Ex­pect buy­outs and poach­ing

For­eign law firms are mov­ing to es­tab­lish their own brands across the con­ti­nent

Business Day - Business Law and Tax Review - - FRONT PAGE - EVAN PICK­WORTH

IT HAS been a tough year to be in busi­ness in Africa. As we com­plete our fi­nal Busi­ness Law and Tax Re­view of the year, it is op­por­tune to con­sider a topic par­tic­u­larly close to the heart of law firms them­selves — how to keep ahead of the pack in 2016 as the race for deals be­comes in­creas­ingly com­pet­i­tive. Speak to any banker and you re­alise just how tough the past six months have been from a deal per­spec­tive.

Many firms have toyed with op­ti­mis­ing their op­er­at­ing mod­els in the past year as in­creased de­mands from clients that are will­ing to do deals ne­ces­si­tates far more on-the-ground, spe­cial­ist ex­per­tise. The noise of for­eign money and firms tar­get­ing Africa slowed in line with the pull­back in African GDPs.

One of the most prom­i­nent pieces of news was that Cliffe Dekker Hofmeyr (CDH) had de­cided to go it alone af­ter end­ing its al­liance with DLA Piper.

But this does not mean for­eign firms are not in­ter­ested in Africa. Quite the con­trary — the big change is many of th­ese firms want a big­ger slice of the eq­uity pie and are look­ing to es­tab­lish their own brands across the con­ti­nent.

Ex­pect buy­out ac­tiv­ity and poach­ing of top ex­perts to in­crease rapidly as this hap­pens.

Global law firm Her­bert Smith Free­hills, for ex­am­ple, plans to open its first Africa of­fice in Jo­han­nes­burg and is al­ready on the hunt for top tal­ent. Web­ber Wentzel has been in their crosshairs with re­spected min­ing lawyer Pe­ter Leon and en­ergy and in­fras­truc­ture ex­pert Brigette Bail­lie both jump­ing ship in the past month. The al­liance agree­ment of Web­ber Wentzel with in­ter­na­tional firm Lin­klaters three years ago has re­port­edly also led to some un­hap­pi­ness.

The drive for African ex­pan­sion re­ally took off in 2013 and while the halv­ing of oil prices from June last year, the dra­matic fall in other com­mod­ity prices and a de­cline in the prog­no­sis for the vo­ra­cious con­sumer of African resources in the form of China has slowed ex­pan­sion to a de­gree, firms re­main on the look­out for tar­gets.

A con­cern for com­pa­nies in Africa 10 years ago was that be­tween 80% and 90% of all le­gal spend­ing was leav­ing African shores, with the le­gal fees be­ing earned by some of the global elite firms in Lon­don and Paris.

This is cer­tainly no longer the case and one of the ma­jor trends to watch is con­sol­i­da­tion of the stronger non­South African firms. This mim­ics what hap­pened in SA, where a cou­ple of strong firms here have emerged and have helped bring fees down.

The pre­vi­ous model of re­ly­ing on large in­ter­na­tional firms that needed to fly ex­perts in and did not even have phys­i­cal of­fices only re­sulted in higher fees for those ser­vices.

Firms such as ENSafrica have man­aged to gain trac­tion each year as a truly pan-African firm with lo­cal ex­per­tise and feet on the ground. Fee price com­pe­ti­tion will in­ten­sify fur­ther from here.

The min­ing industry may be suf­fer­ing and hold­ing back true ex­pan­sion ca­pa­bil­ity into ar­eas like Fran­co­phone Africa, but the en­trenched play­ers are likely to in­creas­ingly con­sider th­ese av­enues again once the com­mod­ity mar­kets and China’s econ­omy be­gin to turn around.

