Herbert Smith Freehills to go live as partners vote through merger

Herbert Smith and Australia’s Freehills are set to merge on 1 October after partners at both firms voted in favour of a union under the banner Herbert Smith Freehills.

Voting on the tie-up closed this morning (28 June), with the firms now planning a full financial merger from the autumn.

Herbert Smith managing partner David Willis and Freehills chief executive and managing partner Gavin Bell will become joint chief executives of the combined firm.

Herbert Smith senior partner Jonathan Scott will take up the role of senior partner at the merged firm, with Freehills chairman Mark Crean appointed as deputy senior partner.

Partners will share profits from day one of the merger; however, the two firms will operate with separate remuneration structures for the time being, with a separate vote to create a single structure for the whole firm expected at a later date.

The combined firm will boast revenues of around £770m and would rank 14th in the Am Law Global 100, based on the firms’ respective 2010-11 revenues. It will have 2,800 lawyers, including 460 partners across 20 offices.

The new firm will be headed up by a management board and governance board, with Willis and Bell leading the management board alongside global practice heads and regional chiefs, who are yet to be confirmed.

Meanwhile, Scott will chair the governance board, which will consist of six elected partners from each respective firm, with the addition of external members a possibility in future.

Scott said: “The simple logic behind this deal is a response to what our clients are doing. We are looking to provide a service that can run both ends of a mandate. As clients move into higher risk jurisdictions they want to make sure they have got their lawyers with them who have experience in those regions and right now Asia-Pacific is at the heart of this.

“The depth of resource that this tie-up gives us coupled with a number of other areas of international expansion we have on the agenda right now in the US, Africa, Germany and Korea, positions us exceptionally well in the global market.”

The move gifts Herbert Smith its first presence on the ground in Australia with offices in Sydney, Melbourne, Perth and Brisbane, while the firms will combine their one duplicate office in Singapore.

The top 10 UK firm has been in discussions with Freehills since the last quarter of 2011, with the union initially planned to go live on 1 July this year, tying it in with the Australian firm’s financial year end. This was later pushed back due to the complexities of working out the deal.

Willis said: “We share with Freehills a strong belief that over the next few years the market for premium legal services will become increasingly dominated by a small number of truly global firms. This merger will therefore put us in a strong position to provide clients with the single global offering they increasingly demand.”

Bell added: “The merger will give Herbert Smith Freehills the platform to become the leading global law firm across Asia Pacific, a region likely to see continued substantial growth and to become an increasingly important part of the global legal services market.”

Confirmation of the tie-up makes Herbert Smith the latest UK firm to enter Australia after Linklaters sealed an exclusive alliance with Allens Arthur Robinson in April this year, while Ashurst and Blake Dawson combined their Asian operations and came together in Australia under the Ashurst banner on 1 March.

Market reaction to the merger

“I’ve always found it a slightly odd strategic deal for them to do. I suppose the justification for it is not the importance of Australia, but the critical mass it gives them firm in Asia, but people forget that Australia is still half a day’s flight away from China. However, I rather admire them for going for a full profit share straightaway, I think that is very wise. For Freehills it also gives them access to a global platform that they didn’t previously have.”
Magic circle partner

“There are a number of partners in London who opposed the deal right from the outset. Diluting partner profits through full financial integration with an Australian firm was never going to go down well. However, the opportunity to share costs for a New York launch that is inevitably going to cost a fortune could be a good thing for the firms, as they both need the US platform.”
London recruiter

“It’s a brave move and I wish them luck. They have been on a bit of a downward spiral of late and it could be a game-changer for them. A tie-up with an Australian firm will enhance Asia for them and I think this is all part of them trying to create a different image. We have pursued a three-legged approach of Europe, Asia and the US, so I wouldn’t be surprised if they look to do another deal in due time, but this depends on what they are after.”
Magic circle corporate partner

Related: Hogan Lovells and K&L Gates latest to target Australia market.