ISSUE 9.12
M+K Lawyers: Damain Paul Profile Transforming the mid-market
New Zealand 2011 Bathing in World Cup glory
Social Media Firms get upwardly mobile
Revealed: Australasia’s fastest growing firms Market-leading analysis Comprehensive deals coverage debt & Equity market intelligence
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1
ISSUE 9.12
M+K Lawyers: Damain Paul Profile Transforming the mid-market
New Zealand 2011 Bathing in World Cup glory
Social Media Firms get upwardly mobile
Would the real socialists please stand up?
A
s protestors around the world establish their camps outside selected bastions of capitalism, one is reminded of an often paraphrased quote from François Guizot on the nature of socialism: not to be a socialist at age 20 is proof of a want of heart; to still be one at 30 is proof of a want of a head. The first half of that statement must strike a chord with lawyers even at large corporate law firms, beavering away in ever increasing numbers on community projects and pro bono work. At the core of even the most apparently conservative law firm beats a liberal heart. It’s a theme that recurs in novels of the John Grisham ilk and seems to influence the editorial agenda on rival publications to ALB, which devote a considerable amount of space to social justice issues. The premise is that young lawyers join the profession out of a desire to facilitate social change and to improve the lot of the disadvantaged. This assumption is rarely challenged, although it is somewhat difficult to imagine associates taking a break from a billion dollar M&A deal to read approvingly of the latest news of the refugee activist collective. That is not to say that the two are mutually exclusive; however, the mix is intriguing to say the least. It is not our objective here to stereotype particular kinds of lawyers or to argue that certain political views cannot co-exist with a particular professional background. However, as protest movements across the U.S. and Europe bring ‘the system’ – namely global capitalism – within their sights, now is an opportune time to revisit the old stereotype of the activist young law graduate. Would our hypothetical friend feel obliged to pack the sleeping bag and join the protest? Or has the activist law graduate always been a rather more conservative creature, content to seek reform within the system? It may be worthwhile to explore this hypothetical person in more detail and to find out what motivates him or her. If conventional wisdom is to be believed, this person exists in substantial numbers in every law firm.
2
Revealed: Australasia’s fastest growing firms Market-leading analysis CoMprehensive deals Coverage debt & equity Market intelligenCe
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IN THE FIRST PERSON “We don’t get work because we have a contract – our clients have choices. We get work because they want to stay with us.” Damian Paul, Macpherson + Kelley Lawyers (p32)
“China is awash with capital looking for a home and New Zealand is severely capital constrained, with a whole lot of infrastructure projects that need to be funded. At one level there’s an obvious marriage between Chinese capital and New Zealand needs but there are some equally obvious political issues with that.” Andrew Poole, Chapman Tripp (p38)
“ASIC is now achieving really worthwhile outcomes and has taken on significant new areas of regulatory responsibility successfully.” Michael Kingston, Australian Securities and Investment Commission (p46)
Asian Legal Business ISSUE 10.6
SYDNEY MELBOURNE P E RT H
News | deals contents >> >>
contents
ALB issue 9.12 32
20
40
COVER STORY 24 ALB Fast 10 Revealed: Australasia’s fastest growing firms
ANALYSIS 10 Deal in depth Has the recent ConnectEast acquisition cleared the road for future consortium funding? 20 No longer socially unacceptable As the use of social media continues to soar are law firms handling the developments effectively?
FEATURES 40 New Zealand Report Uncertainty, challenges, drama and stoicism: how New Zealand has ridden the rollercoaster of 2011
PROFILES 32 Managing partner profile: Damian Paul, M+K Lawyers Inside the firm that’s transforming the midmarket space
46 In-house profile: Michael Kingston, chief legal officer, ASIC What inspired this former corporate lawyer to join the government watchdog?
REGULARS 6 DEALS 14 Appointments 16 NEWS
COLUMNS 18 U.S Report 19 In-house Q&A 20 UK Report
COMMENTARY 11 New Zealand Buddle Findlay
• Slater & Gordon to buy conveyancing specialist firm in QLD • NSW Law Society announces new standards for billing and a new council • PE lawyers flooded by sales and acquisition activity • ACLA Award winners • Australian Business Lawyers & Advisors heads north
Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Australasian Legal Business can accept no responsibility for loss.
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Australasian legal business ISSUE 9.12
er ti se o f Leg a l E xp rs a ye ty en Ove r tw
NEWS | deals >>
deals in brief
Client: A syndicate of banks led by ANZ, NAB and Westpac
By Kalianna Dean
Firm: Mallesons Stephen Jaques Lead Lawyer: Scott Gardiner Client: Ramsay Health Care (Ramsay) • This transaction includes three tranches of three-and-five year facilities. It will allow Ramsay to refinance its existing debt facility and provide debt headroom of approximately A$600 -A$700 million (equivalent), earmarked for its continuing brownfield programme and developments, future acquisitions and working capital • The refinancing was organised and managed by Ramsay’s team of Bruce Soden, Group Finance Director and Dayani Perera, Group Finance and Taxation Manager • Mallesons has advised Ramsay, a client for close to 20 years, on a number of other transactions including the financing/refinancing associated with its acquisition of the Affinity Hospital Group in 2005 and its Capio UK acquisition in 2007
| debt | | M&A | ►► CP2/Horizon acquisition of ConnectEast – A$2.2 billion Firm: Blake Dawson Lead Lawyer: John Sartori Client: ConnectEast Firm: Corrs Chambers Westgarth Lead Lawyers: Richard Lewis, Steve Johns, Craig Milner Client: Universities Superannuation Scheme Limited (USS) and Arbejdsmarkedets Tillægspension (ATP)
6
majority of ConnectEast security holders (other than CP2) and the Supreme Court of Victoria • Blake Dawson was also legal advisor to the winning bidder (Keolis/Downer EDI) during the worldwide tender for the operation of Melbourne’s tram and train networks, announced in July, 2009 • Corrs advised USS and ATP on all aspects of the transaction. Partners involved said they believe this is the start of a wider trend of overseas pension fund investment in Australian infrastructure projects as state governments look for ways to privatise assets
Firm: Johnson Winter & Slattery Lead Lawyers: Damian Reichel, John Keeves, Shelley Hemmings, Jim Hunwick Client: CP2 Limited and its transaction vehicle Horizon Roads
• CP2 is a longstanding relationship client of Johnson Winter & Slattery
• This deal, announced in July, saw Horizon secure the approval of the Foreign Investment Review Board, the State of Victoria, the lenders to ConnectEast, a clear 75 percent
►► Ramsay Health Care refinancing
| equity | – A$2 billion Firm: Allens Arthur Robinson Lead Lawyer: Richard Gordon
►► APA Group syndicated loan facility – A$1.45 billion Firm: Allens Arthur Robinson Lead Lawyer: Rob Watts Client: Banks Firm: Freehills Lead Lawyers: John Angus, Patrick Lowden Client: APA Group • APA Group successfully built on its existing relationships with its domestic and foreign banks to complete a bank syndication which was oversubscribed • Allens Arthur Robinson also advised the banks assisting APA Group on its forward start agreements along with the Westfield Group • Freehills has also represented the APA Group in establishing its global debt programs and has worked closely with the APA team on its financing transactions since the Group’s inception in 2000
| debt | ►► ANZ covered bond issue – $1.25 billion
Firm: Allen & Overy (UK office) Client: ANZ Firm: Blake Dawson Client: Perpetual Firm: Clifford Chance (UK office) Client: Deutsche and arrangers and dealers ANZ, UBS and Citigroup Firm: Mallesons Stephen Jaques Lead Lawyers: Berkeley Cox, Ian Paterson, David Wood Client: ANZ and ANZ Capel Court Limited Firm: Sidley Austin Client: Dealers Firm: Sullivan & Cromwell Client: ANZ (advice on U.S. law) • Following amendments to the Banking Act on October 17, ANZ has announced the successful establishment of its US$20,000,000,000 Global Covered Bond Programme and the inaugural forthcoming issue by ANZ of $US1.25 billion in covered bonds under the programme • This is the first ever issue of covered bonds to be priced and sold by an Australian bank • Mallesons has advised longtime client ANZ as issuer of A$1.7 billion Tier 1 convertible preference shares 2 in 2009 and as issuer of AUD1.25 billion Tier 1 convertible preference shares 3 also this year. In 2004 it advised the bank with relation to €400 million trust securities
| debt | ►► Perth Airport financing – A$1.23 billion
Firm: Allens Arthur Robinson Lead Lawyer: Richard Gordon Client: A syndicate of nine national and international banks Firm: Mallesons Stephen Jaques Lead Lawyer: Ian Solomon Client: Perth Airports Development Group Australasian Legal Business ISSUE 9.12
NEWS | deals >> ►► Your month at a glance • The finance package, announced on 2 November, gives Perth Airport greater funding flexibility for planned and future developments at Perth’s only international airport • Allens is advising on the syndicated and working capital debt portion of the finance, itself worth A$930 million
Firm
Jurisdiction
Deal name
Value ($Am)
Practice
Allen & Overy
Australia
ANZ covered bond issue
1,250
Debt
Australia
CBA Covered Bond Programme
Undisclosed
Debt
Australia
NAB Covered Bond Programme
Undisclosed
Debt
Australia
Ramsay Health Care refinancing
2,000
Equity
Australia
APA Group syndicated loan facility
1,450
Debt
Australia
Perth Airport refinancing
1,230
Debt
Australia/ Sweden
SCA Hygiene Australasia (SCAHA) – SCA/PEP joint venture
500
Equity
Australia
Australian Foundation Investment Company capital raising
200
Capital Markets
Australia
Perilya Limited – non-renounceable entitlement offer
110.5
Equity
Australia
Greenough River Solar Farm
Undisclosed
Projects
Australia/ Canada
Solimar TSXV listing and capital raising
Undisclosed
Capital Markets
Allens Arthur Robinson
• Mallesons has also advised the Sydney Airport Corporation on its Mable Bond issue conducted in August and Adelaide Airport Limited on its $240 million project financing arrangements for a new multi-user terminal to be built at Adelaide Airport • Macquarie Capital acted as financial advisor to Perth Airports Development Group
| projects |
Allion Legal
Australia
Perilya Limited – non-renounceable entitlement offer
110.5
Equity
Baker & McKenzie
Australia/ Thailand
Mitr Phol Sugar Corp offmarket takeover bid for MSF Sugar
313
M&A
Australia
Flow Energy merger with FAR Limited
Undisclosed
M&A
Australia
MSD sale of Livestock Nutrition Technologies to Ridley AgriProducts
Undisclosed
M&A
Australia
CP2/Horizon acquisition of ConnectEast
2,700
M&A
Australia
ANZ covered bond issue
1,250
Debt
Australia
Bluescope Steel capital raising
600
Capital Markets
Australia
Australian Foundation Investment Company capital raising
200
Capital Markets
Australia
CBA Covered Bond Programme
Undisclosed
Debt
Australia
NAB Covered Bond Programme
Undisclosed
Debt
New Zealand
Summerset Group Holdings IPO
229
Equity
New Zealand/ Switzerland
Cavotec MSL merger
95
M&A
Blake Dawson
►► Fitzroy Project – A$1.2 billion
Firm: Thomsons Lawyers Lead Lawyers: Andrew Kelly, Michael Marshall Client: The Mitchell Group • This coal terminal project involves a combination of existing and new rail networks, an overland conveyor system, modern covered barges and purpose built transhippers to provide an innovative solution and vital coal export capacity to mine operators in Central Queensland • Thomsons Lawyers partner Kelly has worked with the Mitchell Group for many years and was instrumental in introducing the Thomsons team to the project facilitators • Special counsel Kathie Sadler, who has recently returned from over three years working on the Oakajee Port and Rail Project in Western Australia, is the key project lawyer working with the Mitchell Group
| m&a | ►► Santos acquisition of Eastern Star Gas (ESG) – A$942 million
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Chapman Tripp
Clayton Utz
Clifford Chance
Corrs Chambers Westgarth
New Zealand
Heartland capital raising
44
Capital Markets
Australia
Origin hybrid notes offer
500
Securities
Australia/ Sweden
SCA Hygiene Australasia (SCAHA) – SCA/PEP joint venture
500
Equity
Australia
MSD sale of Livestock Nutrition Technologies to Ridley AgriProducts
Undisclosed
M&A
Australia
ANZ covered bond issue
1,250
Debt
Australia
NAB Covered Bond Programme
Undisclosed
Debt
Australia
CP2/Horizon acquisition of ConnectEast
2,700
M&A
Australia
Magnitogorsk acquisition of Flinders Mines
554
M&A/Resources
Australia
Murchison Metals sale of interests to Mitsubishi Development Pty Ltd
325
Resources
Australia
Flow Energy merger with FAR Limited
Undisclosed
M&A
Davis LLP
Australia/ Canada
Solimar TSXV listing and capital raising
Undisclosed
Capital Markets
DLA Piper
Australia
Ceramic Fuel Cells Limited capital raising
22
Capital Markets
DMAW Lawyers
Australia
Magnitogorsk acquisition of Flinders Mines
554
M&A/Resources
Freehills
Australia
APA Group syndicated loan facility
1,450
Debt
Australia
Santos acquisition of Eastern Star Gas (ESG)
942
M&A
Australia/ Sweden
SCA Hygiene Australasia (SCAHA) – SCA/PEP joint venture
500
Equity
Australia/New Zealand
Trade Me IPO
420
Retail
Australia
Murchison Metals sale of interests to Mitsubishi Development Pty Ltd
325
Resources
Australia
Greenough River Solar Farm
Undisclosed
Projects
7
NEWS | deals >>
Johnson Winter & Slattery
Australia
CP2/Horizon acquisition of ConnectEast
2,700
M&A
Australia
Beach Energy takeover of Adelaide Energy
94
Energy & Resources
Jones Day
Australia/ Canada
Solimar TSXV listing and capital raising
Undisclosed
Capital Markets
Linklaters
Australia
CBA Covered Bond Programme
Undisclosed
Debt
Macleod Dixon
Australia/ Canada
Solimar TSXV listing and capital raising
Undisclosed
Capital Markets
Mallesons Stephen Jaques
Australia
Ramsay Health Care refinancing
2,000
Equity
Australia
Perth Airport refinancing
1,230
Debt
Australia
ANZ covered bond issue
1,250
Debt
Australia
Bluescope Steel capital raising
600
Capital Markets
Australia
Origin hybrid notes offer
500
Securities
Australia/ Thailand
Mitr Phol Sugar Corp offmarket takeover bid for MSF Sugar
313
M&A
Australia
Tintenbar to Ewingsdale highway upgrade
530
Projects
Australia/ Sweden
SCA Hygiene Australasia (SCAHA) – SCA/PEP joint venture
500
Equity
Australia
Australian Foundation Investment Company capital raising
200
Capital Markets
Minter Ellison
Australia
Wilmar/Sucrogen acquisition of Proserpine Sugar Mill
130
M&A
Australia
Santos acquisition of Eastern Star Gas (ESG)
942
M&A
Australia
Beach Energy takeover of Adelaide Energy
94
Energy & Resources
Russell McVeagh
Australia/New Zealand
Trade Me IPO
420
Retail
Ryan Lawyers
Australia/ Singapore
Royal Group Holdings establishment of Sofitel So in Singapore
Undisclosed
Commercial Real Estate
Sidley Austin
Australia
ANZ covered bond issue
1,250
Debt
Australia
CBA Covered Bond Programme
Undisclosed
Debt
Australia
NAB Covered Bond Programme
Undisclosed
Debt
Australia
ANZ covered bond issue
1,250
Debt
Australia
CBA Covered Bond Programme
Undisclosed
Debt
Australia
NAB Covered Bond Programme
Undisclosed
Debt
Thomsons Lawyers
Australia
Fitzroy Project
1,200
Projects
Thynne & Macartney
Australia
Wilmar/Sucrogen acquisition of Proserpine Sugar Mill
130
M&A
Piper Alderman
Sullivan & Cromwell
• Mallesons has a long history advising client Credit Suisse. The firm also acted on the IPO and ASX listing of Credit Suisse GP100 Australia Trust in 2008 and advised Credit Suisse as joint lead manager on the 2009 A$2.5 billion equity raising conducted by Woodside
| m&a/resources | ►► Magnitogorsk acquisition of Flinders Mines – A$554 million Firm: Corrs Chambers Westgarth Lead Lawyers: Adam Handley, Stephanie Daveson, David Hallam, Jonathan Leek Client: Magnitogorsk Iron and Steel Works (MMK) Firm: DMAW Lawyers Lead Lawyer: Peter Kupniewski Client: Flinders Mines • MMK has acquired WA iron ore developer Flinders Mines via scheme of arrangement. This is the steel maker’s second Australian acquisition • Corrs is anticipating working further with MMK in Australia and has advised the client on its other Australian transactions • DMAW Lawyers has also advised Flinders Mines on a recent A$30 million capital raising
Does your firm’s deal information appear in this table? Please contact
Firm: Freehills Lead Lawyer: John Tivey Client: Santos Firm: Piper Alderman Lead Lawyers: Gordon Grieve, Owen Keen, Tom Griffith Client: Eastern Star Gas • On Friday 28 October 2011, the merger between Eastern Star Gas (ESG), and Santos Limited (Santos) was approved at an ESG shareholders’ meeting • Santos will now assume operatorship of ESG’s coal seam gas permits with TRUenergy owning the remaining 20 percent. The original TRUenergy deal
8
alb@thomsonreuters.com
61 2 8587 7484
brief from July is included below • Piper Alderman has advised ESG since its foundation over 10 years ago. The firm advised on ESG’s A$16 million listing on the ASX in 2001 and has been the company’s preferred legal service provider since that time. Over 100 Piper Alderman lawyers have advised ESG in various capacities
| capital markets | ►► Bluescope Steel capital raising – A$600 million
Firm: Blake Dawson Lead Lawyer: Elspeth Arnold Client: Bluescope Steel Firm: Mallesons Stephen Jaques Lead Lawyers: David Friedlander, Meredith Paynter Client: Credit Suisse • This capital raising is via a four-forfive rights issue and has been priced at 40 cents a share • Blake Dawson has advised Bluescope since its listing in 2003 following BHP Steel’s separation from BHP Billiton
| projects | ►► Tintenbar to Ewingsdale highway upgrade – A$530 million Firm: Minter Ellison Lead Lawyers: Nicole Green, Garth Jolly, Penny Murray, Virginia Briggs Client: Roads and Maritime Services (formerly the Roads and Traffic Authority or RTA) • Roads and Maritime Services has awarded the contract for the design and construction of the Pacific Highway Upgrade between Tintenbar and Ewingsdale, north of Ballina NSW, to Baulderstone Pty Ltd
Australasian Legal Business ISSUE 9.12
NEWS | deals >>
• Minter Ellison also advised on various rail agreements with Transport for NSW
Firm: Freehills Lead Lawyer: Mark Crean Client: PEP
• Minter Ellison has had a long association with Roads and Maritime Services. The firm advised on its current pro-forma design and construct project deed for projects in excess of A$100 million, and on the Sapphire to Woolgoolga upgrade of the Pacific Highway
Firm: Minter Ellison Lead Lawyers: Jeremy Blackshaw, Ben Liu, Paul Kallenbach, Ron Pila, Jon Mosley, Silvana Schenone Client: Svenska Cellulosa Aktiebolaget (SCA)
| securities |
• SCA, a global consumer brands company, has formed a joint venture with funds advised by Pacific Equity Partners (PEP). SCA and PEP will each have a 50 percent stake in the venture, named SCA Hygiene Australasia (SCAHA)
►► Origin hybrid notes offer – A$500 million
Firm: Clayton Utz Lead Lawyers: Stuart Byrne, Graeme Gurney, Louise McCoach Client: Origin Firm: Mallesons Stephen Jaques Lead Lawyers: Ian Paterson, Shannon Finch Client: UBS and joint lead managers NAB, ANZ, CBA, Macquarie • This is another example of companies interested in tapping into high-yield debt in Australia, and follows the A$700 million hybrid raising conducted by Woolworths in October • Clayton Utz advised Origin on its A$2.3 billion pro rata renounceable entitlement offer, announced in March, and also advised Woolworths on its October raising • Mallesons has acted for the underwriter on numerous other transactions and in 2010 acted for UBS in the A$100 million Photon capital raising
