Global law firms turn to Africa (I)
South Africa has been hit by a flood of global law firms seeking lucrative new markets. In 2014 alone, Allen & Overy, Clyde & Co, and Dentons—firms that have a combined global revenue of $4.8 billion—opened offices in South Africa.
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In 2016, Herbert Smith Freehills and DLA Piper both entered the market, hiring big-name partners from local firms. And this year, Pinsent Masons, a global firm based in the U.K., plans to open its first African office in South Africa.
The legal market in South Africa, once made up of a small group of domestic firms isolated by apartheid, has been transformed into a legal hub, serving as a base for global firms seeking to counsel clients throughout Africa.
But as these global firms continue to set up shop in Johannesburg, the well-established domestic firms are adapting so that they, too, can compete for the increasing international business and investment flowing across the continent.
The first wave
During the apartheid era, South Africa was cut off from the wider international business community. In its closed market, a handful of local law firms dominated the field. Once apartheid ended in 1994, those firms underwent unprecedented growth as South Africa began reintegrating into the wider global economy.
Today, the leading six local firms that dominate the South African market are Bowmans; Cliffe Dekker Hofmeyr; ENS¬africa; Webber Wentzel; Werksmans; and the South African arm of Norton Rose Fulbright. "From the sixth firm to the seventh, there is a seismic drop in the number of lawyers," says David Hertz, chairman of Werksmans.
The post-apartheid opening of the South African economy brought risk as well as reward for the big domestic players. The firms began to do more work in other African nations. But they also started to face competition from international rivals, who were casting a covetous eye at South Africa, the continent's largest economy.
"Here we were in South Africa all happily operating, and there was then a change," Hertz says. "Maybe we reached, as Malcolm Gladwell said, a tipping point. I don't know why it happened, but the reality is that international law firms started to express an interest."
Those looking at the market early on included White & Case, which opened an office in South Africa in 1995, and the now defunct Dewey & LeBoeuf, which opened in the country in 2000. But the biggest change came with the advent of tie-ups between South Africa's big players and leading international firms. Cliffe Dekker Hofmeyr signed an alliance with global giant DLA Piper in 2005; Deneys Reitz joined legacy Norton Rose in a verein in 2011; and Webber Wentzel signed an exclusive alliance with U.K. Magic Circle firm Linklaters in 2013.
The alliances ultimately forced the larger domestic firms to do some soul-searching. "South African firms had to decide whether they wanted to be South African, African or global," says Donald Dinnie, who was with Deneys Reitz when it joined with Norton Rose and is now managing director of Norton Rose Fulbright South Africa. "We decided that we wanted to be a leading global firm."
Second Wave
More recently, the international firms targeting South Africa's market have chosen a different model: Rather than form alliances, they have opened their own fully financially integrated offices. In 2012, Baker & McKenzie, which had already been doing work in Africa for years, opened an office in Johannesburg after absorbing litigation boutique Rudolph Bernstein & Associates and the 31-lawyer Johannesburg practice of Dewey & LeBoeuf shortly after that firm went bankrupt.
In 2014, Allen & Overy launched a finance-focused South Africa office. "For any of the London firms that take South Africa seriously, [Allen & Overy's] entry into the market must have been quite a shock," says Brigette Baillie, a partner at Herbert Smith Freehills in South Africa.
To get off the ground, the firm poached a team from the prominent local firm Bowmans, stealing its star banking partner, Lionel Shawe. It then rounded out this team by sending in partners from its international network, including former head of banking Michael Duncan.
"Our philosophy in coming down here is that we want to have a true A&O offering," says Allen & Overy finance partner Kathleen Wong, who relocated from London to Johannesburg. "It's not about just recruiting a team locally and putting a badge on them. We are very committed to making it a true A&O office and a true A&O experience."
Clydes, Herbert Smith Freehills and Pinsents have all taken similar approaches. DLA Piper, which ended its alliance with Cliffe Dekker Hofmeyr in 2015, has also followed this path. They all hired big-name partners from local firms, went for full financial integration with the wider partnership and focused on a handful of high-value areas.
Integration vs. alliance
Attorneys at firms following the financially integrated model say that this approach allows a firm to work seamlessly across its entire Africa practice, with no risk of different offices competing for the same work. Such competition can make an alliance difficult. When Cliffe Dekker Hofmeyr and DLA Piper terminated their alliance, one of the issues cited by partners was competition between the two firms for the same assignments.
"Because we are financially integrated, it's in the firm's interest for us to be financially successful," says Johannes Gouws, DLA Piper's South Africa head. "It's a completely different scenario compared to a firm which isn't financially integrated."
Michael Watson, Pinsent Masons' head of finance and projects, says that his firm's new Johannesburg office will be fully integrated into the wider partnership and will be an "equal stakeholder" in its broader Africa practice when it opens this year. "The challenge with joint ventures, franchise models or vereins is that you have single office profit centers," he says. "So people focus on delivering profitability for one office or team."
