Looking at the Australian legal landscape lately I'm reminded of a popular management book you used to pick up at airport news-stands in the 1990s called How to Swim with the Sharks Without Being Eaten Alive, by Harvey Mackay.
With international players almost weekly announcing mergers or intended mergers, there are only three options for local firms: 1) Go global (merge), 2) get more specialised (find a niche) or 3) become irrelevant.
We are in talks daily with international players and are actively facilitating mergers. This calendar year alone we have met with over 10 international firms who have a serious interest in developing a presence in the Australian market and (with our assistance) are exploring a whole raft of opportunities.
We are also helping firms to upgrade talent. Over the next three years there will be extraordinary dynamism in the market as the top performing partners are targeted by the leading global law firms and the top-performing domestic firms. We're partnering with a select number of clients now who have significant plans to grow their transactional capability to position themselves as the elite transactional firms.
We estimate that there are approximately 65 $5 million-plus transactional partners in the local market. The global firms may attract as many as 30 of them in the next 24 months.
The question for the leading firms to ask is: What will happen if we lose 10-15 of our top transactional partners - as Clayton Utz did to Allen & Overy?
The answer is that they may be relegated to second-tier domestic providers to the blue chip organisations, while the global brands scoop up the lion's share of the premium transactional work, offering the global reach that increasingly global Australian companies now require.
My prediction is that of the top-tier firms (Mallesons Stephen Jaques, Freehills, Allens Arthur Robinson, Clayton Utz, Minter Ellison, Blake Dawson), only two of those brands will remain in their current form and structure in three years' time.
We are already seeing market segmentation, where firms are either seeking to become elite transactional firms, generalists, or specialists. We are seeing some wonderful examples of commodity specialists, for example, who have worked out new business models for running high-volume, low-margin work and which are highly profitable firms as a result. Deep specialisation can drive profit, even in a low-margin game.
One of the biggest forces in the world today is globalisation. It's amazing that globalisation has taken so long to reach our shores. Five years ago there were 25 premium European law firms operating in eastern Europe. Then the big international firms pushed through and reduced that number to two. Twenty-three firms either merged or ceased to operate in the top echelon of firms.
Going back nearly 10 years when our Executive Chairman John Colvin (then CEO of Blake Dawson Waldron) visited the top law firms in London and New York to tap into their thinking on issues such as globalisation, they had no interest in setting up offices in Australia or merging with firms Down Under.
The China story of course has hastened the arrival of the global firms as they follow the money to one of the few growth stories left in the world right now.
What’s the future look like? Only time will tell. However experience from other markets and industries suggest that the Australian legal services market is in for one hell of a shake up over the next few years.
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