| m&a | ►► SCA/PEP joint venture – A$500 million
Firm: Allens Arthur Robinson Lead Lawyer: Mark Kidston Client: Syndicate of banks Firm: Clayton Utz Lead Lawyer: Philip Kapp Client: PEP
www.legalbusinessonline.com
• SCA manufactures some of Australasia’s best known brands, including Sorbent, Purex, Tena, Libra, Handee, Tork & Treasures. PEP has investments in companies such as Griffin’s Foods, Independent Liquor and Tegel Foods • SCA has been a Minter Ellison client for over 30 years. The firm has advised on its Sancella hygiene joint venture with Bowater Scott and in 2004 when it purchased Carter Holt Harvey’s Tissue business and the 50 percent Joint Venture interest in Sancella that Carter Holt Harvey had acquired from Bowater Scot
| retail | ►► Trade ME IPO
– A$420 million
Firm: Freehills Lead Lawyer: Rebecca MaslenStannage Client: Fairfax Media Limited and Trade Me Group Limited Firm: Russell McVeagh Lead Lawyer: Pip Greenwood Client: Fairfax Media Limited and Trade Me Group Limited • Trade Me – listing on the NZSX and the ASX – is New Zealand’s main provider of online auctions, motor classifieds and property classifieds, and is the country’s second largest participant in online employment classifieds. Trade Me also has online businesses in accommodation, dating, and group buying
• Trade Me Group will offer to issue 134.6 million shares to new investors at a fixed Offer Price of NZ$2.70 per share. Following the completion of the Offer, Fairfax Media will have a shareholding of approximately 66 percent in Trade Me • Freehills has acted on a number of recent capital raisings, including Goodman Fielder on its A$259 million capital raising, Collins Food IPO, Bandanna Energy’s on its A$133 million capital raising and Aston Resources on the largest IPO completed in 2010 • Russell McVeagh has acted on recent transactions including the demerger of Telecom, the sale of Tegel by Australian based Pacific Equity Partners and on the capital restructure of Fonterra, New Zealand’s largest company
| resources | ►► Murchison Metals sale of interests to Mitsubishi Development Pty Ltd
| m&a | ►► Mitr Phol Sugar Corp offmarket takeover bid for MSF Sugar – A$313 million Firm: Baker & McKenzie Client: Mitr Phol Sugar Corp Firm: Mallesons Stephen Jaques Lead Lawyer: John Humphrey Client: MSF Sugar Limited • Following completion of its satisfactory due diligence investigations, Mitr Phol has today announced that it intends to make an all cash offer for MSF at A$4.45 per share, which values MSF at approximately A$313 million • Mallesons partner Humphrey also advised MSF Sugar on its A$90m proposed off-market takeover bid for Tully Sugar and related Takeovers Panel proceedings; Takeover of the Mulgrave Central Mill • Greenhill Caliburn is also advising MSF
– A$325 million Firm: Corrs Chambers Westgarth Lead Lawyer: Russell Philip Client: Murchison Metals Ltd (Murchison) Firm: Freehills Lead Lawyers: Robert Merrick, David Walton, David John Client: Murchison • Murchison has sold its 50 percent interest in Crosslands Resources Ltd and the Oakajee Port and Rail project • Crosslands is developing the Jack Hills iron ore expansion project in the mid-west region of Western Australia and Murchison holds a 50 percent economic interest in Oakajee • Freehills advised Murchison on its original deal with Mitsubishi to sell 50 percent of Crosslands and establish OPR, on the subsequent development and financing of Crosslands and OPR, on financing arrangements with RCF and on the Chameleon litigation
| capital markets | ►► Australian Foundation Investment Company capital raising – A$200 million Firm: Allens Arthur Robinson Lead Lawyer: Steve Clifford Client: Australian Foundation Investment Company Limited (AFIC) Firm: Minter Ellison Lead Lawyer: Bart Oude-Vrielink Client: Evans and Partners • AFIC will issue $200 million worth of unsecured convertible notes. The notes will carry a coupon of 6.25 percent and can be converted into AFIC shares at a 25 percent premium to the pre-issue share price • Allens has acted for AFIC in various transactions for most of its life and will continue to do so in the future • Minter Ellison has a long standing relationship with Evans and Partner dating from their establishment
9
analysis | deal in depth >>
Analysis >>
Deal in Depth – ConnectEast acquisition CP2/Horizon Roads recently acquired ConnectEast, that owns Melbourne’s EastLink tollway – Australia’s largest road development – with help from overseas pension funds. Kalianna Dean asked those involved what’s next, whether there is more scope for governments to take on infrastructure risk, and what they thought of the consortium financing arrangement.
C
P2 Limited, via its transaction vehicle Horizon Roads, recently acquired ConnectEast, the owner of Melbourne’s EastLink tollway, for A$2.2 billion. EastLink is Melbourne's second fully-electronic tollway, comprising about 39km of freewaystandard road connecting the city's eastern and south-eastern suburbs. It is a major commuter road and a key intracity arterial route, making it an essential piece of infrastructure for the state. Lawyers involved say the transaction was the fourth largest Australia targeted acquisition in the construction/building sector on record. Horizon Roads is a global consortium of sovereign wealth and 10
investment funds, which includes among others, APG Infrastructure Pool 2011 (The Netherlands), National Pension Service (Korea), Leader Investment Corporation (China) and Teachers Insurance and Annuity Association of America. Further funding for ConnetEast came from UK pension fund Universities Superannuation Scheme Limited (USS) and Arbejdsmarkedets Tillægspension (ATP), a Danish statutory pension fund with approximately DKK 476 billion (A$88 billion) under management. The lead advisors on the deal were Johnson Winter & Slattery partner Damian Reichel (advising CP2/ Horizon), Blake Dawson partner
John Sartori (advising ConnectEast) and Corrs Chambers Westgarth partner Richard Lewis (advising USS and ATP and assisted by tax partner Craig Milner). Mallesons Stephen Jaques partner Lee Horan also advised the China Investment Corporation. While the approval processes involved took up a lot of time and resources, Corrs partner Richard Lewis says that he is pleased with the overall result and that more infrastructure deals will be brought over the line with the help of overseas pension and investment funds. He and others who advised on the transaction shared their thoughts on the three key questions raised by the deal. Australasian Legal Business ISSUE 9.12
analysis | deal in depth >>
Damian Reichel
Can you tell us what you expect to see next? In particular, will this be mostly transport infrastructure or could it be other areas too? Damian Reichel, Johnson Winter & Slattery: I think this transaction will give other overseas funds a fair degree of confidence about investing in Australia; however, in Australia there really isn’t that clear a pipeline of investment projects for people to invest in. Often it doesn’t get beyond the political to something that’s a bit more granular. We don’t have a particularly well defined pipeline of projects. I would expect the work Infrastructure Australia is doing would help rectify that. Australia is difficult in many respects, infrastructure is expensive. ConnectEast is the first time in infrastructure that such a large number of big institutional investors from overseas are joining together to undertake a public company transaction.
Richard Lewis, Corrs Chambers Westgarth: Apart from transport infrastructure, the larger overseas pension funds tend to look at assets, such as timber assets, which generate consistent and predictable returns. For example, a consortium of European pension funds were the equity investors in the Hancock managed consortium which acquired the plantation assets sold off by the Queensland Government in 2010 and the South Australian Government has recently announced that Forestry SA proposes to sell cutting rights to large tracts of forests in South Australia.
There has to be a balance. There needs to be an understanding of what cost or risk the public bears in order to have the benefit of the infrastructure. It would really be good to see more Australian superannuation funds investing. You would then have the return of that investment staying within Australia. The issue we have with super investment in Australia is that the funds have too much of a short term focus. One of the features that was particularly of interest to these investors was its long term nature. If you’re thinking about ROI in the next quarterly report you’re not going to be interested in a long term investment. I think infrastructure as an investment is not suited to being listed on the stock exchange. People like to think there will be capital growth. It’s as much or more about getting those returns from flipping as it is from getting a dividend income. Because shares are publicly traded, at any one point you’ve got a market value against the company that can go up and down. John Sartori, Blake Dawson: I agree that it is necessary for the government to share some of the risk associated with the construction of infrastructure assets – whether it
The business press has published articles calling on governments to take on more infrastructure risk. How likely is it that that will happen in your opinion? Damian Reichel, Johnson Winter & Slattery:
“ConnectEast is the first time in infrastructure that such a large number of big institutional investors from overseas are joining together to undertake a public company transaction” Damian Reichel, Johnson Winter & Slattery
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Richard Lewis
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analysis | deal in depth >>
them to work properly, there has to be a real alignment of interests. When you are putting together a consortium of large investment funds, there will often be regulatory hurdles. For foreign funds, FIRB approval will typically be required. If the proposal will involve the acquisition of an ASX listed entity and the members of the consortium will at the outset own more than 20% of the equity of the target in aggregate, ASIC relief under Australia's takeovers law may be needed. These regulatory hurdles, and the time it takes to get the necessary decisions of the regulators, need to be factored in to the deal structure and timetable.
John Sartori
“I think the biggest challenge in infrastructure projects is getting the risk/reward balance right as between government and private sector funding” John Sartori, Blake Dawson
is, for example, by way of providing minimum traffic guarantees for a new road or rail system. Taxes alone are not going to be able to pay for all our infrastructure needs. On the basis that the public generally will benefit from the asset, it seems to me only fair that government should bear an appropriate proportion of the risk associated with the project to ensure the risk/reward balance for private sector funding of the asset is right. I think the biggest challenge in infrastructure projects is getting the risk/reward balance right as between government and private sector funding. Unless that can be done, it will be difficult to attract capital – from government or the private sector – for new infrastructure projects. Some projects are generally better suited to private sector funding – I would put roads in that 12
category – but even still, there have been failures, such as Sydney's Lane Cove and Cross City Tunnel. The competition for some infrastructure assets probably resulted in risk/ reward balance as between the government and private sector being out of kilter. For some of these deals, the general public benefited from the project at the cost of private sector investors.
What are the particular challenges involved in a consortium financing arrangement such as this one? What, if any, regulatory or other changes might be helpful to this sort of arrangement? John Sartori, Blake Dawson: Putting together consortium arrangements are notoriously difficult. They are in essence a joint venture. For
Damian Reichel, Johnson Winter & Slattery: In terms of regulatory changes [the challenge is] mainly around getting the most attractive regime to attract finance. That is something Infrastructure Australia is looking at certainly in terms of tax treatment, so people can properly plan. Our tax regime is particularly complicated and having something more facilitative would assist. You can get the tax outcomes you seek but it’s often complicated as to how you get there. In this case [with ConnectEast] it was a public company transaction, that’s not something you can do anything about. Richard Lewis, Corrs Chambers Westgarth: The challenges in a consortium financing arrangement involve finding an appropriate commercial balance between the different interests of the consortium partners. Although all participants will typically have minority interests, the size of those interests usually varies and their rights will reflect this. It can be particularly challenging if any of the foreign pension fund investors are not familiar with Australian laws and practice and the way such deals are usually structured. Finding a structure which is tax efficient for a range of foreign investors which may be subject to different double tax treaties can also be challenging. Australasian Legal Business ISSUE 9.12
Firm Profile
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NZ Commentary
New Zealand securities law review update – Med takes submissions on board The New Zealand Government has progressed its reform of securities law (described in Sacha Judd’s article in the April edition of this publication) with the introduction into Parliament of the Financial Markets Conduct Bill (the Bill). The Bill is intended to repeal and replace the Securities Act 1978, the Securities Markets Act 1988 and the Unit Trusts Act 1960, as well as making significant amendments to other related legislation. Described by the then-Minister of Commerce Simon Power as a “once-in-a-generation rewrite of securities law”, the Bill (together with other recent legislation) will create a comprehensive regime for financial product disclosure and financial service provider licensing which is largely modelled on the Australian Corporations Act 2001. As most readers will be aware, the Bill was based on an earlier exposure draft released by the Ministry of Economic Development (MED) for public consultation (the Exposure Draft). MED received 71 submissions on the Exposure Draft, and has released a document showing a comparison between the Exposure Draft and the Bill. Although the differences between the two are not extensive, there are some important changes, and it was interesting to see how MED responded to the various submissions. This article describes some of the key changes made in response to submissions: The definitions of financial product categories The definitions of the different financial product categories (equity, debt, managed investments and derivatives) drew many submissions, with the definitions of derivatives and redeemable financial products subject to particular analysis. Changes have been made, but because of the timing constraints MED faced, this part of the Bill has been temporarily placed in the “too hard” basket, with MED stating that the definitions will be the subject of further consideration. Consent for expert statements and endorsements The Exposure Draft included a proposal that a statement by a person quoted in a product disclosure statement (PDS) could only be included with that person’s consent. In response to submissions, the Bill has relaxed that requirement somewhat. Consents will now only be required for expert or professional statements and endorsements, and only if the
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statements or endorsements are not publicly available information. MED is still considering the requirements in relation to credit rating agencies. Unsolicited offers A ban on unsolicited offers of financial products that was originally proposed in the Exposure Draft will now exclude financial products offered to customers for business purposes. Most nonregulated offers (e.g. those to close business associates or sophisticated investors) will also be excluded from the unsolicited offers ban, while email communications will also now be allowed (subject of course to spam restrictions). The advertising rules The new advertising rules set out in part 3, subpart 3 of the Exposure Draft and Bill have changed, in response to submissions, to include a wider defence for publishers and to clarify the treatment of websites containing offers of financial products. Large financial institutions and centralised licensing compliance MED is considering further the relationship between the Part 6 licensing requirements of the Bill, and other related licensing regimes such as that for registered banks, deposit takers, financial advisers and qualifying financial entities. The liability regime Perhaps unsurprisingly, Part 7 of the Bill’s (significant) increase in penalties, use of strict liability offences, personal liability for directors, managers and advisers, and breadth of FMA powers all occasioned significant comment. MED has made considerable changes, including to director liability and the due diligence defence. However MED’s most relevant comment is perhaps that “Liability is likely to be a focus for [S]elect [C]ommittee…” The rules relating to underwriters Specific liability for underwriters for defective disclosure has been removed from clause 478 (although underwriters could still potentially be liable for aiding and abetting defective disclosure). The Hague Convention on Indirectly Held Securities Contrary to earlier statements, MED has now indicated that aligning New Zealand law with the convention will be dealt with separately, rather than in the Bill.
The Schedule 1 list of non-regulated offers Some clarifications have been made to the proposed exclusions for employee share purchase schemes and quoted derivatives, however the Schedule 1 list of non-regulated offers is not significantly changed from the version in the Exposure Draft. The majority of the many comments received on Schedule 1 are however noted as “further consideration required”, so further changes may be made during the Select Committee process. The current version of the Bill also includes significantly more detail as to the necessary consequential amendments to other financial markets legislation. It is difficult to treat a 600 page, 700 clause Bill (together with schedules and consequential amendments) as a mere entrée, but perhaps the most significant MED comment is that officials expect to commence work “soon” with industry and other stakeholders on developing the regulations to be made under the Bill. Given the Bill anticipates prescribing at least 250 different matters, and the current Securities Regulations and exemption notices run to hundreds (if not thousands) of pages, it may be that the main course is still to come. While the current version of the Bill is an important next step in the government’s securities law reform, it is by no means the last one. There are likely to be further significant changes to the Bill before it is enacted, and the detail of the regulations will be critical.
This article was written by Sacha Judd, Adam Jackson and Matthew Farrington from Buddle Findlay, one of New Zealand’s leading law firms. Sacha and Adam are corporate partners in the firm’s Auckland and Wellington offices respectively, and Matthew Farrington is a Senior Solicitor in the Wellington office. Sacha can be contacted by phone on +64 9 363 0632 or email sacha.judd@buddlefindlay.com. Adam can be contacted by phone on +64 4 498 7346 or email adam.jackson@buddlefindlay.com.
