More than a third (36%) of international firms contemplating a merger with an Australian outfit rate the size, scope and health of a local law firm’s black book, including its client, target and referrer network, as the most important factor in their decision, according to a global survey.
Having aligned compensation systems was the second most sought-after quality, cited by 31 per cent of respondents in the Within Reach report by Pier Advisory. The international consultancy interviewed 57 organisations, including 45 law firms, a number of which had recently entered Australia.
While professional services consultant Ted Dwyer (pictured) admitted that having Fortune 500 and ASX-listed clients certainly improves a local firm’s attractiveness as a potential partner, the complicated structures of some of Australia’s big firms can be a deterrent.
“From the perspective of overseas firms, most of the big Aussie firms have great lawyers but they’re just too large – it’s well known,” he told Lawyers Weekly.
For this reason, mid-tiers and boutiques can attract the attention of global law firms, despite their less impressive client list, he continued, which is prompting those in leadership positions within the big firms to examine their firm structure.
“Globalisation is ... changing the way ownership groups of major firms view their own firms,” said Dwyer. “Part of the demands of internationalising global firms is having an ownership group that is rationalised ... [local firms] have to restructure and think about divesting unprofitable practices.”
Jeffrey Naqvi, managing director of Pier Advisory, was more interested in learning that aligned compensation systems – cited by around a third of respondents – was a priority for global firms. He interpreted the finding as a sign that decision makers are performing thorough due diligence in the partner selection process.
“Across many sectors, we see the most productive of merger discussions fall down at the compensation phase,” he explained. “I think [the data] shows a growing level of sophistication among law firm management in understanding those ‘flash points’ and going forth and meeting it head on.”
Dwyer wasn’t surprised that a further 21 per cent of respondents specified that profitability of individual locations and practices was their key consideration. “Australia is one of the healthy jurisdictions,” he said.
The make-up of the partnership base was another key consideration, with 10 per cent of respondents rating the ‘star power’ of specific partners as the most important factor in selecting a local law firm.