11-50 firms. Fewer chargeable hours and consequently higher fee earner staff cost ratio in international offices is the key differentiator.
International chargeable hours for the 1-5 years pqe grade are significantly behind UK offices (between 3% and 33% across the bandings) with the exception of Top 10 firms in the USA (no difference) and Top 11-25 firms in the Middle East (1% in excess of UK performance).
Top 11-50 firms continue to expand internationally, with mixed results as the range in performance widens. Average global net profit margins now range from 23.0% to 44.0%.
There’s more, but I think you get the picture:- international law firm partners are effectively being subsidized by their UK partners.
2. Merged Firms Contend With Weak Aussie Dollar
The second item was by The Asian Lawyer over on the americanlawyer.com who published an article yesterday on an issue that I’ve blogged on no less than four times since 2013 – ‘Merged Firms Contend With Weak Aussie Dollar‘.
The article mentions the entry into the Australian legal market of Herbert Smith (Freehills), Ashurst (Blake Dawson), K&L Gates (Middletons) and King & Wood (Mallesons) and contends that each largely saw the weakening of the Australian Dollar prior to merging and were still happy to proceed with the merger.
It’s definitely an interesting read, if not a little flawed. For a start, K&L Gates are on record as saying that the fall in the Australian currency has hurt them.
If you add to that the HSF tie-up was probably more a “Freehills” driven deal than “Herbert Smith”, and add that currency fluctuations would probably have been the last thing discussed in the Swiss Verein tie-up of KWM, then you’re only left with Ashurst – and rumblings in the UK industry press would seem to suggest that they are not overly happy with the results from their Australian operations at the moment.
All in all then, despite the upbeat message in the article, not a particularly good advertisement for international operations in my opinion.
3. China set to invest £105 billion in UK over next 10 years
The third article I read was in the China Daily no less, which stated that ‘China set to invest £105 billion in UK over next 10 years‘.
This item, based on research done by think tank the Centre for Economic and Business Research and international law firm Pinsent Masons, is on the back of a trip to the UK by President Xi Jinping.
It nevertheless provides some insight into why Pinsent Masons felt the need to open an office in Australia, even after its merger talks with Australia firm Maddocks fell through. It also makes one think that there’s a world of opportunity out there if you have the right international strategy.
4. Cross-border M&A surges
The last was an item I read this morning over on the Australasian Lawyer website – ‘Cross-border M&A surges‘.
This article highlights the findings of a new study by international law firm Baker & McKenzie and again touches on a topic that I’ve blogged about in the past, namely that:
“Australia is a significant destination for inbound cross-border M&A and that’s a trend that has continued in recent years and in the past 12 months, there has been a number of significant cross border M&A transactions into Australia,” Baker & McKenzie Sydney partner David Holland told Australasian Lawyer.
While the last two items undoubtedly give you cause for why a law firm would have international operations, I’m nonetheless cautioned by another my recent posts: “A bridge too far” : When international law firm mergers turn sour, which also featured a certain K&L Gates.