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appointments ►► lateral partner hires
SM&B
Name
Practice area
Organisation coming from Organisation going to
Nathan Briner
Corporate
SJ Berwin
Arnold Bloch Leibler
Jonathan Caplan
Corporate
Landerer & Company
Arnold Bloch Leibler
Kathryn Dent
Workplace relations
-
People + Culture Strategies (PCS)
Chaz Dheer
Corporate
Simons Muirhead & Burton
Marque Lawyers
Patrick Dwyer
Corporate
Langes
Kemp Strang
Dan Flynn
Property
Rigby Cooke
TressCox Lawyers
Kristina McGeehanHall
Property
Mallesons Stephen Jaques
TressCox Lawyers
Rick Narev
Corporate
Freehills
Arnold Bloch Leibler
Paul O’Donnell
Energy & resources
Novatec Biosol
HWL Ebsworth
John Samaha
Litigation & dispute resolution
Samaha & Associates
Allen & Overy
Tim Hemingway
Corporate
Clayton Utz
Swabb Attorneys
►► partner promotions Firm
Name
Practice Area
Office
Clayton Utz
Brett Cohen
Corporate advisory/ M&A/ E&R
Perth
Brett Cook
Litigation & dispute resolution
Brisbane
Damien Gardiner
Environment & Planning
Melbourne
Richard Hoad
IT/IP
Melbourne
Ross McInnes
Litigation & dispute resolution
Sydney
Majella Pollard
Government
Brisbane
Polat Siva
Litigation & dispute resolution
Darwin
Adel van der Walt
Corporate advisory /M&A/ E&R
Perth
Freehills
Arnold Bloch Leibler
SJ Berwin
Arnold Bloch Leibler
Landerer & Co
Arnold Bloch Leibler
ABL adds top tier partner, UK expert and former firm director Arnold Bloch Leibler (ABL) has added three new partners to the firm’s Sydney office. Former Freehills partner Rick Narev Jonathan Caplan has joined the commercial & corporate practice, Nathan Briner has joined the banking & finance practice from international law firm SJ Berwin and Jonathan Caplan has joined from Landerer & Company, where he was also a partner. In his new role at ABL Caplan will lead the Sydneybased property & development practice.
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Narev was a partner at Freehills for 15 years, working for large-scale public companies and large private client groups. His areas of practice include mergers and acquisitions, foreign investment, initial public offerings Rick Narev and other equity raisings, joint ventures, and transactional and strategic corporate advice. Briner has spent the past 12 years in London and was a partner of SJ Berwin for six years. He has advised lenders and borrowers in relation to structuring, negotiating and documenting bank facilities and structured financings. Meanwhile Caplan was a director at Landerer & Company, where he worked for Nathan Briner more than 17 years.
Marque Lawyers
Marque Lawyers look to the UK for newest partner Marque Lawyers has added to its partnership with the arrival of Chaz Dheer to head up its corporate/ M&A practice. Dheer has recently arrived from the UK where he was a partner at London firm Simons Muirhead & Burton. He has extensive experience in M&A, private equity and public company work, as well as general commercial with a particular focus on media and technology companies. Prior to Simons Muirhead & Burton he worked at Reynolds Porter Chamberlain and studied law at Cambridge. He joins Marque’s other partners in the corporate/commercial team, Kim Middleton and Enjel Phoon.
Novatec Biosol
HWL Ebsworth
HWL adds E&R expert HWL Ebsworth has added a former top tier partner and general counsel to its energy and resources team in Sydney. Paul O’Donnell has joined the firm as a partner from his general counsel role at Novatec Biosol, a German company that develops Paul O’Donnell linear Fresnel solar thermal power generating technology. Before leaving Australia, O’Donnell was a partner at Clayton Utz for eight years. During his career he has acted for many of Australia’s leading energy generation, transmission and retail companies and has also advised on power projects in various overseas countries including Spain, the United States, the Middle East, Africa, South America, New Zealand, Philippines, Vietnam, Thailand, China and Indonesia.
Rigby Cooke
TressCox
Mallesons
TressCox
TressCox builds property practice TressCox Lawyers has announced the addition of two new partners to its property practice. New partner Dan Flynn has joined from Rigby Cooke, bringing with him a team of four professionals including Michael Beaton, property clerk Stephanie Farrugia and the team’s personal assistant Odette Cardilini. Associate Ali Khanbashi will also join in the near future. Flynn has more than 18 years' experience in all aspects of property law including residential
Australasian Legal Business ISSUE 9.12
NEWS >>
and commercial conveyancing. He also has extensive experience of acting for private and public companies in commercial retail leasing in addition to acting for private and corporate developers in commercial retail and residential development. Mallesons Stephen Jaques special counsel Kristina McGeehan-Hall will also join the firm and brings with her more than 15 years' experience gained at top tier firms in Melbourne and Adelaide, including Minter Ellison Adelaide where she was a partner for many years. McGeehan-Hall advises predominantly corporate clients on acquisitions and divestments of a broad range of property assets, and on the development of strategic sites for industrial buildings, off the plan residential apartment buildings and broad acre mixed use developments. She also has extensive experience in commercial, retail and industrial leasing.
Samaha & Associates
Allen & Overy
A&O adds litigation capabilities Allen & Overy has expanded its Australian practice to cover litigation and regulatory investigations with the appointment of senior Australian litigation lawyer, John Samaha, to the partnership. Samaha has extensive experience in complex and strategically significant litigation and regulatory work. While most recently principal at his own practice Samaha & Associates Samaha was a partner at Mallesons Stephen Jaques for eight years and worked there for 20. He has also been a board member of the Centenary Institute for the past two years. Samaha’s appointment takes the Australian partner tally to 23.
Langes
Kemp Strang
Kemp Strang adds Langes partner Sydney-based commercial law firm Kemp Strang has recruited Patrick Dwyer to its partnership. An experienced corporate and commercial lawyer Dwyer was most recently a partner at Langes, and before that held a general counsel role at GE Money. Prior to that he was with Coudert Brothers LLP (including almost five years in New York) and Baker & McKenzie, and in the early 1990s he spent four years at Cuscal as a compliance manager.
Diversity Council
Corrs
Corrs diversifies with new manager Corrs Chambers Westgarth has appointed Lisa Annese as the firm’s first diversity manager. Annese
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joins from the Diversity Council Australia, where she was programs director, working with Australian businesses to help develop and implement their diversity initiatives. Prior to this Annese worked with the Equal Lisa Annese Opportunity for Women in the Workplace Agency (EOWA) where she was instrumental in the development of the first census of Australian Women in Leadership, the first Business Achievement Awards, the creation of the Employer of Choice for Women citation and the development and implementation of the policy framework for the EOWA Act 1999 (Cth) with Australian businesses. She has also co-authored Chief Executives Unplugged: CEO’s Get Real About Women in the Workplace. Christine Covington, partner and chair of the Corrs diversity council said Annese’s appointment reinforced Corrs’ commitment to its 2015 diversity strategy. In her new role Annese will be responsible for driving and implementing a range of diversity initiatives, including Corrs’ participation as an industry partner in the Melbourne Business School Gender Equality Project and publishing an ASX Guideline compliant diversity policy.
Gadens
PCS
Former Gadens partner joins PCS Specialist firm, People + Culture Strategies (PCS), has announced the appointment of Kathryn Dent as a director effective 1 January 2012. Dent was previously a partner at Gadens Lawyers in the workplace relations practice and has been on maternity leave Kathryn Dent since September last year. Since opening its doors in late 2010, PCS has secured the business with more than 220 employers across the county, including high profile organisations such as Mars, Coca-Cola, Cochlear, DB Schenker and the Reserve Bank. Dent’s appointment takes the total PCS team to 12 lawyers, in addition to the consulting services of workplace law academic Professor Joellen Riley.
Queensland Bar
Cooper Grace Ward
Craig McIver. An insurance litigation and dispute resolution practitioner with more than 20 years of experience, McIver has previously worked at Carter Newell Lawyers and as a barrister. Also joining the dispute resolution team are lawyers Kristi Riedel and Melanie Thorley. Riedel’s experience includes assisting insurers in relation to public and product liability claims and she has a special interest in the area of professional indemnity insurance. Thorley’s previous experience lies in construction litigation and she will focus on providing construction, engineering and facilities management advice within the firm’s infrastructure team. The firm has also added Vicki Bowman to its ranks as a lawyer in the commercial group.
HWL Ebsworth
DibbsBarker
DibbsBarker adds HWL property DibbsBarker has appointed a new special counsel to its property industry group in Brisbane. Former HWL Ebsworth special counsel Craig Singleton brings with him to the firm more than 12 years’ experience in Sydney, Brisbane and London. Singleton’s areas of expertise include property development, large scale property sales and purchases, leasing, preparing agreements for lease and joint venture agreements. He has worked on financing transactions requiring acquisitions, construction and mezzanine finance, including all security arrangements, and has dealt with commercial matters including business sales and acquisitions. Singleton has also acted on the structuring and taxation aspects of property and finance transactions.
Clayton Utz
Swabb Attorneys
Swaab recruits in earnest Tim Hemingway has joined Swaab Attorneys as a partner from Clayton Utz where he was a special counsel. Hemingway has acted for the government and a number of medium to large corporates in the banking, manufacturing, media, telecommunications and retail sector. A corporate and commercial specialist, Hemingway’s practice focuses on IT and intellectual property, logistics and transport, corporate advisory and mergers and acquisitions. He has had both private practice and in-house experience having undertaken secondments at Clayton Utz.
Cooper Grace Wards adds SC Queensland based Cooper Grace Ward has added four new staff to the team, including special counsel
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us report U.S. Lawyers can expect a pay rise in 2012, says report The latest salary surveys from U.S. recruitment firm Robert Half Legal should be good news for lawyers looking to return to the U.S. or worried about compatriots back home. According to the report, firms nationwide will be revisiting pay grades and bonuses, even though remuneration may not have rebounded to pre-recession levels. However, the report adds that the benefits will mostly be felt by those with over 10 years’ experience. Lawyers who have worked in the field for over a decade can expect an increase of between 2.4 and 3.3 percent. Those with one to three years’ experience can expect between half and one percent. Midsized firms are expected to be the most generous. K&L Gates opens in Sao Paulo In early November, K&L Gates announced the opening of its first South American office in Sao Paulo, Brazil. The office will be led by New York finance partner Marc Veilleux and Washington/London based corporate partner Alan Berkeley. “Brazil has been propelled to the forefront of the 21st century marketplace for legal services,” said the firm’s chairman and global managing partner, Peter Kalis, in a statement. The Sao Paulo office will offer services in a range of areas, including energy, infrastructure and resources. The Brazilian city is the largest financial centre in Latin America and the seventh largest city in the world. This will be the 39th global office for K&L Gates. DLA Piper touched by an Angel Former Linklaters managing partner Tony Angel started work at DLA Piper on November 8, after receiving the backing of the partnership. He takes the position of global co-chair, next to Frank Burch, and will be the senior partner of the firm’s international LLP (the non-U.S. side of the business). Angel is tasked with sorting out DLA Piper’s financial performance, recruitment and client development in the EMEA and Asia Pacific. Burch said in a statement that Angel brings “unparalleled expertise and experience” to the firm as the architect behind Linklaters.
ROUNDUP • Above the Law has released its next batch of ‘Top Partners to Work For’ in New York. Paul Weiss, Simpson Thacher, Kasowitz Benson, Cleary Gottleib, Debevoise & Plimpton, Cravath and Akin Gump all feature on the list of eight lawyers. Interestingly, the majority are litigation partners. • Latham & Watkins and Sullivan & Cromwell have both won places on Virgin Media’s first ever legal panel. The panel includes Fried Frank, who already advises the company. These firms will provide corporate, finance, M&A and competition advice and support services. Baker & McKenzie and Mayer Brown are to provide commercial, industry, employment and regulatory advice. • According to The AM Law Daily a six-partner Hogan Lovells media and entertainment team has quit the Los Angeles office to join Jenner & Block. They made up half of the partners at the Hogan Lovells 33-lawyer Los Angeles office. • Texas firm Locke Lord has instigated a major partner defection from UK firm Salans for the launch of its City office. Global banking chief and former board chair Stephen Finch, London real estate head Daniel Polden and former Salans global managing partner Roger Abrahams led the charge; bringing along partners Paula Howard, Bill McCaffrey, Kevin Heath, Graham Spitz and David Grant. • Squire Sanders & Dempsey has hired two lawyers from Bryan Cave to boost its Frankfurt operations. Iliana Haleen, an IP counsel, and Philip Haleen, a regulatory of counsel join from the Hamburg office of Bryan Cave. Haleen will join Squire Sanders as partner.
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industry >>
Slater & Gordon to buy conveyancing specialist firm in QLD S
later & Gordon has announced today that it will acquire Queensland-based Conveyancing Works for approximately A$5 million. The acquisition of Conveyancing Works, which has forecast full year revenue of approximately $8 million, will play a major role in Slater & Gordon’s strategy of developing its non personal injury legal practices. Conveyancing Works has an estimated 14 percent market share of the conveyancing services market in Queensland, based on the number of transactions completed in 2011 and is the largest specialist firm operating in this area in Australia. Slater & Gordon managing director, Andrew Grech, said the company would use the acquisition as a base from which to develop a significant share of the domestic conveyancing market in Queensland and eventually nationally. “This announcement delivers on our commitment to more actively pursue a strategy of growth in the non-personal injury consumer legal services sector,” said Grech. “It also forms part of our longer-term strategy of expanding the range of legal services that we offer everyday Australians.” Conveyancing Works is based in Brisbane and has nine offices across Queensland (Cairns, Caloundra, Hervey Bay, Mackay, Maroochydore, Palm Beach, Rockhampton, Southport and Townsville), and more than 50 staff members, all of whom will be retained in the transaction. Conveyancing Works executive chairman, Don Horsfall, said: the acquisition was an “amazing” opportunity for the company which opened in 2000 with just two staff members. “Taking this business model beyond Queensland has been something that we have dreamed of, but we have lacked the necessary national infrastructure and competencies to realise this strategy,” said Horsfall. “This acquisition by Slater & Gordon will enable us to expand nationally.” It is expected that the transaction will be completed on or around 25 November 2011. The deal includes shares being issued to the vendors as well as deferred consideration (of A$1.5 million) payable within 14 months of completion, conditional on certain post completion events and targets being achieved. The share component is subject to escrow periods totalling three years. ALB Australasian Legal Business ISSUE 9.12
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industry >>
NSW Law Society announces new standards for billing and a new council N
SW Law Society president Stuart Westgarth has labelled stringent criticism aimed at legal fees based on hourly billing as “exaggerated”. Following comments at the Opening of Law Term dinner in January by former NSW Chief Justice James Spigelman that the Australian legal profession was “in danger of killing the goose” Westgarth undertook an examination of criticisms and disputes arising from legal bills. Based on available statistics Westgarth has found that only 215 solicitor-client bills were lodged with the Supreme Court for costs assessment in 2010, in a state with more than 20,000 practitioners. “It must be the case that a huge number of bills are issued by solicitors annually,” said Westgarth. “In the absence of compelling statistics to the contrary, the strident criticisms of time billing appear to be exaggerated.” According to Westgarth similar figures were present in previous years for challenges to legal bills. In 2009 there were 253, in 2008 there were 169 and in 2007 there were 259. Similarly, the figures for written complaints for overcharging as reported to the Legal Services Commissioner are small, added Westgarth. The NSW Law Society has also elected a new panel of councillors for the coming two to three years. Pamela Suttor (city councillor), Terence Stern (suburban councillor), Minter Ellison partner Gary Ulman (large law firm councillor), former Law Society president Mary Macken (government councillor), John Eades, Roslyn Everett, and Penelope Waters were all elected for a period of three years. New councillor Richard Harvey (suburban councillor) was elected for a term of two years while Blake Dawson lawyer Heidi Fairhall was appointed as the young lawyer councillor for a term of one year. The remaining 13 councillors were not up for election this year. ALB
“In the absence of compelling statistics to the contrary, the strident criticisms of time billing appear to be exaggerated.” Stuart Westgarth, NSW law society president
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>>
In-house Q&A
Melissa Kirby Associate General Counsel and Director
Honeywell Automation and Control Solutions; Asia Pacific, sub-Saharan Africa and Middle East
1
In your opinion, why have in-house lawyers become an increasingly indispensable part of an organisation?
The uncertain economic environment—with recent corporate failures, industrial difficulties and financial mayhem—has ensured the necessity of in-house lawyers. As corporations become less stable, regulation increases. Lawyers are often best placed to manage the regulatory burden and ameliorate risk. However, I am going to be contrary: while we have become increasingly indispensable, I strongly advocate we aim for precisely the opposite. In the corporate context, the legal team is a cost centre. While we certainly contribute to the successful operation of any business, we do not directly increase profit. Acting in the best interests of my client, one of my objectives must be to reduce the cost of doing business by reducing reliance on legal support wherever possible. Each time my team and I douse another corporate fire, unravel another regulatory minefield, or draft another layer of contractual protection, we consolidate the key lessons to update both organisational knowledge and business processes. When discussing risk management with my internal clients I like to say, “Your job is to put me out of a job.”
2
In recent times, the role of the General Counsel has diversified into a multi-faceted role, (where the General Counsel can wear the ‘hat’ of Lawyer, Legal Manager, Compliance Manager, and Company Secretary). In your opinion, do you believe this has increased your risk profile?
For me, this multiplicity of roles directly relates to maintaining relevance in a competitive and fast-changing corporate landscape. It is possible to be a technically excellent lawyer and yet fail to meet the business needs of our clients. When the CEO phones at 2am because the union has called a strike, or when the CFO seeks advice because the bank is closing down the line of credit tomorrow, they do not want an erudite legal opinion citing precedent from 1897. They want targeted, timely and effective solutions. Clients need more than just a lawyer; they need counsel who can also serve as strategist, tactical advisor, diplomat, negotiator, leader and confidante. Do such multi-faceted roles increase risk for in-house lawyers? Potentially, yes. But with risk comes opportunity. I predict that, as our global economic health recovers, those who can discern and capitalise on these opportunities will reap high returns, for themselves and their organisations. These are uncertain, yet exciting, times.
3
In your opinion, what do you consider to be the main challenges you and your team will face in the coming twelve months?
From the earliest tremors of the financial crisis, our challenge has been to continually step up our responsiveness to evolving client needs. As lawyers, we are trained to look to the past for guidance. As in-house lawyers, we must heed established principles, and yet also be innovative in supporting our business through an uncertain future. In challenging times, clients cannot always clearly articulate what they need—they are likely to be more concerned with sales trends, productivity targets and shareholder confidence. We must anticipate client needs, ideally providing solutions before they are even aware of the problem. In an in-house setting, it isn’t good enough to wait for instructions; we need to lead, and cut the path ahead.
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NEWS >>
uk report The reporting season starts: Allen & Overy revenue up 11 percent – more to come? The first of the magic circle firms half yearly results are in, and Allen & Overy’s are equally as impressive as those at Ashurst. Allen & Overy reported a turnover 11 percent higher, at £582 million; up from £526 million half way through the 2010-11 financial year. Managing partner Wim Dejonghe told The Lawyer the results were “better than expected” and noted that much of the revenue was off the back of international expansion to Australia, France, Germany, Indonesia and Washington DC. During 2011 Allen & Overy also opened offices in Belfast and Casablanca and the firm is reportedly in talks to enter a joint venture with Singapore powerhouse Allen & Gledhill. All in all, according to Legal Week, at least five of the top 30 UK firms are expected to post double digit results by the end of the reporting season. Linklaters, however, is only expected to report increases of around 3-4 percent. Clifford Chance expects a single digit increase and Freshfields Bruckhaus Deringer is likely to remain flat. Ashurst grows revenue by 12 percent thanks to international partnerships Ashurst has released its half year financial results, revealing a 12 percent increase in turnover firm wide, and a two percent jump in average partner count. The revenue pool increased from £138 million to £154 million from the same period last year. The biggest increase by far came from its offices outside the UK, at 25 percent, against a 5 percent increase in the London office. That is no surprise following the announcement of new international partnerships. According to reports in The Lawyer managing partner Simon Bromwich said the Paris office saw a particularly strong increase thanks to a “robust run of deals”, in particular in restructuring. The Asian offices also contributed significantly. Lawyer numbers also rose 7 percent at the firm. New GC for BBC worldwide BBC Worldwide, the commercial arm of the BBC, has appointed Martyn Freeman as its first general counsel. Freeman leaves his role as group head and director of BBC Worldwide legal affairs since 2002 to take up the new position. Freeman notably led the divestment of BBC magazines and BBC audiobooks, restructuring of joint ventures with Discovery and rights and acquisition management.
ROUNDUP • Freshfields has appointed a new head of finance in its Paris office. Dougall Molson replaces Hervé Touraine in the role. Touraine will return to full time fee earning. The Paris managing partner, Antoine Colonna d’Istria, also stepped down recently. D’Istria was replaced by Elie Kleiman. • Berwin Leighton Paisner (BLP) has beefed up its competition practice. It has hired former Freshfields counsel Elaine Whiteford. Whiteford joins BLP’s City competition, European Union and trade group and BG Group senior principal counsel Stuart Davis as senior competition lawyer in the managed legal services team at Thames Water in Reading. • Boutique German shipping firm Ehlermann Rindfleisch Gadow (ERG) has hired former Watson Farley & Williams partner Richard Henderson to launch its London office. Henderson started with the firm in its first foray outside Hamburg on November 1. He is joined by associate Loïc Brasquer. • Linklaters, along with wealth services firm Maitland, is advising on the $5.1 billion deal that will see the Oppenheimer family sell its stake in diamond maker De Beers. Anglo American (advised by Linklaters) is expected to purchase the family’s 40 percent stake, increasing its interest in De Beers to 85 percent.
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finance >>
PE lawyers flooded by sales and acquisition activity T
he Australian and global private equity sectors have been busy selling and buying assets in the past 12 months, and the activity is unlikely to slow down any time soon according to lawyers. “Certainly in the last 12 to 18 months we have been very busy acting for private equity firms looking to sell or otherwise dispose of assets,” said Baker & McKenzie head of global private equity Mark McNamara. According to the industry lobby group, the Australian Private Equity & Venture Capital Association, sales by Australia’s A$23 billion private equity sector jumped by 46 percent during the 2011 financial year. While there are a variety of reasons for the upsurge Corrs Chambers Westgarth head of private equity, Richard Lewis, said for the most part it’s because of the backlog of assets, which private equity fund managers would ideally have exited by way of IPO, but were unable to. “Some funds have had to take alternative exits, including secondary buyouts to other private equity fund managers or trade sales,” said Lewis. McNamara says it is also standard for assets to be sold within the three to five year cycle, which many of them are now in. “That’s part of the life cycle of funds – they get sold in that time frame” he said. For private equity funds preparing to undertake their next round of fundraising, it is also much easier to raise new funds if investors have received their money back from previous investments by way of a sale. “One driver behind the increased exits by private equity is the much more challenging fund raising market and the need for some managers to demonstrate good exits to assist them in raising their next fund,” said Lewis. He adds that the reduction in new funding commitments from local pension funds and other institutions has forced some fund managers to look overseas for investors for the first time: “In the previous financial year almost half of funds raised by Australian funds came from foreign investors.” In addition to trade sales there has also been an increase in secondary deals: “In the past six-to-eight months we have seen a real increase in secondary buyouts … Certainly that has grown and will no doubt continue to grow,” said McNamara. Recent data confirms this trend with secondary buyouts comprising more than 10 percent of all divestments in FY2011, which according to Lewis “is an all time high”. It’s not just sales either which are keeping private equity lawyers busy. “New investment activity is also increasing, with a more than 40 percent increase in funds invested in FY11 compared to FY10,” said Lewis. This is to a large extent related to an increasing number of large buyouts by U.S. and other global funds which, according to Lewis, see Australia as an attractive place to invest in the current global economic climate. “We see this trend continuing, with a number of U.S. funds new to the Australian market looking at Australian deals in the mid market and above,” he added. McNamara agrees that more acquisition activity by PE firms is likely, “as long as the banks keep lending”. ALB
Australasian Legal Business ISSUE 9.12
NEWS >>
news in brief >>
in-house >>
Stretch Kontelj
T
he who’s who of the in-house legal profession has celebrated the achievements of individuals and teams across the Australian corporate sphere at the annual Australian Corporate Lawyers Association (ACLA) Awards. Specsavers legal director Asia Pacific Dr Stretch Kontelj won the Corporate Lawyer of the Year Award. During his acceptance speech, Dr Kontelj said the legal team at Specsavers had “ruffled the litigations scene” in Australia and added that they currently had nine litigation cases on the go, mainly to do with marketing. Large In-House Legal Team of the Year went to Icitec Pivot, which includes a team of 10 lawyers all of
ACLA Award winners whom are women. Small In-House Team went to Theiss John Holland and the team of eight lawyers there. Government Lawyer of the Year went to the Australian Government Solicitor competition and consumer law expert Glenn Owbridge. Young Lawyer of the Year went to Lisa Chan from Curtin University. Other award winners included Westpac Banking Corporation, which took out the award for Corporate Social Responsibility and Melissa Kirby from Honeywell who won Mentor of the Year. The awards were held in Melbourne on November 24 during the ACLA conference. ALB
Baker & McKenzie lures Singapore COO Baker & McKenzie has appointed James Odell as national Chief Operating Officer (COO) Australia. Odell joins from Singapore where he was COO of Baker & McKenzie’s South East Asia operations. He replaces outgoing COO Geraldine Chin Moody who is set to explore opportunities within the Baker & McKenzie global network following maternity leave. Prior to joining Baker & McKenzie Odell was a member of Linklaters’ global strategy and planning team based in London and Hong Kong. “In addition to a balance of strategic and operational experience, James brings a drive for efficiency born from his experience as an engineer,” said Baker & McKenzie national managing partner Chris Freeland. “This has positioned us very well to advise investors looking to extend and protect interests in new markets. It’s exciting to be in Australia as it emerges as a key player on the world stage at a firm which has invested in its global offering for so many decades”.
Mallesons’ loss is DLA Piper’s gain Two senior China-based Mallesons Stephen Jaques partners have defected to international firm DLA Piper ahead of suspected merger between Mallesons and Chinese firm King & Wood. John Shi and Nicolas Groffman will be joining DLA’s Beijing office in the near future as partners in the Greater China team. Shi has been the Beijing chief representative for Mallesons since 2004. He has also previously worked at Denton Wilde Sapte as the firm’s Beijing chief representative Groffman also joins DLA Piper from Mallesons’ Beijing office, where he was a partner in the M&A group. He is recognised as a leading technology, media and telecommunications lawyer in China. The new partners will work closely with Shanghai, Hong Kong and other DLA Piper offices across the region to strengthen and deepen the firm’s corporate offering in Asia Pacific.
industry >>
Australian Business Lawyers & Advisors heads north A
ustralian Business Lawyers & Advisors (ABL), a wholly owned subsidiary of the NSW Business Chamber, has merged with the Chamber of Commerce and Industry Queensland (CCIQ) legal division, creating a new practice in Queensland. Based in Brisbane, the new ABL Queensland office is headed by the former legal practice manager at CCIQ, Noela Gorey. The Queensland team includes eight directors, 11 www.legalbusinessonline.com
lawyers and nine advisors servicing clients in NSW and Queensland. ABL has also added two new staff to its Sydney office to create a new property division. Warwick La Hood from Hones La Hood has joined the firm as a director. La Hood has more than 20 years of experience advising clients on property law, acting for individuals, companies and joint venture relationships. Lawyer Lisa Sharp has also joined the property practice. ALB
WA attracting more lawyers The arrival of international law firms to the West Australian legal market has had a positive effect on the state’s lawyer numbers. According to the Law Society of Western Australia annual report there was a 6.8 percent increase in members compared to the previous report and during a five year period the number of law society members has increased 35 percent. There are now 3,359 registered lawyers with the WA law society. In the past year international firms Clifford Chance and Squire Sanders & Dempsey have opened in the Perth market, both through mergers with local firms; while Holman Fenwick Willan (HFW) opened a new office on the ground independently. National firms Gilbert + Tobin, Moray & Agnew and Gilchrist Connell have also entered the market in the past 12 months.
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Analysis | Social Media in Law Firms >>
Analysis >>
No Longer Socially Unacceptable? Use of social media seems to be an accepted form of communication with Gen Y recruits and graduates, but how well are law firms using it to communicate with their clients and colleagues, and should they be embracing it further? Kalianna Dean investigates
T Kelly O’Shaughnessy
Jennifer Mansfield
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he introduction of a Social Media Manager role at Blake Dawson, taken up by Kelly O’Shaughessy, was one of the strongest indications so far that law firms are paying attention to social media. That includes paying attention to its impact on client relationships and employees who use social media on a daily basis. O’Shaughnessy was herself recruited via LinkedIn from her role with talent advisory firm Peerlo. She was hired by Blake Dawson to bring together the various ways the firm can capitalise on its use of social media, which includes teaching the lawyers at the firm how to use it effectively, working with recruitment and marketing, developing internal networks and educating lawyers on the risks and procedures they should follow when using social media for work. Other firms may not have introduced a role dedicated to social media yet but, according to O’Shaughnessy, many have allocated responsibility to individuals within business development, recruitment and marketing. Her move to Blake Dawson was followed by a number of announcements of recruitment campaigns, mainly for the graduate market, using Twitter or Facebook or both. Allens Arthur Robinson reached out to the London market to entice talented Australian lawyers back home to Brisbane and Perth via Facebook, Mallesons Stephen Jaques set up its
graduate’s Facebook page, allowing for a closer look inside life at Mallesons for hopeful students, and Clayton Utz and others have followed with similar initiatives. Commercial boutique firm Marque ran its entire summer clerkship drive via a weeklong series of questions posted to Twitter (the best responses were invited to continue the application process and the winners whittled down from 1,000). It’s a good thing too. According to the second annual Cisco Connected World Technology Report one third of more than 2,800 college students, graduates and professionals under 30 surveyed will choose their potential employer based on whether they will be entitled to use social media. Respondents, from 14 countries, including Australia, said they would ‘prioritise social media freedom, device flexibility, and work mobility over salary in accepting a job offer’ according to the study. “There are a lot of people in the workforce who don’t want to join a firm which doesn’t permit you to use a social networking tool during work,” adds Jennifer Mansfield, a Blake Dawson employment lawyer. In terms of law firms allowing access to social media, all those in the top tier that responded to a request from ALB confirm that lawyers are allowed to access social media, and seem to believe it is an inevitable fact of life. “Most of our lawyers have access to Australasian Legal Business ISSUE 9.12
Analysis | Social Media in Law Firms >>
social media 24/7 via mobile technology (smart phones, tablets etc) so we see no need to block access via our systems – our staff can access social networking sites via firm computers whenever they like,” says O’Shaughnessy. This seems to be a common mindset; however, anecdotally it is understood that one top tier firm does not allow access to social media during work hours. There is now a dialogue about how firms can best use various platforms for their benefit: “The debate has moved on from whether social media sites should be 'locked down' in the workplace. The discussion is now about how business can best use platforms internally and externally and what guidelines are needed to ensure these new technologies don't undermine values, effectiveness at work or confidentiality,” says Allens Arthur Robinson director of corporate affairs, Chris Fogarty. Minter Ellison confirms that it encourages staff to join internal social media networks, such as Yammer, read and contribute to client blogs and participate in external networks including Facebook and LinkedIn but that it has put in place guidelines around ‘branding, content www.legalbusinessonline.com
and etiquette’. Clayton Utz allows ‘reasonable personal use’ of social media networking websites and allows their use for work. O’Shaughnessy notes that a number of firms, including those outside the top tier, take different approaches, such as banning access to social media, monitoring usage or requiring prior approval before communicating. Norton Rose has a block on personal email use at work but allows access to Facebook, Twitter and LinkedIn according to Anthony Hobley, the firm’s global head of climate change and carbon finance who regularly blogs for the firm’s website about international climate change events. “[We as a firm] wanted to explore and understand [social media] better as a way to communicate and build the Norton Rose brand. [We] started with the blog using the traditional ways and thought we’d start using Twitter, probably three and a half years ago. At the climate negotiations in Copenhagen, for example, we got a lot of interviews, on a number of TV programs, via social media. We would also find out about things such as the African delegation walking out of the conference that way.”
A new sociology
Law firms are clearly engaging their future partners by using the forums the younger generation are most comfortable with. But the thorny issue of social media policy for law firms themselves and the impact of handheld devices and Facebook, Twitter and LinkedIn use has opened a can of worms that firms are still grappling with. The lawyers questioned had some varied responses in regard to what social media policy was best for them and their clients, suggesting law firms are looking for ways to bring about cultural and behavioural change. The view taken by most was that for law firms to develop an effective policy, it is important to engender a ‘sociology shift’ similar to that brought about by the introduction of anti-discrimination legislation. This involves an agreed behaviour and common understanding of what is acceptable. “You can implement all the rules and policies, and monitor your employees as intrusively as you like, but that won't be a substitute for having a culturally embedded understanding of what's acceptable 21
Analysis | Social Media in Law Firms >>
Vivienne Storey
Michael Bradley
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and what's not,” says Michael Bradley, principal of Marque Lawyers. In terms of a physical policy document, Vivienne Storey, general manager of BlandsLaw a commercial and employment law boutique that provides training on social media and policy implementation, the average social media one is around eight pages, while other policy documents are around two to three. “That’s just covering the basics. That’s a policy encouraging employees to use social media and set parameters,” she adds. Danica Leys, a solicitor with BlandsLaw also cautions against including too many specific clauses on social media in general clauses, as this can lead to the clause’s general nature being diluted. “When you try and take a general clause, for example on restraint of trade, and insert specific statements on social media the clause could be read down to just its very specific nature rather than its general purpose,” she says. “It’s a little bit intangible too isn’t it? If I turn my Twitter account over to someone else it’s lost all its value because it’s no longer being controlled by me.” Any approach must also take into account the fact social media sites will most likely be heavily monitored: “All of a
sudden as an employer you may be monitoring these sites much more closely than you’ve ever monitored anything before so you need to have a policy, it needs to set out what is being logged, who has access rights,” notes Harmers Workplace Lawyers chief operating officer Emma Pritchard.
Putting everything in writing
While there are signs of progress, such as establishing firm-branded social media accounts and employing professionals to advise on policy, law firms and their employees still have a prevailing attitude that communication via social media is not as public, or as permanent, as other forms. “A lot of people seem to think social media is exempt – ‘it’s on-line [so] it doesn’t matter’,” observes Storey. Ultimately believing it doesn’t matter can do more harm than good; Clayton Utz discovered as much when it allowed a sexual harassment claim by ex employee Bridgette Styles to be hyped up by not forcing the removal of a Facebook group set up to disparage Styles and the relationship she had had with a colleague. “It’s bad PR for a big firm like Clayton Utz to have not had a Facebook group taken down. It’s also Australasian Legal Business ISSUE 9.12
Analysis | Social Media in Law Firms >>
[the employees] not understanding what they’re dealing with,” says Storey. A number of firms simply don’t understand all the risks associated with allowing social media to become an integral part of the business and they believe it conflicts with traditional models. “They’re probably being questioned by their clients,” says Storey. “They can see that this is something that’s happening but they’re not quite sure how to deal with it, probably without an in depth understanding Emma Pritchard of the risks. From a marketing perspective it’s difficult enough because it’s bottom up rather than top down, which doesn’t sit with that command and control culture.” Storey agrees that it is this ‘command and control’ culture and a desire to monitor what is said about the firm that leads many to continue to ban social media sites or take measures which contradict the fluid nature of the medium, such as requiring prior approval from the business development team before a tweet can be sent. “If you think about it, the maxim of a lawyer is don’t put anything in writing. What we’re dealing with now is everything in writing,” she adds. Bradley understands the reason firms would want to ban access to social media, but says those who do will lose out in the end. “I understand that impulse, but I think it's a mistake. Social media is a valuable and increasingly prevalent medium of communication, and pretending otherwise won't change that.” Firms such as Norton Rose are able to effectively use Twitter and the blogging medium to tap into their international networks, aggregate information and enhance client relationships in a whole new way. “On the business side there is a huge value in leveraging people who are out there and getting a quick summary of what’s going on in certain areas,” notes Norton Rose director of business information systems Phil Scorgie. Interestingly, O’Shaugnessy says some of the most enthusiastic participants in her work with social media are the more senior lawyers at the firm: “There’s quite an appetite from up top for the sorts of activities we’re doing. Many of the other firms out there have now also picked up this type of role.” Lawyers such as Hobley and Storey, and firms such as Blake Dawson, Marque and Allens appear to be the exception rather than the rule for the time being, but that could be about to change. ALB www.legalbusinessonline.com
>>
Technology in practice
Q&A with
Damian Huon Damian Huon is a legal technology strategist with over 20 years' experience advising Australia’s leading firms. As CEO of Huon IT, Damian and his team achieve business outcomes for professional service organisations with ‘everything technology’.
