Expect buyouts and poaching
Foreign law firms are moving to establish their own brands across the continent
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.