A&O in Oz – on the cards, sort of

February is already shaping up to be an eventful month with the news today that Allen & Overy (A&O) is making its debut in Australia with a 17-partner team coming just days after Latham & Watkins reinforced its international network with a 13-partner haul from White & Case. The primary casualty of this latest move, Clayton Utz, which is losing 14 partners to the London firm, was understandably so eager to get the news out first that A&O was caught scrabbling to catch up with its statement.

But in many ways this kind of move has been a long time coming. Initial reports of major City firms targeting the Oz market now stretch back more than a decade, when Clifford Chance (CC) first entertained non-committal merger talks with Mallesons Stephen Jaques. And both CC and Linklaters have scouted out the market in recent years, attracted by Australia's strategically useful position in Asia and the country's reputation for churning out technically accomplished and versatile lawyers with a commercial mindset.

Expectations that the City's finest would return to Oz were renewed when Norton Rose finalised its surprise tie-up with Deacons last June. With the Deacons deal explicitly sold on the basis of the increasingly key Asian market - a factor that looks even more compelling now given the region's strong performance in pulling out of the global recession - it was surely only a matter of time.

However, there may be surprise that the first magic circle firm to enter the market did not put together a deal with an unambiguously Asia-centric focus. The firms that A&O is hiring from - Clayton Utz and Freehills - are highly-regarded national practices but, unlike Australian rivals Mallesons and Minter Ellison, they have not clearly bet their future on securing pan-Asian reach.

Still, with investment from China and Japan into the resource-rich Australia and A&O already having well over 300 lawyers in Asia, the City firm is convinced this will be a compelling addition to its global network.

The deal, which includes highly-regarded corporate partner Michael Parshall, will also bolster A&O's credentials in the mining, energy and project sectors, areas in which Clayton Utz enjoys a commanding position. Critics will still argue that it is hard to make enough money in the national market to make it worth the hassle for a magic circle firm, but A&O, having spent three months researching the launch in earnest, is convinced there is a profitable market space awaiting the firm. The real proof of that conviction is that all 17 partners are entering A&O's equity.

The question on many lawyers' minds is: who will be next? Mallesons and Blake Dawson have both been cited as likely targets for a credible international partner. But Australia's top law firms, having gone through a series of national mergers in recent years, are far too large for most potential suitors' appetites. They remain an awkward size - too big to slot into a global network but not large or profitable enough to go convincingly cross-border on their own. The smart money is on targeted team raids over mega-mergers.

For more, see A&O set for Australia launch with Clayton Utz hires.