Video conferencing has come a long way from its grainy origins – but will it ever replace the handshake? There is a lot of hype around video conferencing, as its arguments for innovation and commercial benefits grow louder. But will video conferencing in law firms really take off? While many traditionalists fight the transition, Damian Huon recommends a phased approach to this new generation of meeting. what extent is video conferencing actually utilized 1 To in firms today? Most adopters currently opt for a low risk ‘toe in the water’ approach. Predominantly warming up with use in internal meetings, firms quickly achieve ROI through cutting the expense and time out of travelling between practice locations. This is only the start however, as the potential extends far beyond this. Video conferencing on a wider scale allows staff global access to experts, training and education, and even helps streamline recruitment processes. As confidence in the technology grows it enables easier integration with courthouses, and finally the big test – servicing your clients.
Video Conferencing improve or detract from client service? 2 Does The primary concern of most firms is a loss of rapport with clients, however when used in the right way it can actually improve quality of service. You can hold more frequent meetings, introduce expert resources which may be based interstate, and trim the budget for cost conscious clients. For savvy firms, it has grown into a marketable tool – however caution must be taken. A smart approach is deciding on a ratio of video conferences to face to face meetings, such as 4:1, depending on the case. Striking a balance between video conferencing’s efficiencies, and getting the chance to actually shake hands, is key to its success.
firm recovers travel expenses from clients anyway, so 3 Our how much would we really save through video conferencing? Direct cost isn’t the sole return on this investment; both the increased value to your client (as above) and internal efficiencies gained are substantial. The amount of time that your lawyers will be freed up to work on other cases accumulates quickly, allowing you to take on more clients and grow your practice. Internally video conferencing also develops a collaborative network, empowering your staff to leverage from global resources, regardless of location.
technology is required for video conferencing? 4 What There is an array of vendors pushing their own video conferencing solutions, and the only way to choose is to arrange a trial kit so your staff can get hands on experience. It must be scalable to meet variable workloads, and be broadly compatible with other enterprise video conferencing softwares, as well as individuals using Skype. Consideration must also be given to boardroom set up (dual screens are recommended; one for the video, and one for PowerPoint presentations), as well as your firm’s internet link. As networks are traditionally used for data, video and audio puts a heavy load on the bandwidth which can be at the expense of computing performance. A review of capacity and what Quality of Service (QOS) controls you have in place are crucial before embarking on any installation. Email your questions to alb@huonit.com.au
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feature | fast 10 >>
ALB reveals the fastest growing law firms in Australasia in its 2011 Fast 10 survey.
►► methodology The Fast 10 identifies the fastest growing law firms in Australia and New Zealand, based on revenue growth in FY2011 and, to a lesser extent, growth in fee earners. Only firms which submitted revenue details to ALB were considered for inclusion in the Ten and ALB reserved the right to exclude firms with very low revenue or headcount figures to prevent growth percentages being distorted by growth from a very low base. No firm was excluded on this basis in 2011.
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When Australian law firms began reporting their revenue results for FY2010-2011, it soon became clear that it had been a reasonably good year. While there was the odd firm which struggled to find growth, the story at the majority of firms was surprisingly positive given the backdrop of global economic uncertainty. Perhaps this is the famous “lag factor” in action. The results of the 2011 Fast 10, ALB’s survey to find the fastest growing law firms in Australia and New Zealand, reflect this positive story. Firms needed at least 17 percent revenue growth to be in the running for the Ten, up from 14 percent last year. The top ranked firms recorded over 100 percent revenue growth, a remarkable upward jump from last
year, where the first and second ranked firms had 56 percent and 41 percent respectively. The 2011 firms are of comparable size to the 2010 firms, so the size of the base from which these growth figures are calculated is not a relevant factor. It is fairly safe to conclude that the 2011 survey produced a far more robust set of results than the 2010 survey. This reflects well on not only the market at large, but more specifically the group of entrepreneurial young firms which form the core of this year’s Fast 10. Three of these firms: Webb Henderson, Advent Lawyers and Balance Legal, are recently established firms appearing in the Fast 10 for the first time. Continued … Australasian Legal Business ISSUE 9.12
feature | fast 10 >>
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Arnold Bloch Leibler
Managing partner: Henry Lanzer Partners: 34 Other fee earners: 85 Revenue: A$59m Revenue growth: 17 percent
It is well established that mid-size firms need to provide a strong point of market differentiation to prosper and this is certainly the case at Arnold Bloch Leibler, which has spent the year, in the words of managing partner Henry Lanzer, focussing on “premium work and the areas of practice in which the firm has
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Hall & Wilcox
Managing partner: Tony Macvean Partners: 28 Other fee earners: 86 Revenue: A$41m Revenue growth: 18 percent
acknowledged expertise.” The firm has added nine additional lawyers and five additional partners over the past year but, unlike many Fast 10 firms, has not pursued any mergers. The firm will be eyeing the Sydney market in particular as a growth priority for FY2012.
Integrated Legal Holdings CEO: Graeme Fowler Partners: 22 Other fee earners: 74 Revenue: A$28.5m Revenue growth: 19 percent
Most firms would be happy with 19 percent growth, but that counts as a relatively quiet year at ILH, which finished first and second respectively in the 2009 and 2010 Fast 10 surveys. The firm has made two more acquisitions this year, adding a total of 27 lawyers to its ranks, which will no doubt see the firm’s revenues bounce upwards again in FY2012 as the full effect flows through. And because ILH is a listed company, we also have access to other interesting data on the firm’s performance: the company’s annual report reveals a 51 percent growth in net profit after tax and 19 percent earnings per share growth. ILH expects to continue the growth with at least one major firm acquisition per year in the foreseeable future.
Hall & Wilcox is another example of a firm which has continued to reap the rewards of a strategy of solid organic growth. Managing partner Tony Macvean believes that the firm is increasing market share as large sophisticated clients review their use of large national firms and that a pick up in transactional activity in the mid-market space has also boosted revenues. Hall & Wilcox has consistently qualified or narrowly missed out on Fast 10 status over the past five years and it is impressive that the firm has maintained this track record despite having significantly higher gross revenues than many other firms in the Ten. www.legalbusinessonline.com
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feature | fast 10 >>
7
Mills Oakley
New firms, of course, have the advantage of a small base which makes growth figures seem more spectacular than they actually are. However, even taking this factor into account these firms have performed remarkably well and demonstrate that there is room in the market for new players who are prepared to innovate with their service offering.
CEO: John Nerurker Partners: 32 Other fee earners: 74 Revenue: A$42m Revenue growth: 24 percent
While every law firm acknowledges the importance of talent retention, Mills Oakley CEO John Nerurker believes that some traditional partnerships are in danger of losing touch and losing their best people. It’s a lesson he has applied at Mills Oakley, where talent attraction and retention is the cornerstone of the firm’s growth strategy. Partnership structure is crucial, according to Nerurker. “We have an ownership model and partnership structure which rewards performance, not merely tenure, which serves as a beacon for those disillusioned with other, more traditional partnership structures,” he said. Meanwhile, like Hall & Wilcox, Nerurker believes there is an opportunity to further
penetrate the higher end corporate market and increase market share in FY2012.
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Wotton + Kearney Managing partner: David Kearney Partners: 14 Other fee earners: 53 Revenue: A$23m Revenue growth: 24.5 percent
Insurance firms have traditionally had a strong showing in the Fast 10, but this year the venerable Wotton + Kearney is the only representative of the species left standing. Wotton + Kearney has had a remarkable track record of growth in recent years – this is the firm’s third consecutive year in the Fast 10 and it is important to note that all of this growth has been achieved without acquiring any other firm. Revenue growth has been matched with a growth in lawyer numbers: two new partners have been added and lawyer numbers are up 26 percent. Meanwhile, other insurance firms are also faring well – Moray & Agnew and Curwoods both delivered strong growth, but not quite enough to make the Ten. 26
New era law firms When firms like Slater & Gordon and Integrated Legal Holdings first began to appear in the Fast 10 in 2009, some readers wondered what ALB was up to. The Fast 10 – and indeed the legal press in general – had been the preserve of the traditional corporate law firm, not plaintiff firms or entities such as Integrated Legal Holdings which continue to defy attempts to classify them. It was an outcome with which ALB was not particularly comfortable, but as we explained at the time, the decision to include these firms served the purpose of drawing attention to the changing nature of the market and showing where the growth was. This reasoning applies a fortiori to the 2011 Fast 10, which again reflects a market in transition, where those firms who have embraced new models are recording the most marked growth. Advent Legal and Balance Legal are secondmentbased law firms which appear to have struck a chord with clients while Webb Henderson’s unusual cross-border approach to the regulatory space has been so successful that the firm has taken out top spot in this year’s Fast 10. This continues the trend of the Fast 10 being dominated by firms with an Continued … Australasian Legal Business ISSUE 9.12
feature | fast 10 >>
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Slater & Gordon
CEO: Andrew Grech Partner equivalents: 74 Other lawyers: 278 Revenue: A$182m Revenue growth: 46 percent
Acquisitions in FY2010 were always going to result in some handsome growth in FY2011 for Slaters, but the firm has not been content to rest on its 2010 laurels. Instead, the ambitious growth strategy has continued through FY2011: highlights include three new offices in Victoria, three new offices in Queensland under the Trilby Misso brand and the acquisition of the controversial Keddies practice in NSW – a busy period of activity which will no doubt again boost the revenue stats in FY2012. Meanwhile, organic revenue growth is estimated at about 11 percent and the firm has also been active with high profile class actions such as the the Oz Minerals, Fincorp and Brookland Greens matters. Slaters also managed to rattle the Poms early this year by expressing an interest in entering the UK market following the recent round of market liberalisation.
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Balance Legal
Managing director: Ken Jagger Partners: 3 Other lawyers: 39 Revenue: A$6.5m Revenue growth: 52 percent
Balance Legal has been building a steady profile as one of the very few Australian firms to embrace the secondment-only model. Given the firm’s Perth origins, it would be easy to assume that the firm’s clients are at the junior miner level, where the absence of dedicated in-house legal capacity is well known. However, managing director Ken Jagger is of ex-Freehills pedigree and the firm has a number of very significant ASX100 clients – particularly resources companies requiring extra firepower in the legal function during the big projects. However, the next area of growth for Balance Legal will be in the mid-size corporate space, where the firm will be called upon to provide lawyers of quasi-General Counsel calibre. Balance provides lawyers at all levels of seniority, although the typical recruit would be a national firm senior associate with several years of experience. “We don’t hire much below the seven year level – we need them to hit the ground running,” says Jagger. The firm’s second office in Melbourne still accounts for only a small share of revenues and the next objective is for that office to hit top gear. Given the mobility of modern lawyers, the firm has also been able to service Queensland and NSW clients. www.legalbusinessonline.com
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feature | fast 10 >>
3
M+K Lawyers
National Managing Director: Damian Paul Partner equivalents: 54 Other lawyers: 129 Revenue: A$47.5m Revenue growth: 54 percent
Last year M+K made third spot on the Fast 10 largely courtesy of organic growth, a result which would have pleased managing director Damian Paul. However, Paul is certainly not averse to non-organic growth: M+K has spent much of FY2011 bedding down a series of acquisitions which will help fulfil ambitions for a national mid-market practice. Last year’s acquisition of Tasmania’s Dobson Mitchell & Allport was followed by a merger with BCI Lawyers in Queensland and M+K has also bolstered its workplace relations and family law capabilities. To read more about M+K and Damian Paul, please refer to the managing partner profile in this issue.
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unconventional structure or value proposition; some may recall that last year’s survey was won by Marque Lawyers, which has differentiated itself on the basis of an alternative fee structure and the winner in 2009 was Integrated Legal Holdings. The message is clear: in this evolving market, the momentum is with law firms outside of the traditional corporate advisory model. Returning firms There has always been a strong Melbourne element to the Fast 10. Slater & Gordon and M+K prefer to be known as national firms these days, but both have their roots in Victoria. These firms have featured regularly in the Fast 10 in recent years and, ominously, have still got some expansion plans afoot. Meanwhile, they are joined in the Ten by Mills Oakley and Hall & Wilcox, two of the most consistent Fast 10 performers over the history of the survey. The third member of this trio of firms is usually Herbert Geer, which is absent from this year’s Fast 10 after a quiet year. Herbert Geer has been replaced by yet another firm with a Melbourne pedigree, in the form of Arnold Bloch Leibler. These are all firms which have a very clear value proposition in the market and are resolute in their quest to take market share from top tier firms. Their continued presence in the Fast 10 despite the emergence of a number of smaller, newer competitors says a good deal for the soundness of the leadership at these firms. Honorary mentions A number of firms were unlucky to miss out on a spot in the Fast 10 because of the more buoyant than usual results across the board. Brisbane’s Cooper Grace Australasian Legal Business ISSUE 9.12
feature | fast 10 >>
Ward and insurance firm Curwoods both had 17 percent growth but were edged out of 10th place by Arnold Bloch Leibler because the latter had stronger fee earner growth. Conversely, Thomsons Lawyers and Gilchrist Connell had 13 percent and 14 percent growth respectively, but had very strong fee earner growth which will no doubt drive revenues next year. Adelaide-based Fox Tucker, the merged entity formed by ex-DLA Phillips Fox Adelaide and local firm Rankine Tucker, calculated its year on year revenue growth at 43 percent. However, this firm is a completely new partnership – as opposed to a partnership which has absorbed a second partnership – which meant that the firm could not be said to have “grown” between 2010 and 2011. Across the Tasman, Minter Ellison Rudd Watts (12 percent) and Anthony Harper (13 percent) had good growth, although it is difficult to gauge these results against local competitors, who continue to maintain a policy of nondisclosure of revenues. However, the ultimate honorary mention must go to Gilbert + Tobin, which managed to secure 14 percent growth despite being nearly 10 times the size of some Fast 10 firms. It is notoriously difficult for the larger firms to grow off an already substantial base and while G+T had a little help courtesy of a merger with Blakiston + Crabb, this is still an impressive outcome. Blake Dawson and Corrs (both 8 percent) and Norton Rose (9 percent) and Baker & McKenzie (10 percent) also deserve acknowledgment on this front, as does HWL Ebsworth (12 percent). www.legalbusinessonline.com
2
Advent Lawyers
CEO: John Knox Lawyers: 35 Revenues: see below Revenue growth: 105 percent
Advent Lawyers preferred not to have their revenue figure published, but to preserve the integrity of the survey we can reveal that the FY2011 figure was between A$5m and A$10m. Like fellow Fast 10 firm Balance Legal, Advent uses a secondment-based model to provide a “third alternative” to external law firms and traditional in-house legal teams. However, it is clear that Advent’s ambitions extend beyond the Australian domestic market: the firm surprised many earlier this year by announcing the opening of a Singapore office. Developing markets in Thailand, Vietnam, Indonesia and India are now firmly within Advent’s sights – a sign of healthy ambition from this 35 lawyer firm. Advent’s premium clients include UBS, Macquarie Bank and NAB. Interestingly, NAB is a key client for Mallesons, which has also announced a foray into the world of outsourcing.
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feature | fast 10 >>
1
Webb Henderson
Founding partners: Angus Henderson, Malcolm Webb Partners: 8 Lawyers: 18 Revenues: see below Revenue growth: 118 percent
In January, ALB nominated Webb Henderson as a firm to watch in 2011 and this unique outfit has certainly exceeded expectations with a remarkable 118 percent growth. The firm also preferred not to disclose its exact revenues, but to preserve the integrity of the survey we can reveal that the FY2011 figure was between A$10m and A$15m. Webb Henderson has been an unusual firm since its inception in 2009. Originally a partnership between former Gilbert + Tobin partner Angus Henderson in Sydney and former MGF Webb partner Malcolm Webb in Auckland, the trans-Tasman nature of the firm already set it apart: premium NZ firms have generally preferred to rely on a relationship-based approach with Australian firms rather than attempting to compete with the locals.
30
Usually described as a telecommunications specialist, the firm sees opportunity in other highly regulated areas and has already added energy, infrastructure and corporate advisory services to its offering. The expansion of practice areas is matched by an astonishing expansion geographically: not content to merely develop a market foothold in Australasia, this firm has also opened new offices in Singapore and London. Some substantial recruitment has also taken place – the partnership has expanded by a third in FY2011 and added 10 additional lawyers. “All of our offices have seen significant expansion in 2011 arising from increased work flow and expansion of capability,” said partner Angus Henderson. Australasian Legal Business ISSUE 9.12
profile | managing partner >>
ALB 2011 MANAGING PARTNER SERIES
Damian Paul, Macpherson + Kelley Lawyers
Positive vibes Many law firms believe Asia is the only path to growth – but as M+K managing director Damian Paul explains to ALB’s Renu Prasad, the vast potential of the Australian corporate mid-market remains largely untapped.
“We don’t get work because we have a contract – our clients have choices. We get work because they want to stay with us”
32
I
t may be taking the concept of positive energy somewhat literally, but the meeting rooms at the new Sydney offices of Macphearson + Kelley, or M+K as the firm now prefers to be known, are decorated with a pattern featuring plus signs. “M+K seems like a natural thing to evolve to – that’s where we’re heading; it feels comfortable, there’s no angst over it,” says Damian Paul. This is a firm that has good reason to feel positive. M+K is rising to a greater prominence in a market that is aware that the major strategic plays are happening not only at the global and Asia-Pacific level, but also domestically: that the same consolidation game that was played out in the 1990s in Australia at the top tier may be repeated at the mid-market level. The most recent ALB 30 survey of Australia’s largest law firms ranked M+K at 30th by lawyer headcount, a position which is likely to improve as
the firm fulfils its longer term ambition of expanding from its current East Coast/Tasmania focus to a national presence.
