Last year two small corporate boutique firms achieved something which has eluded market leader Mallesons for the past decade – a merger with prestigious Magic Circle firm Clifford Chance. Newly resplendent in his role as Clifford Chance’s Sydney managing partner, Mark Pistilli shares the story with ALB’s Renu Prasad.
Last year two small corporate boutique firms achieved something which has eluded market leader Mallesons for the past decade – a merger with prestigious Magic Circle firm Clifford Chance. