Earlier this month law firm Herbert Smith completed the biggest merger the legal industry has seen since the three-way merger that created Freshfields Bruckhaus Deringer in 2000, after it joined forces with Asia Pacific focused law firm Freehills.

The newly branded Herbert Smith Freehills is the largest fully integrated law firm in Asia Pacific and the world’s eighth largest law firm. The full equity merger was first agreed back in June and will see the firms operate under a single profit pool. The new firm will offer services across 20 offices globally.

Asia Pacific and particularly the developed Australian market appear to be the driving force behind the merger, and the aim for the new firm is to be the leading law firm in the Asia Pacific region in the project finance and renewable resources space.

Brendan Quinn, partner, head of finance, Australia/Asia at the new firm, formerly with Freehills, confirmed that Asia Pacific, and Australia particularly, was the key driver for the merger between the two firms. He told IJ News: “Asia Pacific is a key growth area in terms of infrastructure projects. Freehills is a leading law firm for project finance in Asia but it has been constrained. It has reached the limit of the market that we are in so the merger works well.”

Quinn went on to say that for Freehills the firm’s attention was shifting to outside of Australia and Asia and a tie up with Herbert Smith had given it the capacity to make that expansion. Meanwhile Herbert Smith recognised the importance of the Asian market, and the merger with Freehillls will help to increase its coverage of the Asian market.

This year to date Freehills has advised on 11 deals in Asia Pacific, all of which have been in Australia, across a range of sectors. In comparison Herbert Smith advised on just one deal in Asia Pacific, also in Australia. Australia is certainly a market with a significant amount of project finance activity but it is the markets that can be accessed from Australia that will be a focus for the future.

Simon Currie, head of Energy at Norton Rose, the first law firm to combine with an Australian partner said: “Asia is the new economic powerhouse of the world and presence in Australia gives you access to that. Added to that Australia is one of the most active project finance markets in the world.”

Economies in the region are growing at between five and 10 per cent per year in terms of projects and infrastructure. Asia has a growing middle class with which comes demand for infrastructure development.

Quinn said: “Law firms are about making money out of change and growth. And this is an area where we still see substantial growth.”

Michael Watson, partner, head of projects at Pinsent Masons, formerly a Mcgrigors man before the two firms merged in May said his firm was also looking to grow in Asia/Pacific.

“There is a lot of activity there at the moment. Asia-Pacific is an area for growth. Infrastructure deficit equals infrastructure opportunities and the economic climate in these countries is conducive to project finance. Strategically law firms are targeting that part of the world.”

New frontiers

While the Asia-Pacific region is certainly a growing market law firms are looking to expand their practices to other new markets across the world as well. Currie said it was important for law firms to focus on a “diversified bunch of markets”.

He added: “The Middle East is still the most active market in the world, but in the next 10 years it will be Russia, the ‘stans and Africa. These are consistent growth areas. According to the latest growth rates – of the fastest growing economies – six out of the 10 are in Africa.

“We will continue to see growth in China but growth for legal services in Africa will be key as will Latin America. We can’t forget about the US and Europe either. There is a huge need to replace infrastructure. The message from me is that you can’t really neglect anywhere. You are not getting the volume of projects in those traditional markets but we are now seeing activity in more markets.”

For Norton Rose its 2010 merger with Australian law firm Deacons was part of a wider strategy of growth. Following the deal the firm last year merged with a Canadian energy and natural resource specialist Macleod Dixon, Canada's Ogilvy Renault and South African law firm Deneys Reitz.

Herbert Smith Freehills also opened an office in New York in the same month as its merger with Freehills and has confirmed plans to establish a presence in Germany, South Korea and Francophone sub-Saharan Africa in 2013.

This is a sign that the legal market is changing, clients want to see an end to end service.

Andrew Newbery, managing partner in Herbert Smith Freehills Abu Dhabi office predicts that in the future more law firms will want to merge, but some may find it difficult to find the cultural fit.

He added: “In terms of mega mergers there probably won’t be any more. I think we will see other firms acquiring smaller firms but I don’t think that we will see another big merger.”

Watson agreed that the legal market is changing and in order to survive firms need to grow.

He said: “For either firm to get the skills through organic growth would take a long time especially in a fast changing market. You need a wide geographical footprint, doing this through organic growth takes a long time.”

Watson concluded: “In the short term I expect there will be more mergers. The end result is more consolidation in the market. There will be the magic circle firms, the big global firms, and then a bigger gap before the small firms. We will see less middle market firms.

“Longer term the focus firms we will have on different sectors will become increasingly important. Firms will be known for global capability and number of big sectors.”