Mid-market space
M+K has a very clear value proposition as a firm dedicated to mid-market clients, a space which Paul believes has strong growth potential. “The Australian legal industry’s worth over A$22bn a year and there are well over 10,000 firms,” he says. “My estimate is that of that A$22bn spend, over half of that is spent by businesses in our target market – the mid-market. We’re not even getting a drop in the ocean.” And unlike the premium legal services market, there is an absence of a clear set of competitors, although Paul acknowledges that there are some parallels between M+K and listed firm Integrated Legal Holdings. “However, we are looking to build our firm under one common brand – my understanding Australasian Legal Business ISSUE 9.12
Photography by Thilo Pulch
profile | managing partner >>
www.legalbusinessonline.com
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profile | managing partner >>
is that ILH are not,” he observed. The other distinctive feature of M+K is the reliance on relationships rather than tenders or panels to generate new work. “Most mid-size firms might operate in our market, but they’d also rely on having a contract with an institution or government or major bank,” says Paul. “Most of our work comes from personal relationships with CEOs or MDs – not from panels or tenders.” As mid-market companies adopt more formal structures for external legal advisors, it is inevitable that M+K will find itself spending more time on tenders, a result that is already beginning to manifest itself with some of the firm’s older clients such as the City of Greater Dandenong, which runs a tender process every two years. M+K, an advisor to the City for over 100 years, is now required to bid and has thus far successfully retained this work. “If we have a client that grows to the point where it gets formal enough to want us to tender, we’re not going to say no – because we want to retain that relationship,” says Paul. “But that’s not the same thing as tendering where there has been no relationship, no contact, no past history. We want to build a firm based on solid relationships.” There are, however, advantages of having a long term contract to supply legal advice, a point which Paul acknowledges. “It would be nice to start the year knowing you’re going to get x million worth of work from an institutional client,” he concedes. “One of the downsides of being a business like ours is that most of our lawyers will know what work they’ve got to do today and perhaps for the next month, but will wonder where the next job is going to come from. But that helps keep them hungry and good at marketing
and client service and maintaining relationships. We don’t get work because we have a contract – our clients have choices. We get work because they want to stay with us.”
Corporate structure
Like many firms, M+K has seen value in adopting a corporate structure along the same lines as the typical client. “We believe it’s a benefit for our clients to have lawyers who think the way they think,” says Paul. However, M+K has gone a good deal further than the typical law firm in pursuit of a corporate structure: there are no partners or equity points on offer in this firm and no controversy about how to split the profit pie. Instead, principals are paid an agreed salary and a performance bonus and, if they choose, the option to buy shares in the firm. There is no automatic allocation of shares to incoming principals, this is left as an option – although principals who join the firm as part of a merger receive shares as part of their purchase price. The majority of the firm’s principals are shareholders. “Those that are shareholders and have been since our incorporation in July 2008 have received consistently good dividends on the shares – double digit – and they’ve seen their shares increase in value by 50%,” says Paul. The firm’s structure has given rise to market chatter about a possible IPO, a point which has not been lost on Paul. “This is a structure that provides the shareholders with options down the track in relation to exiting the shareholding,” he observes. “However, at this stage there is no reason to list nor are we big enough in my view. And so far – and I don’t see this changing soon – our funding needs are being fully met from our existing sources of funding.” Instead, M+K has set itself a
“Virtually from the month a lawyer joins, they have the hard hat on – they are down visiting clients at their premises, regardless of who the client is”
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shorter term goal of consolidating its acquisitions to date and continuing to grow over the next five years. “We’ve gone from having offices in one state to four relatively quickly,” observes Paul. “It’s important to consolidate by getting common practice systems and processes in place across the firm nationally. That’s one reason we have invested very heavily in the national management team: HR, marketing and strategic management. We will also continue to consider any merger opportunities that make good sense, but we’re not busting our gut for example to be in Perth or Adelaide or Darwin tomorrow – but if the right opportunity comes along obviously we’ll look at it.” While it is clear that the M+K model is a sound business proposition, it is also easy to imagine young graduates shunning the firm, believing that top tier firms offer a more glamorous and challenging alternative. When asked to sell the virtues of a career at M+K, Paul points out that the firm’s close relationships at the CEO and MD level means that all of the firm’s lawyers benefit from closer involvement with the client’s business. “In the big firms I would imagine junior lawyers would rarely get to visit the CEO or MD on the premises,” he says. “That’s a feature here. Virtually from the month a lawyer joins, they have the hard hat on – they are down visiting clients at their premises, regardless of who the client is.” Nor does Paul believe that the work is any less stimulating. For those eyeing an in-house career, he suspects that five years at M+K would be more beneficial than a similar period at a top tier firm. “My understanding is that at a big firm, you probably get to a point where you are focussed on a pretty thin vein of law, highly specialised,” he says. “Whereas we need our lawyers, especially in the first three to five years, to be exposed to a number of different areas of law before they start to specialise in their field. So it’s a broader focus.” ALB
Australasian Legal Business ISSUE 9.12
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ALB special report | New Zealand 2011 >>
New Zealand 2011 It’s been an eventful year for New Zealand’s law firms, but what does 2012 hold? Kathryn Crossley investigates.
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I
t has been a headline-making year in New Zealand. After the Pike River Mine disaster and the first Christchurch earthquake in late 2010, the country was still reeling when a second quake struck Christchurch in February. As the New Zealand economy slowly lifts itself out of the 2008-09 recession, the resurgence of economic concerns in Europe and the U.S. in the latter half of this year has exacerbated market uncertainty. “Business confidence levels generally are low and for many sectors volatile,” says Gary McDiarmid, CEO at Russell McVeagh. “Numerous business confidence surveys during the year have the appearance of a
Disneyland ‘Big Dipper’ roller coaster track. We have had surges in confidence that are promptly snuffed out a month later – that has happened a number of times this year.” “We’re very affected by what’s happening internationally and what’s happened in the last few months, you could just see the effect it had on some deals that were being looked at,” says Kevin Jaffe, chairman of Simpson Grierson. “Some of them stopped in their tracks and I would describe it as a wave of caution [that] has come across us again.” The overriding sentiment among the majority of lawyers is that the market is unlikely to change dramatically in Australasian Legal Business ISSUE 9.12
ALB special report | New Zealand 2011 >>
2012. “People are just not sure what the market is going to bring us going forward, but I don’t see people sick with worry and very pessimistic. I just see them being very uncertain,” says Peter Chemis, national chairman of Buddle Findlay. With the rebuilding process progressing slower than expected in Christchurch, plus the general election and Rugby World Cup slowing activity in the latter half of 2011, it is little wonder that this has been a challenging year for New Zealand’s law firms.
Transactional work
Transactional activity has remained patchy and the business mood subdued www.legalbusinessonline.com
for most of 2011. “It’s fair to say we’re probably in the same space that we were this time last year,” says Chemis. “M&A lawyers have not had a great time in the last three years … they’ve had some great transactions in that period but nowhere near as many as they had in the three years before that.” “The market is small enough in New Zealand [that] it only needs one or two major projects on ‘til it feels like it’s booming. But you realise that when those transactions finish it often goes quiet again,” says Andrew Poole, managing partner at Chapman Tripp. “There’s a continuing hesitancy or reluctance to push the button.”
“Numerous business confidence surveys during the year have the appearance of a Disneyland ‘Big Dipper’ roller coaster track. We have had surges in confidence that are promptly snuffed out a month later – that has happened a number of times this year.” Gary McDiarmid
Russell McVeagh
37
ALB special report | New Zealand 2011 >>
“People are just not sure what the market is going to bring us going forward, but I don’t see people sick with worry and very pessimistic. I just see them being very uncertain.” Peter Chemis
Buddle Findlay
Poole adds that most corporate work has arisen from insolvencies, particularly in the finance company sector, rather than confidence and players returning to the market. One such example is the NZ$1.6 billion receivership of South Canterbury Finance, which has prompted significant asset sales. With food security of growing concern in Asia, interest from foreign investors in New Zealand remains high. New Zealand food and beverage businesses, and particularly farmland, have become an area of focus as well as a political issue. “China is awash with capital looking for a home and New Zealand is severely capital constrained, with a whole lot of infrastructure projects that need to be funded. At one level there’s an obvious marriage between Chinese capital and New Zealand needs but there are some equally obvious political issues with that,” says Poole. Overseas investment activity does not all flow in one direction, however. Roger Partridge, chairman of Bell Gully, has noticed New Zealand companies increasing their global aspirations, having acted on several significant acquisitions by New Zealand businesses offshore. He expects this trend to continue into 2012: “There’s good reason to think that New Zealand businesses with strong balance sheets will be continuing to go on the acquisition trail outside of the country,” he says.
Raising capital
Capital raising has remained relatively stable in 2011. “There’s been a reasonable level of capital raising by corporates, not nearly so much as there was in the aftermath of the GFC when there were between NZ$6 and NZ$7 billion dollars in equity raised through rights issues, as corporates looked to replace bank debt with equity, but there have been a good number of capital raisings this year,” says Partridge. “[Capital raising] is better than it has been for some time,” says Cathy Quinn, chair of Minter Ellison Rudd Watts. “It’s certainly a lot easier than it was; that doesn’t mean to say some companies, particularly smaller operators or people trying to get off the ground are finding it easy.” Firms have reported some bond issue work; Poole observes that covered bonds have become very popular over the past twelve months, with Chapman Tripp advising three banks on covered bond issues. IPO activity, however, remains quiet amidst ongoing uncertainty. “There was some very big IPOs planned in the first half of the year and with the tightening of financial markets, the European financial crisis, they were almost all shelved,” says Partridge. “There are signs of life in the equity market, with IPOs, including the pending separation of Telecom into two listed companies, the very recent Trade Me IPO, and SOE partial privatisation post election looking likely,” says
“China is awash with capital looking for a home and New Zealand is severely capital constrained, with a whole lot of infrastructure projects that need to be funded. At one level there’s an obvious marriage between Chinese capital and New Zealand needs but there are some equally obvious political issues with that.” Andrew Poole
Chapman Tripp
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Australasian Legal Business ISSUE 9.12
ALB special report | New Zealand 2011 >>
McDiarmid. “However volatility in markets is making it hard to ascertain values.” In 2011, “private equity activity is largely secondary, ie PE to PE that requires no or little additional funding,” adds McDiarmid. “This reflects the reduced risk appetite.”
Infrastructure
“We’ve been working hard on getting people back and getting them back sooner and we’re going to continue to do that next year.” Roger Partridge
Bell Gully
Unsurprisingly, infrastructure has been an active sector in 2011, with the roll out of the NZ$1 billion ultra-fast broadband project, effectively a joint venture between the Crown and what will be a separated network arm of Telecom. Although the reconstruction in Christchurch is attracting considerable attention and is expected to provide law firms with work for several years, numerous other government projects are expected to keep New Zealand’s infrastructure lawyers busy in 2012. Treasury’s National Infrastructure Unit has taken steps towards developing PPP procurement in New Zealand, with a draft pro-forma PPP contract released for public consultation in 2010. “The government released its National Infrastructure Plan in July 2011, in which it details its commitment to infrastructure spending (social, water, transport, energy and telecoms), and also greater use of the private sector to fund projects,” says McDiarmid. Lawyers will be watching New Zealand’s first PPP projects – the construction of a prison in South Auckland and two schools in Hobsonville – with interest as 2012 progresses. Construction of Wiri Prison is expected to begin in the latter half of next year, and the schools are scheduled to open in 2013.
Christchurch
Reconstruction work in Christchurch is still in the early stages, with continuing aftershocks hampering progress and causing further uncertainty. “It’s definitely not as if the work that was expected there for the building industry has taken off yet but there’s a huge amount that has to be done. There is going to be a lot of work in that area for the next five to 10 years,” says Jaffe. 40
For numerous firms and their clients, one of the main challenges in Christchurch remains that of space, with many operating out of smaller premises in the suburbs while waiting to re-occupy the CBD. Although it isn’t quite business as usual, a sense of normality is returning. “Business has got stronger and stronger,” says Poole. “It has surprised us the amount of opportunity that there is in Christchurch.” Buddle Findlay’s Chemis admits that securing alternative office space was initially a challenge for the firm following the February quake, but has since found more suitable premises. “We’re up and running … but if you compare the offices to what you would have in a perfect world as a major law firm, we’re still a long way from that.” Chemis says the firm is currently looking at a build opportunity and expects to be back in the CBD and in the new premises within eighteen months. Staff morale has also been a focus for firms in Christchurch: “The mood has been a bit of a rollercoaster; post Australasian Legal Business ISSUE 9.12
ALB special report | New Zealand 2011 >>
Experience counts
Moving from strength to strength, adding significant breadth and depth to our partnership
Rodney Craig Partner, Wellington
• • • •
Mergers and Acquisitions Corporate and Commercial Capital Markets Corporate Recovery and Insolvency
Silvana Schenone Partner, Auckland
• • • •
February it has been extremely difficult. Things were starting to recover and then we had the big aftershock mid year … It was unexpected and it knocked people’s confidence a lot. Luckily now there’s been a reasonable period of time where there haven’t been any major aftershocks,” says Poole. Despite these setbacks, staff morale has remained strong overall. “We had a full house the day we re-opened, and even though we made it clear that people’s priorities should remain themselves, their families and their homes, we were really gratified by the fact that people turned up … It’s been a privilege to see the resilience of the people,” says Poole.
Jeremy Muir Partner, Auckland
• • • • • • • •
Just over a year has passed since the Auckland ‘Super City’ amalgamation took effect. Although it is still early days, the transition has been relatively smooth and well-received. “It’s come together very well,” says Jaffe. “It was a huge thing to put together eight councils … The companies that have spun off with transport and waterfront and facilities, they’ve all got on with their businesses and it seems to
www.legalbusinessonline.com
Securities and Managed Investments Financial Services Regulation Capital Markets Private Equity and Venture Capital
Kate Healy Partner, Auckland
Auckland Super City
For numerous firms and their clients, one of the main challenges in Christchurch remains that of space, with many operating out of smaller premises in the suburbs while waiting to re-occupy the CBD
Mergers and Acquisitions Private Equity Takeovers Latin American
Real Estate Corporate Recovery and Insolvency Property Finance Hotels
Patricia Green Partner, Wellington
• • • •
Real Estate Corporate Recovery and Insolvency Commercial Leasing Construction
www.minterellison.co.nz excellence
innovation
knowledge 41
ALB special report | New Zealand 2011 >>
have integrated very well. You have the odd thing that comes up, which is inevitable, but from where I sit I think the integration has been everything they hoped for.” Partridge agrees: “There have been some teething problems but I think generally the reaction from the community, business and the wider public, has been positive.” The Super City passed its first big challenge by successfully hosting the Rugby World Cup. “General consensus was that the Super City was able to organise activities for the Rugby World Cup much better, and take an all-ofAuckland view much better than it would have been if there were multiple territorial authorities,” says Partridge.
Events and expectations
“It’s just a very cautious environment. I think businesses have strengthened their balance sheets and got themselves in a better state in the last few years but it doesn’t mean that they’re boldly going out there to do new things.” Kevin Jaffe
Simpson Grierson
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The recent Rugby World Cup and the upcoming general election have meant that most firms have experienced slower activity in the second half of 2011. World Cup preparations and the event itself provided a boost to infrastructure, hospitality and retail industries, but law firms were expecting reduced activity during the event. “It was never going to be a time where there was frantic activity … – except on the rugby field,” says Jaffe. According to Poole, Chapman Tripp budgeted for reduced revenue during the World Cup, but says the noticeable downturn that many had predicted did not eventuate: “it was a little quieter for us during the Rugby World Cup, but not hugely so.” Ultimately, firms were not expecting the World Cup to generate considerable legal work from foreign investment interest: “I don’t think we’ve yet seen any boost in investment activity as a result of [the World Cup]. There was a lot of showcasing of New Zealand product and entrepreneurship to the world, but the flow on from that is likely to take time,” says Partridge. While events in the latter half of 2011 have brought about quieter business conditions, there is a light at the end of the tunnel for law firms. As ALB goes to print, New Zealand is preparing to vote in the upcoming general election. If returned to Australasian Legal Business ISSUE 9.12
ALB special report | New Zealand 2011 >>
power, as many expect it will be, the National Government’s proposed mixed ownership model, which involves the partial sell down of five state-owned enterprises, will provide some joy for lawyers in 2012. If these proposed sales go through, they are expected to stimulate market activity and will provide a boost to the stock exchange. The companies earmarked for the scheme include energy companies Mighty River Power, Genesis, Meridian and Solid Energy.
Industry trends
Given the current status of New Zealand’s markets, many firms are focusing on the medium to long-term, working to ensure they are servicing clients’ needs and have the right expertise and people. “You’ve got to be very fleet-footed and obviously, it goes without saying, you’ve got to really understand your client base and have good people,” says Jaffe. Firms are expecting staff numbers
14
Years of Tax experience at Simpson Grierson.
to remain stable into 2012, but all will continue their focus on attracting alumni returning from overseas. “We’ve been working hard on getting people back and getting them back sooner and we’re going to continue to do that next year,” says Partridge. Firm management models are gradually changing, however. Following the departure of Chapman Tripp’s long-serving Chief Executive Alastair Carruthers last year, the firm adopted a different management model. Poole believes Chapman Tripp is not alone in making these changes and says there is an emerging trend of law firm management structures changing to a model that more closely resembles those of their corporate clients. Fee and price pressures also remain on the radar for New Zealand firms, says Partridge: “in relation to billing we’re seeing in the market place generally a much higher requirement for fixed price billing and certainly more alternative billing arrangements.”
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Given the current status of New Zealand’s markets, many firms are focusing on the medium to long-term, working to ensure they are servicing clients’ needs and have the right expertise and people.
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www.legalbusinessonline.com
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ALB special report | New Zealand 2011 >>
ALB asked New Zealand firms to name their top deals of 2011. ►► TOP DEALS OF 2011 Firm
Matter
Value
Client
Bell Gully
Ultra-fast broadband initiative
NZ$1.3bn
Crown Fibre Holdings (a New Zealand Government owned investment vehicle)
Asahi Group Holdings acquisition of Independent Liquor Group
NZ$1.5bn
Asahi Group Holdings
Fletcher Building takeover of Crane Group
NZ$1.3bn
Fletcher Building
Acquisition of Burger King franchise in New Zealand
Undisclosed
The Blackstone Group
Extension of the Mixed Ownership Model (partial sell-down of shares in certain state-owned companies)
Undisclosed
The New Zealand Treasury
Buddle Findlay
Chapman Tripp
Minter Ellison Rudd Watts
Russell McVeagh
Simpson Grierson
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Olam International takeover of NZFSU
NZ$120.3m
Olam International
Z Energy bond issue
NZ$150m
Z Energy
GE Money sale of residential mortgage portfolio
NZ$1bn
GE Money
Blue Star restructuring
N/A
Bank of New Zealand as Facility Agent and Security Agent, Bank syndicate comprising Commonwealth Bank of Australia, Bank of New Zealand and Bank of Scotland (International)
GE Commercial acquisition of Face Finance
NZ$100m
GE Commercial
Bank of India becoming NZ registered bank
N/A
Bank of India
MARAC Finance Limited, Canterbury Building Society and Southern Cross Building Society merger
Undisclosed
MARAC Finance Limited, Canterbury Building Society and Southern Cross Building Society
AMP acquisition of AXA Asia Pacific Holdings
NZ$5.2bn
AMP
Receivership of South Canterbury Finance
NZ$1.6bn
South Canterbury Finance Limited (In Receivership) / McGrathNicol
Quadrant Private Equity IPO and NZX listing
NZ$300m
Quadrant Private Equity
Telecom bid Crown Fibre Holdings (CFH, New Zealand State Owned Enterprise) for the delivery of the Government’s Ultrafast Broadband (UFB) project.
