Herbert Smith to Merge With Freehills, Open in New York

Freehills CEO Gavin Bell
Gavin Bell, chief executive officer and managing partner of Freehills. Source: Freehills via Bloomberg

Herbert Smith LLP of London and Freehills, Australia’s third-largest law firm, will merge to create a 2,800-lawyer firm, with plans to open offices in New York, Seoul and Africa.

The full equity merger will take effect Oct. 1, the two firms said in a joint statement yesterday. David Willis and Gavin Bell, the managing partners of Herbert Smith and Freehills, will be joint chief executives of the new firm.

Herbert Smith Freehills, as the firm will be known around the world, is the fourth combination of an Australian and an international firm this year and the first to have a single profit pool for its global partners. Allens Linklaters, King & Wood Mallesons and Ashurst have maintained separate finances while chasing a bigger share of energy, natural resources and acquisition work with Chinese and other Asian clients.

“As the world’s business and deal activity moves eastwards, this new firm is exceptionally well-placed to serve both Asian and multinational clients in the Asia Pacific, the fastest growing legal market in the world,” said Mark Johnson, Asia head of Herbert Smith.

The new firm will have 20 offices in Asia, Australia, Europe and the Middle East, and plans to open in New York, Seoul and North Africa this year, he said in an interview. Herbert Smith, which has ended a decade-long alliance with German firm Gleiss Lutz, also plans to open an office in Germany next year, Johnson said.

Profit, Loss

Law firms have been merging to better serve clients as the global economy has slowed and competition increased. The May bankruptcy of New York-based Dewey & LeBoeuf LLP, created in a 2007 merger, illustrates the industry’s challenges.

The world’s largest law firms, DLA Piper and Baker & McKenzie, don’t have a single pool from which all their partners share the profit or loss and recent combinations involving U.S. firms including Hogan Lovells and SNR Denton have also kept their finances separate.

While some firms like Norton Rose Group, which combines U.K., Australian, Canadian and South African partnerships, say they are no different from a fully integrated firm, Bell of Freehills said that a full merger creates an incentive for all partners to work together and ensures seamless client service.

“Over the next few years the market for premium legal services will become increasingly dominated by a small number of truly global firms,” Willis said.

Allens, Minter

The global amalgamation and consolidation of law firms has accelerated because of client demand and Australian firms have found different structures to combine with international partners, according to Michael Rose, chief executive of Allens, whose alliance with London’s Linklaters LLP took effect May 1.

Retaining the independence of Allens, which began in 1822, is appreciated by some Australian clients, Rose said.

Herbert Smith, founded in 1882, developed a leading disputes practice after the second world war and demand for this advice is expected to increase from global clients, Johnson said.

Freehills, which traces its history to 1852, was the third-largest law firm by lawyers last year, according to trade publication Australasian Legal Business.

Fourteen partners from Clayton Utz, Australia’s second-largest firm, left in 2010 to join the new offices in Australia of London’s Allen & Overy LLP.

The largest, Minter Ellison, has opened a Mongolia office and is expanding in Beijing and Hong Kong.

“Each of Australia’s top tier firms is adopting a different strategy,” Minter Ellison Chief Executive Partner John Weber said.

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