It has been a busy month for mergers in the legal industry. First, at the end of October, the Canadian-based Fasken Martineau DuMoulin LLP announced that it would merge with South Africa’s Bell Dewar Inc, while keeping the same name. Second, the Canadian-based Fraser Milner Casgrain LLP announced that it would take part in a three-way merger with the international firms of SNR Denton and Salans to create a new firm known as Dentons. Finally, a week later, the UK-based Norton Rose, which recently merged with Canada’s Ogilvy Renault and Macleod Dixon, announced that it would merge with the US-based Fulbright & Jaworski to form Norton Rose Fulbright.
Each of these mergers is significant in its own way. The Fasken Martineau merger means it will have 167 lawyers abroad, more than any other law firm headquartered in Canada. The FMC merger creates a new international player in the legal industry, with about 2500 lawyers and 79 offices – the fourth largest firm (by lawyers) in the world. The Norton Rose merger gives one of the already largest law firms in the world a strong foothold in the US, now with 3800 lawyers and 55 offices – the second largest firm (by lawyers) in the world.
The primary rationale for the three mergers is a desire to improve client service in the increasingly globalized market by improving firm reach internationally. The Swiss Verein structure used by Dentons and Norton Rose Fulbright, which allows merged firms to remain independently liable and independently managed while under one name, shows these mergers to essentially be marketing ploys to improve client service – at least until full financial integration is completed somewhere down the road. While there are some synergies in eliminating back office redundancies as a result of these mergers, the true advantage comes from becoming ‘one-stop shops’ for large commercial clients. Normally, large firms refer clients to or work with strategic partner firms in other countries when a client needs service on a matter in another country or has a multi-jurisdictional file. Rather than referring clients to strategic partners, the merged firms essentially collude together so that any such work is given to one of the other merged firms under the same name – which, in turn, attracts more clients who would prefer to deal with one firm for all their legal work and strengthens existing client relationships.
Of course, merged firms will likely forfeit many strategic relationships with firms in other countries who will no longer want to refer work to the Canadian arm of a globe-straddling competitor. Significant client conflicts, standardizing compensation structures, uncertainty over partnership decisions, and culture clashes between merged firms are also potential downsides of a merger.
These recent Canadian mergers come after a wave of US-UK mergers in the 1990s and are, what some argue, the next step in a shift toward a relatively small number of international players that dominate the legal industry worldwide. As the world’s largest economies, like China and India, become increasingly resource dependent and the Canadian dollar remains strong, Canadian legal expertise in resource extraction, refinement, and sale are in high demand – increasing the appeal of Canadian-owned firms to international players.
Many argue that saturation and stagnation in the Canadian legal market will force all big Canadian firms to go global eventually. The question is how firms will choose to do this: merge with an international firm or go alone and open international offices. Firms like Bennett Jones and Gowlings have chosen the latter option by expanding to the likes of Dubai, Moscow, London, and Beijing. It is unclear which strategy will ultimately win out. The draw of international mega firms which have not yet had significant presence in Canada may be too much for Canadian-based firms to handle or the brand strength, culture uniformity, and focus on niche areas may allow firms that choose to expand alone to remain profitable. The next 10 to 20 years will likely illuminate the victor. Until then, merger mania is expected to continue.