NZ$929m
Telecom New Zealand Limited
Sale of Antares Restaurant Group, NZ operator of Burger King Undisclosed
Anchorage Capital Partners (Australia)
Partial takeover offer for 38.3 percent of the shares in PGG Wrightson Limited not already held by Agria
NZ$141m approx
Agria Corporation and New Hope Group (China, Singapore)
Acquisition of Helicopters (N.Z) Limited
NZ$154m approx
Canadian Helicopters Limited (Canada)
Acquisition of Tegel Foods
Undisclosed
Affinity Equity Partners (Singapore)
Acquisition of majority stake in Scales Corporation Limited
NZ$44m approx
Direct Capital Limited (NZ)
Telecom demerger
NZ$4bn
Telecom Corporation of New Zealand Limited
Fonterra Capital Restructure
NZ$6.1bn
Fonterra Co-operative Group Limited
Trade Me IPO
NZ$1bn
Fairfax Media and Trade me
Whitcoulls/Borders Administration
NZ$260m
Ferrier Hodgson (Australia)
Canterbury Earthquake Recovery Authority Red Zone acquisition
NZ$2bn
Canterbury Earthquake Recovery Authority
Sleepyhead purchase of Pacific Brands' Dunlop Foams and Sleepmaker businesses in Australia and the sale by Sleepyhead of its Wonderlay carpet underlay assets to business to Pacific Brands.
NZ$168m
New Zealand Comfort Group (then Sleepyhead Manufacturing)
Taisho Pharmaceutical Co Limited purchase of 100 percent shareholding in Hoepharma Holdings Sdn
NZ$165m approx
Taisho Pharmaceutical Co Limited
Northpower participation in the Ultra-Fast Broadband Project for the Whangarei region
Undisclosed
Ultra-Fast Broadband Management (Central Fibre Consortium and Northpower)
Restructure of Westpac's New Zealand operations (Project Linc)
NZ$12bn approx
Westpac Bank
Addition of Coca-Cola NZ to the Australian group's euro medium-term note (MTN) programme
NZ$2.7bn
Coca-Cola Amatil (NZ)
Matariki Forests refinancing of a syndicated facility
Undisclosed
Matariki Forests Australasian Legal Business ISSUE 9.12
ALB special report | New Zealand 2011 >>
“Corporate clients have probably reacted to their own cost pressures in two ways. One is to have conversations with us around price and around value … but also by increasing the size of their in-house teams for handling more regular commercial contracts that they perceive they can handle that more economically,” says Poole.
Predictions
Law firms are predicting 2012 to be slightly stronger than 2011, with reconstruction activity in Christchurch expected to drive some growth next year, and PPP-driven infrastructure work also anticipated. M&A work is expected to pick up, as is equity capital markets work in the event that the government’s mixed ownership model program comes to fruition. Financial markets reform and financial services regulation are also expected to continue generating inquiries. Lawyers believe that receiverships and insolvency will remain busy, as
will litigation. “I think litigation will continue to be very strong,” says Quinn, adding that clients are “continuing to deal with the ramifications and fall out from the global financial crisis.” Despite these growth predictions, market conditions in 2012 will likely remain difficult as many clients take a wait-and-see approach. “It’s just a very cautious environment. I think businesses have strengthened their balance sheets and got themselves in a better state in the last few years but it doesn’t mean that they’re boldly going out there to do new things,” says Jaffe. Although 2012 will present its hurdles, New Zealand’s lawyers remain positive: “I think we’re in a fortunate position and it’s better than most other countries. That doesn’t mean to say that it’s great but it’s better than most other places,” says Quinn. “We’re expecting another challenging, competitive year next year.” ALB
PAULA BROSNAHAN*
GARTH GALLAWAY
EDWARD SCORGIE
PENNY SHEERIN
AUCKLAND ENVIRONMENT, PLANNING & RESOURCE MANAGEMENT T: +64 9 357 9253
AUCKLAND LITIGATION & DISPUTE RESOLUTION T: +64 9 357 8989
www.legalbusinessonline.com
CHRISTCHURCH LITIGATION & DISPUTE RESOLUTION T: +64 3 353 4130
AUCKLAND FUNDS & FINANCIAL SERVICES REGULATION T: +64 9 358 9817
“I think we’re in a fortunate position and it’s better than most other countries. That doesn’t mean to say that it’s great but it’s better than most other places” Cathy Quinn
Minter Ellison Rudd Watts
DANIEL KALDERIMIS
WELLINGTON LITIGATION & DISPUTE RESOLUTION T: +64 4 498 2409
EMMA SUTCLIFFE WELLINGTON FINANCE T: +64 4 498 6323
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Feature | interview >>
In-house perspective
Michael Kingston, chief legal officer Australian Securities and Investment Commission
Switching sides: from corporate counsel to corporate watchdog ASIC Chief Legal Officer Michael Kingston tells Olivia Collings that it was his interest in company law that inspired him to leave an illustrious private practice and corporate career to head up the government’s finance watchdog legal team; a role where he handles a wide range of cases and gets the opportunity to be at the forefront of setting the regulatory framework.
“ASIC is now achieving really worthwhile outcomes and has taken on significant new areas of regulatory responsibility successfully.”
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T
he Australian Securities and Investments Commission (ASIC) is one of many government bodies that regulates, educates and sometimes litigates corporate entities in Australia. In the past year alone ASIC has concluded various criminal prosecutions against individuals at Chartwell Enterprises, Opes Prime Stockbroking, and Westpoint to name a few. It also instigated actions on behalf of investors against numerous companies and in a major coup won two high profile cases against directors and officers at Centro Properties Group and against Fortescue Metals Group (although the Fortescue judgment has been appealed to the High Court). There to advise ASIC in its various legal activities is chief legal officer Michael Kingston; a former Mallesons Stephen Jaques partner and corporate lawyer. Kingston began and ended his
private practice career at Mallesons, including 15 years as a partner; however, his experiences while at Mallesons were varied and included a stint in London at Slaughter and May, time in-house at BHP and working for the Papua New Guinea Government as a legal advisor. In 2003 he decided to leave Mallesons and took some time off to study a Master of Law at Columbia University, New York. On completion he returned to Victoria and joined the Bar, when four years later the ASIC position came up. “As someone interested in company law – and company law was what I mainly practiced in – it struck me as a great opportunity,” says Kingston. “ASIC is at the centre of company law, the regulation of companies and markets … I thought I would get to work on a wide range of cases, difficult issues, issues at the forefront of setting the regulatory framework.” Australasian Legal Business ISSUE 9.12
Photography by Thilo Pulch
Feature | interview >>
www.legalbusinessonline.com
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Feature | interview >>
While working for and then against corporates might seem like a momentous jump to some, Kingston says in many ways doing legal work at ASIC is quite similar to working in a large law firm. “Certainly the quality of work is just as good, and the pressure can be relatively demanding,” he states.
All hands on deck
As head of a team of special counsel in the Chief Legal Office (CLO) Kingston oversees 50 lawyers who he says, have all contributed to ASIC’s success, which in the past year has been significant. Across ASIC, there are about 400 lawyers, working in the stakeholder teams, deterrence teams and real economy, and the CLO works with those other lawyers on more important or complex matters in a collaborative way. “I think the way we have helped ASIC bed down its role in the supervision of credit and markets has gone very well and there have been a few people in CLO group who have done tremendous work to help achieve that,” says Kingston. “ASIC is now achieving really worthwhile outcomes and has taken on significant new areas of regulatory responsibility successfully.” In addition ASIC has achieved positive results in criminal market integrity matters, insider trading, market manipulation and many other areas. “The records show that the number of market integrity matters brought to trial, the number of successes, the increasing degree to which the courts see these offences as serious all show ASIC has achieved a lot; and again it’s an achievement for all of ASIC – but a couple of senior criminal lawyers in the CLO group have contributed to that in a big way as well, of course, as the Commonwealth Director of Public Prosecutions,” says Kingston. The team of lawyers, which are spread predominantly across Melbourne and Sydney, provide advice and oversight on major deterrence cases, new areas of regulatory responsibility and also advice in relation to complex or novel regulatory matters. The type of work they do is diverse and can include assisting stakeholder teams with regulatory work, making 48
policy decisions, granting relief from the operation of the Corporations Act and surveillance. The team is divided across a number of specialised areas, including civil litigation. Senior litigation lawyers in the CLO are required to be the solicitor on the record in civil litigation and work very closely with the deterrence teams. The CLO also houses criminal lawyers who liaise and brief the Director of Public Prosecutions with regards to those matters. In addition there are administrative lawyers and hearing delegates, who make administrative decisions, such as cancelling someone’s financial services licence, or amending it or banning them from the financial services industry. Some of the lawyers in the team come from private practice while others have joined ASIC straight out of law school. Lawyers in the CLO are required to complete technical legal work themselves, provide advice to the team or commission, or work with lawyers in other parts of the organisation in a collaborative way to produce, as a group, the desired legal outcome. As part of his role at ASIC, Kingston sees it as his responsibility to make ASIC a good place for lawyers to work; providing them with training, legal education and secondment opportunities so that ASIC can go on attracting good lawyers, therefore continuing its resourcefulness and success. Working at ASIC, claims Kingston, is an ideal way for any lawyer interested in corporate or commercial law, M&A, criminal law or regulation to gain an in-depth understanding across a diverse range of matters. “I think ASIC provides a terrific array of legal experiences for lawyers, across the whole company and commercial law area,” he adds.
More David than Goliath
Despite the number of cases on the go at any one time most of ASIC’s legal work, with the exception of barristers, is done in-house. “The lawyers within ASIC have become highly skilled and experienced, and we tend to think that we get the best outcomes in terms of policy, advice and decision making and cost by doing the vast bulk of
that work internally,” says Kingston. However when it comes to legal advice which sits outside the day-to-day work undertaken by ASIC Kingston will send work to firms on its legal panel. “Occasionally we will also engage an external firm to help us conduct civil litigation; it has happened on some large matters,” he adds. The ASIC legal panel includes the Australian Government Solicitor, top tier firms and mid-sized firms, and has recently been renewed for a further year pending the Commonwealth Government’s move towards a multiuse list, which is being instigated by the Attorney General's Department. In exceptional circumstance s Kingston will sometimes look beyond the panel for firms to run a civil litigation case on behalf of ASIC. “We might approach a small number of firms and see if they are interested, if they have any conflicts, pricing … and conduct a mini tender,” says Kingston. While much of the media coverage around ASIC is centred on its civil and criminal proceedings Kingston claims deterrence activity occurs in only a minority of cases. “I suspect within the CLO group less than half of our work is in the deterrence area,” he states. As a government-funded entity ASIC’s resources are not unlimited and the cases it pursues have to be undertaken within budgetary confinements. “We work within a budget, that obviously affects the way in which we approach cases,” explains Kingston. However, while there are occasions when it may appear the opposition has more resources available to them, Kingston says the way ASIC copes with this is directly related to its staff. “We rely on the people working on the matter, on our staff to bring a level of skill and dedication to the matter to overcome any imbalance … We also rely on the counsel we engage who when they take on ASIC briefs tend to be very supportive in terms of the amount of work they do to present our case,” he adds. As an example of this, Kingston cites the Centro Property Group case, which was run internally with a relatively small number of people and resulted in a significant win for ASIC ALB Australasian Legal Business ISSUE 9.12
debt capital markets | Clayton Utz >>
The rise of the Australian Debt Capital Markets 2011 has been a challenging year for the Australian debt capital markets. On top of the string of foreign sovereign debt crises over the past 12 months, the markets have absorbed an unprecedented level of significant domestic and international regulatory developments. Louise McCoach and Alex Chernishev from Clayton Utz highlight some of the more important regulatory developments that are shaping the future of the Australian debt capital markets.
Basel III – Impact on the Bond Markets and Beyond
The Basel III capital reforms will require banks to hold more and a better quality capital. In particular, banks will be required to increase their holdings of high quality capital (comprising common shares and retained earnings) to meet an uplift in their minimum common equity tier 1 capital requirements from 2 percent to 4.5 percent. In addition, Basel III requires minimum supplementary capital buffers to be held over and above the minimum common equity tier 1 capital requirements. Although Basel III allows a phase-in period for the new capital requirements, the Australian Prudential Regulation Authority (APRA) has indicated that it intends to implement the Basel III capital requirements for Australian Deposit-Taking Institutions (ADIs) on an accelerated basis without any phasing in period. Under the accelerated timetable, ADIs will be required to hold 4.5 percent common equity tier 1 capital from 1 January 2013 and satisfy at least one of the supplementary buffers from 1 January 2016. Basel III has also introduced two minimum international liquidity standards to improve the banking sector’s ability to absorb shocks arising from financial and economic stresses. The new liquidity coverage ratio (LCR) requires banks to hold sufficient high-quality assets to 50
meet a significant stress scenario of 30 days whilst the new net stable funding ratio (NSFR) is designed to promote banks funding their activities more stably on an ongoing basis and is tested over a one year period. APRA has indicated that the largest 40 ADIs will be required to satisfy the LCR from January 2015 and the NSFR from January 2018.
Implications for corporate issuance
The new Basel III capital requirements will have significant implications for the Australian bond markets. ADIs are already bracing themselves for an increase in the cost of holding more capital, which is likely to create upward pressure on the cost of bank credit. These dynamics will make the debt capital markets a more attractive funding option for many investment grade corporates who have traditionally accessed bank credit reasonably cheaply. Although larger rated corporates already regularly issue into the offshore debt capital markets, other corporates may turn to wholesale and retail investors in the Australian bond markets more regularly than they have in the past, and some for the first time.
Implications for bank hybrids
The Basel III capital requirements leave less scope for banks to satisfy
their regulatory capital requirements through hybrid issuance. Currently, ADIs can hold up to 6 percent of their total regulatory capital in noncore capital instruments. This will change on 1 January 2013 when the maximum holding of non-core capital will reduce to 3.5% of total regulatory capital. The overall issuance of hybrids by ADIs to meet their noncore regulatory capital requirements is therefore likely to reduce over the next decade. In addition, stricter criteria for these types of instruments under Basel III means that many of the more attractive debt features of bank hybrids will be pared back and replaced with equity features. In the lead up to implementing the Basel III capital requirements, APRA has indicated that it will publish updated prudential standards for noncore regulatory capital. Pending the release of the updated standards, there has been very little regulatory hybrid issuance by ADIs, notwithstanding interim guidance that APRA has issued in advance of providing finalised prudential standards. ANZ’s $1.34 billion CPS3 hybrid capital issue in September this year is the only bank hybrid issue since 2009. The convertible preference shares constitute Residual Tier I capital under APRA’s current prudential standards and are eligible for transitional treatment as Australasian Legal Business ISSUE 9.12
debt capital markets | Clayton Utz >>
Additional Tier I capital once Basel III is implemented in Australia. The amount raised was almost double the size of the A$750m raising originally contemplated, and highlights a growing investor preference for certain types of fixed income securities over more volatile equities. The success of the ANZ CPS3 issue is a positive sign that there is likely to be a significant increase in regulatory capital activity over the short term by ADIs seeking to refinance their non-core regulatory capital raisings during the course of 2012. This activity is likely to accelerate once APRA has released finalised prudential standards for regulatory capital.
Implications for asset-backed, ADI and triple-A rated securities
Under Basel III, liquid assets that may be counted towards the LCR include government bonds, covered bonds and highly rated non-bank corporate www.legalbusinessonline.com
bonds. The scope of relevant assets will be more limited in Australia. APRA announced on 28 February 2011 that neither corporate nor covered bonds would be eligible for ADIs to meet the LCR test, at least until a track record of liquidity has developed in those asset types. However, given the relatively low volumes of Australian government bonds, APRA will permit ADIs to meet any shortfall in their LCRs through a committed liquidity facility with the Reserve Bank of Australia (RBA). Assets that can be pledged under the committed liquidity facility include A$ denominated RMBS, certain other asset-backed and ADI securities (including covered bonds), and triple-A rated securities. The RBA has also recently stated that self-securitised RMBS may also be pledged. The RBA’s committed liquidity facility is likely to increase balance sheet appetite amongst ADIs for RMBS, other assetbacked securities, ADI-issued debt
(including covered bonds) and triple-A rated securities.