This is not to say there have not been op­por­tu­ni­ties for ex­pan­sion — es­pe­cially in the ear­lier part of the year. ENSafrica on May 1 2015, for ex­am­ple, joined forces with at­tor­neys from one of Tan­za­nia’s most pres­ti­gious law firms, Rex At­tor­neys, to form ENSafrica Tan­za­nia. This added to its of­fices in Bu­rundi, Mau­ri­tius, Namibia, Rwanda, SA, Tan­za­nia and Uganda — and its model is per­son­i­fied by the fact that it operates as one firm across Africa.

Its 11-part­ner merger in Namibia took place in Novem­ber last year.

It seems the suc­cess of ENSafrica to be­come the largest firm in Africa is catch­ing on and healthy com­pe­ti­tion is on the rise.

In sur­pris­ing news, busi­ness law firm Cliffe Dekker Hofmeyr an­nounced it was end­ing its for­mal al­liance with global law firm DLA Piper, with both firms agree­ing to move to a less for­mal re­la­tion­ship. This is a sig­nif­i­cant change in the land­scape, but also a ma­jor in­di­ca­tor of how am­bi­tious lo­cal firms are in­creas­ingly look­ing to chart their own course on the con­ti­nent.

Cliffe Dekker Hofmeyr has used this as an op­por­tu­nity to change its cor­po­rate iden­tity to re­flect strate­gic changes within the firm, most no­tably an in­crease in the in­no­va­tion and in­te­gra­tion of its le­gal ser­vices, as well as the in­tro­duc­tion of client-tai­lored so­lu­tions. It in­tends to fur­ther strengthen its al­ready es­tab­lished ca­pa­bil­ity in Africa, by en­hanc­ing col­lab­o­ra­tion with its part­ner firms on the rest of the con­ti­nent and for­mal­is­ing the shar­ing of knowl­edge, ex­per­tise and mar­ket in­tel­li­gence be­tween them.

Its strong net­works in Africa will be har­nessed even more to ex­pand its reach and pen­e­tra­tion. This type of strate­gic ap­proach is in­creas­ingly be­ing sought af­ter by in­vestors keen to re­duce the risk of en­ter­ing ju­ris­dic­tions with which they are un­fa­mil­iar with on the con­ti­nent.

Cliffe Dekker Hofmeyr CEO Brent Wil­liams says the com­pany aims to “drive and im­prove our ser­vices and the way in which they are de­liv­ered to clients and to en­trench col­lab­o­ra­tion both in-house through our part­ner firms, and with our clients' busi­nesses, do­mes­ti­cally and on the rest of the con­ti­nent”.

The new year also gives an­other op­por­tu­nity to see how transat­lantic firms bed down their African strate­gies. In late 2013 Ho­gan Lovells agreed to merge with Rout­ledge Modise and what was no­table at the time was that this fol­lowed the money — the ma­jor­ity of Ho­gan Lovells’ top 200 clients had op­er­a­tions on the con­ti­nent. A phys­i­cal pres­ence in Africa was seen as a ne­ces­sity.

The 2008 Rout­ledge Modise as­so­ci­a­tion with Ever­sheds was dis­solved in 2012 due to client con­flicts, and the new merger has been help­ing the firm win busi­ness and at­tract tal­ent.

Tax spe­cial­ist Ernie Lai King joined the com­pany in mid-2014 to head the firm’s tax and China prac­tices in South Africa, in a clear in­di­ca­tion of how stiff the com­pe­ti­tion is get­ting for le­gal ex­per­tise.

Two new fi­nance part­ners joined them in late Septem­ber from an­other tier-one firm with part of the de­ci­sion based on the strong reg­u­la­tory knowl­edge th­ese ex­perts could bring to the ta­ble.

Global fi­nance prac­tices are likely to be ex­panded even fur­ther in the year ahead as Basel III and Twin Peaks leg­is­la­tion is bed­ded down.

Hang­ing on to tal­ent will re­main a chal­lenge for the SA and other Africabased firms, but the lit­mus test for all will be how well they de­liver in­creas­ingly spe­cialised ser­vices to a de­mand­ing busi­ness client base.

Pic­ture: iS­TOCK

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