Implications for retail bonds
The implementation of the NSFR ratio from 1 January 2018 will place ADIs under increasing pressure to extend the maturity of their funding profile to match their asset profile. The options that banks are already exploring to extend their funding maturities include increasing their term deposit base and offering retail bonds. Funding through these avenues will also serve to reduce ADI reliance on offshore wholesale borrowings for their funding needs, which is a factor under constant surveillence by rating agencies when rating ADIs. Although the Commonwealth Bank issued under a retail format in late 2010, it is interesting that there has been only two retail issuances by ADIs (Bendigo and Adelaide Bank and ANZ) since then. 51
debt capital markets | Clayton Utz >>
Any increase in ADI retail bond issuance in response to the NSFR requirement will provide much needed support for the development of the Australian retail corporate bond market, which Australian regulators have recognised for some time as inadequate to meet the funding requirements of corporate issuers and diversification needs of retail investors. The development of a domestic debt capital market that can support the Australian banking sector has become even more pressing given the recent downgrades by Standard & Poor’s of a number of ADIs. Standard & Poor’s cited the dependence of the Australian banking sector on offshore borrowings as one of the critical factors leading to their downgrade. To address this issue, the Australian government has adopted a staged approach to encouraging the development of a deep and liquid retail bond market, commencing with the release of an ASIC Class Order in May 2010 which was designed to provide disclosure relief for retail bond offers. The Government contemporaneously announced a de minimis tax discount on interest income from bonds and
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similar investments under which 50 percent of the interest income would not be taxable, subject to an income cap of $1,000. It was hoped that the combination of the streamlined and simplified disclosure requirements and the interest income tax discount would increase the attractiveness of the corporate bond market for investors and issuers. However, the Class Order relief has only been used by one issuer since its introduction, which suggests that although it was a step in the right direction, it did not go far enough. Additional measures were announced in December 2010 as part of the Government’s Competitive and Sustainable Banking package, including a proposal to further reform the disclosure regime for retail corporate bonds and facilitate the listing and trading of Commonwealth bonds on the ASX. The aim of the listing measure was to provide retail investors with a more visible pricing benchmark for retail bonds and further encourage retail investors to diversify into fixed-income securities. The initiatives to date have had a disappointing overall impact on the volume of issuance into the Australian retail bond market. Large corporate borrowers including BHP Billiton, Telstra and Rio Tinto, continue to bypass the banks to source funds from the global debt markets rather than through the domestic capital markets. At the same time, the success of the ANZ CPS3 issue shows that demand amongst retail investors is strong for certain types of fixed-income securities; which suggests that the remaining hurdles for the retail bond market are likely to be driven by supplyside issues, including continuing concerns Alex Chernishev
over the regulatory regime and the impact this has on the time and cost involved in bringing a retail issue to market. The Government is well aware of these remaining hurdles and appears to be working towards a legislative solution. In an announcement on 29 November 2011 the Treasury stated that it was seeking to consult with market participants in order to finalise legislation designed to reduce the regulatory complexities for companies issuing retail bonds. The retail corporate bond market will receive a significant boost if the supplyside issues are solved by the proposed legislation.
Changes in Rating Agency Criteria
Recent changes in Standard & Poor’s view on what should be treated as equity in a company’s capital structure have made it easier for companies to issue securities that can be counted as equity for the purposes of their rating, but are priced by investors as debt. This has led to recent issuances in Australia of fixed income securities with both equity and debt characteristics, including a A$700 million issuance by Woolworths in October and a proposed $800 million issuance by Origin this month. Although the changes in Standard & Poor’s criteria have been known for some time, corporate issuers have only recently discovered the appetite of domestic investors for certain types of high-yielding ASXlisted securities issued by blue-chip Australian corporates.
Securitisation and Covered Bonds Reforms
The reforms announced in the Government’s December 2010 Competitive and Sustainable Banking package included measures aimed at improving the funding options for ADIs by opening up the Australian covered bond market and giving more support to smaller ADIs that have traditionally been very reliant on securitisation funding. Under the measures, the Government committed to legislative reform to give ADIs access to cheaper, more stable and longer duration funding in the wholesale markets by allowing ADIs to issue covered bonds. Australasian Legal Business ISSUE 9.12
debt capital markets | Clayton Utz >>
It also allocated a further $4 billion to the Australian Office of Financial Management’s (AOFM) programme towards investment in RMBS issued by smaller lenders, and committed to facilitating the development of a “bullet” RMBS market in order to increase demand amongst fixed income investors, such as superannuation funds. The Government delivered on its covered bond commitment in October this year, when legislation came into effect allowing ADIs to issue covered bonds. The legislation provides for covered bonds to be issued by a single issuer or issued under an aggregation structure involving multiple issuers. The opening of the Australian covered bond market is a timely and welcome development for larger ADIs seeking to refinance their senior unsecured debt without the benefit of a government guarantee. While covered bond issuance is generally well supported by offshore investors, there is diminishing investor appetite for senior unsecured securities which makes funding in these markets particularly difficult for ADIs. Both Westpac and ANZ have already launched covered bond programmes and it is expected that the two other majors will launch similar programmes next year. Whilst the larger ADIs are highly enough rated to issue AAA bonds under the single seller structure, it is generally expected that the rating of the smaller ADIs, and their balance sheets and asset growth rates, will require them to issue under the aggregation structure. Most of the details of the aggregation structure have been left to regulation which is yet to be released. However, investor feedback to date suggests that single seller issuance is likely to be the more attractive of the two options. The extent to which the regulations manage to address investor concerns with the aggregation structure will be critical to the ability of smaller ADIs to access the covered bond market. The importance of smaller ADIs having access to covered bond funding is underscored by various international reforms over the last 12 months affecting securitisation markets, which www.legalbusinessonline.com
smaller ADIs have historically been very reliant on for their funding needs. These are likely to result in the imposition of higher capital charges for securitisation exposures and affect demand for assetbacked securities issued by ADIs from traditional investor bases.
Where to From Here?
The global financial crisis has resulted in a number of large corporate borrowers bypassing the banks and instead, raising funds directly through the debt capital markets. It is likely that this trend will continue at an accelerated pace following the implementation of the Basel III reforms, which will make bank funding more costly and less attractive for many corporate borrowers. The Government is positioning Australia’s domestic retail bond market to be a viable funding alternative for corporates that traditionally fund through offshore debt capital markets. Although initial attempts by the government to kick-start this market have not been particularly successful there are promising developments on the horizon. The success of some recent retail issuances shows that demand amongst retail investors is strong for certain types of fixed-income securities. The market will also receive a significant boost if supply-side issues are solved by the recently announced legislative proposal to reduce the cost and regulatory complexity for companies seeking to issue retail bonds. Basel III will place pressure on ADIs to lengthen the maturity of their funding profile including through retail bond issuance. Although the overall level of regulatory capital
Louise McCoach
issuance by ADIs should trend down over the next decade, there is likely to be a significant increase in regulatory capital activity over the short term by ADIs seeking to refinance their non-core regulatory capital raisings during the course of 2012. The RBA’s committed liquidity facility is likely to drive balance sheet appetite amongst ADIs for highly rated RMBS and other securities that can be pledged as collateral under the RBA’s committed liquidity facility. Finally, the opening of the covered bonds market for ADIs will allow highlyrated ADIs to access an important new funding option going forward. These developments will position the Australian debt capital markets as an increasingly important source of funding for ADIs and Australian corporates – and overall, point to a significant shift in the future of the Australian debt capital markets to a more pivotal role in the Australian economy. ALB This article was written by Clayton Utz Debt Capital Markets partner Louise McCoach (lmccoach@claytonutz.com) and senior associate Alex Chernishev. 53
Q A FEATURE | Q&A >>
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Tony O’Malley managing partner, Mallesons Stephen Jaques Why has Mallesons signed an LPO agreement with Integreon? It’s about clients and responding to the demand for LPO amongst our client base. The intense cost pressures our clients are under and the broader consolidation and globalisation of the legal sector means that the demand for legal process outsourcing is stronger than it has been for some time. For the firm’s perspective it’s part of a broader journey for us – making efficiency and the delivery of legal service our challenge – not our clients. It allows us to continue to innovate our own service offering, during what is a period of significant change within the legal industry. LPO is already common practice elsewhere in the world, and it’s time that our clients have access to, and benefit from this innovative business practice. How did Mallesons come to decide on Integreon? We carried out due diligence on a number of legal process outsourcing companies and Integreon was the only provider that met all our rigorous demands. They demonstrated that they were able to scale their service to meet demand, offering a comprehensive range of solutions. We wanted to test it thoroughly before we offered it to the market. The best form of due diligence is working together on a project, and we did that over nine months, with a major client. Which clients will benefit most from sending work to Integreon? This won’t appeal to all clients – there are work areas suited to it. But if you are a major Australian corporate and you have a major book of litigation, which many of our clients do have, then this will be very relevant as not all litigation is strategically relevant and clients are looking to keep the costs down. For those that are pursuing growth by acquisition and looking at large and frequent M&A … it will be worth their while investing in this area.
This month ALB asks leading legal professionals for thier views on legal outsourcing
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It also has potential there for clients when they want it for foreign language capabilities, business continuity and accessing a broader talent pool across the region and potentially globally Will it have an impact on your graduate recruitment program? It won’t have much of an impact on our graduates or junior lawyers at all, if in any way. Much of the work which will be undertaken by Integreon would have previously been handled by paralegals and contractors. There might be some overlap in the work undertaken by grads in their first six months, but not much. From their perspective, it will actually be focusing them on building their skills and doing the work which they will be doing long term earlier.
Australasian Legal Business ISSUE 9.12
FEATURE | Q&A >>
David McCredie partner, Baker & McKenzie Does the firm have any LPO agreements with any LPO providers? Legal process offshoring is not new for us. Our UK and U.S. offices have been using LPO providers for more than five years and we’re well into incorporating LPO options into our Australia practices where relevant, having started working with one LPO provider more than 18 months ago. We work with a preferred list of legal outsourcing providers, one of which is Integreon, offering clients a choice based on their specific needs because different LPO firms have different capabilities and benefits. Was it a firm or client initiative? We have strategies in place globally and locally. In the UK and the U.S. the evolution of legal outsourcing has been driven by client needs but we have developed our strategies more broadly, not just in response to individual client requirements. We think the desire for LPO services in Australia will increase and as they do, we will continue to explore LPO with our clients. What are the main advantages for the firm in having an LPO agreement/s? We very much support LPO if it’s in the interest of the client. On the right matters, it has the potential to cuts costs, reduce matter and transaction time and allow lawyers to focus on the high level work. It’s important to be familiar with the LPO firm and understand the way they work. It’s a big investment and you can’t sign up without taking time to really research and do significant due diligence. This needs to be done in advance, to save time and reduce risk – if you don’t do it until an actual assignment is underway, it’s really too late. Our global review included dozens of providers and took many months, and it will be continually updated as the industry evolves.
Mark Rigotti managing partner, Freehills Will the firm be signing an LPO agreement/s in the near future? At Freehills, we are aware that our clients are looking for legal services which optimise value to them, at the right price point and with good risk management. Our primary goal is to work with clients to achieve that outcome. We continue to look at more effective ways of achieving this in conjunction with our clients. LPO providers are one of the various options available to achieve this but are not a complete solution in themselves. What impact does the firm expect LPO agreement/s to have on the firm’s junior staff? Interestingly we are finding that this will provide better opportunities for our younger lawyers to experience more diverse types of work and to have challenging work earlier in their careers.
www.legalbusinessonline.com
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FEATURE | Q&A >>
James Whittaker Stuart Clark chief operating officer, Clayton Utz Will Clayton Utz be entering into an exclusive LPO agreement in the next 12 months? No, we don’t think that’s the way to go about it. Our approach to outsourcing is very much focused on the client and specific matters. What we do with each transaction and piece of litigation is talk to the clients, about how we can best manage the particular matter. For example, if it involves a large amount of discovery it may be appropriate to get some of the work done by an LPO, but then we will choose the LPO specifically for the tasks. If the client, for example, has experience with using a particular LPO then we will use them, or if the client asks us for a recommendation, then we will make recommendations. We approach LPO in much the same way we approach the briefing of counsel. What’s the advantage in not having a single agreement with an LPO provider? I think it ensures that you are getting the best possible outcome; and it ensures some competitive tension amongst the providers. I think this drive to exclusive arrangements is being driven by the legal outsource providers. Why and when will Clayton Utz engage an LPO on a client matter? Each transaction or piece of litigation is approached as a bespoke manner and where it is appropriate to brief an outsource organisation we will, but we certainly do not have a policy of trying to do a mass transfer of work from graduate lawyers to LPOs. We think that that is not sensible and we recognise that that is not in the long term interest of the graduates, the long term interest of the clients and not in the long term interest of the firm. Indeed I don’t think it’s in the long term interest of the profession if we were to say that all of the research and discovery work should be shipped off to India, South Africa or anywhere else. And it’s not in the client’s interest, because we know from our experience, even research projects are most effectively executed by having a junior lawyer working with a partner or associate. If it’s all outsourced to an LPO you lose the benefit of insight and experience. What are the advantages for clients in briefing work to an LPO? Most definitely cost. But the cost has to be weighed against the benefit. There is also sometimes an advantage in being able to get things done in different time zones.
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partner, Corrs Chambers Westgarth Will the firm be signing an LPO agreement/s in the next 12 months? If yes, why? The firm has been looking closely at LPO for more than two years. During the past few months we have been through a request for information process with a view to identifying the preferred LPO collaborators – the process is ongoing. We do not see the legal services market requiring firms to have LPO agreements. Clients are interested in receiving legal services in the most productive, predictable and cost effective manner within their business context. Our detailed assessment of the market is that flexibility of legal service delivery will help some of our clients drive competitive advantage. LPOs are just part of that equation – it’s not a cookie cut solution for all clients needs. How far along in signing an LPO agreement/s is the firm? We have identified preferred collaborative partners based on our market assessment. We have performed detailed due diligence and have run pilot projects which delivered scale and productivity gains for us and our clients. Contextually, the issue is whether economic efficiency and productivity will be delivered and how that is to occur within the rubric of a particular clients demand. Not all clients are seeking LPO – indeed some reject it for a host of very sound business reasons. What impact does the firm expect LPO agreement/s to have on the firm’s junior staff numbers and profitability? We do not think there will be any impact on junior staff members. The reality is that the labour arbitrage offered by LPO is only one relatively small part of the equation. The scale required for LPO offerings to have any long term impact on junior staff numbers is simply not there in our market, the higher end or premium legal services market. For lower value commodity work there may be some challenges but that work is already under review through the growth of in-house capability and advances in technology driving efficiency in that particular space. We do not think LPO will have significant impact on law firm profitability because it is complimentary to the services we provide to our clients not in substitution for those services. What percentage of clients does the firm expect to take up the offer of legal outsourcing in the first 12 months of a formal agreement/s? Judging by the experiences of UK and U.S. law firms it is expected to be less than five percent of the business in the first 12 months. What are the main advantages for the firm in signing an LPO agreement/s? Principally, the advantages for the firm are driven by the advantages for our clients who see an LPO arrangement delivering a competitive advantage from a flexible and lower cost solution. Australasian Legal Business ISSUE 9.12
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MARKET DATA | M&A >> market data | M&A >> In association with
M&A TRANSACTIONS AND STATISTICAL ANALYSIS Top 10 Announced Deals - Australasia (01 November, 2011 - 28 November, 2011) Announcement Date
Target Company
Target/Seller Legal Advisor
Bidder Company
Bidder Legal Advisor
Seller Company
Clayton Utz; De Brauw Blackstone Westbroek; Freehills
Svenska Cellulosa Aktiebolaget SCA
Deal Value (AUDm)
04-Nov-11
SCA Hygiene Australia Pty Ltd (50% Stake)
Pacific Equity Partners
20-Nov-11
iNova Pharmaceuticals (Australia) Pty Limited
Valeant Pharmaceuticals International Inc
625
25-Nov-11
Flinders Mines Ltd
DMAW Lawyers
Magnitogorsk Iron and Steel Works OJSC
510
23-Nov-11
Crosslands Resources Ltd (50% Stake)
Advising seller: Corrs Chambers Westgarth; Freehills
Mitsubishi Development Pty Ltd
09-Nov-11
MSF Sugar Limited (78.02% Stake)
Mallesons Stephen Jaques
Mitr Phol Sugar Corp Ltd
07-Nov-11
Long Province Resources Limited
Zijin Mining Group Co Ltd
Warrior Advance Pty Ltd
175
03-Nov-11
Photon Group (field marketing business & Retail Agencies division)
Navis Capital Partners Limited
Photon Group Limited
147
21-Nov-11
TransACT Capital Communications Pty Ltd
09-Nov-11
Broadmarsh Shopping Centre (75% Stake)
Capital Shopping Centres Group Plc
15-Nov-11
Australian Refined Alloys Pty Ltd (secondary lead producing facility in Sydney)
Renewed Metal Technologies
Notes:
Clayton Utz
Mallesons Stephen Jaques
915
Murchison Metals Ltd
325
256
iiNet Ltd
100
Linklaters
Westfield Group
86
Australian Refined Alloys Pty Ltd
80
Based on announced deals, including lapsed and withdrawn bids, from 01 November 2011 to 28 November 2011•Based on geography of either target, bidder or seller company being Australasia•Includes all deals valued over USD 5m. Where deal value not disclosed, deal has been entered based on turnover of target exceeding USD 10m•Activities excluded from table include property transactions and restructurings where the ultimate shareholders' interests are not changed•League tables are ranked by value•Q4 11 * = 1 October 2011 to 28 November 2011
League Table of Legal Advisors to Australasian M&A (Nov 01, 2011 - Nov 28, 2011) Rank
House
League Table of Financial Advisors to Australasian M&A (Nov 01, 2011 -Nov 28)
Value (AUDm)
Deal Count
Rank
1
Freehills
1,240
3
1
Macquarie Group
2
Clayton Utz
1,015
2
2
Goldman Sachs
3
De Brauw Blackstone Westbroek
925
2
3
Adelaide Equity Partners
584
2
4
Mallesons Stephen Jaques
581
2
4
Citigroup
510
1
5
DMAW Lawyers
510
1
5
Rothschild
325
2
6
Corrs Chambers Westgarth
325
1
6
O’Sullivan Partners
325
1
7
House
Value (AUDm)
Deal Count
1,240
2
625
1
Linklaters
86
1
7
Greenhill & Co
256
1
8=
Johnson Winter & Slattery
74
1
8
Deloitte
100
1
8=
Piper Alderman
74
1
9
RBC Capital Markets
74
1
10
WongPartnership
44
1
10
CIMB Group
44
1
Australasian M&A Activity - Quarterly Trends 200
70,000
180 160
Value (AUDm) Volume
50,000
140 120
40,000
100 30,000
80
20,000
60 40
10,000 0
60
Number of deals
Value (AUDm)
60,000
20 0
Q1 03
Q2 03
Q3 03
Q4 03
Q1 04
Q2 04
Q3 04
Q4 04
Q1 05
Q2 05
Q3 05
Q4 05
Q1 06
Q2 06
Q3 06
Q4 06
Q1 07
Q2 07
Q3 07
Q4 07
Q1 08
Q2 08
Q3 08
Q4 08
Q1 09
Q2 09
Q3 09
Q4 09
Q1 10
Q2 10
Q3 10
Q4 10
Q1 11
Q2 11
Q3 11
Q4 11*
Australasian Legal Business ISSUE 9.12 Australasian Legal Business ISSUE 9.12
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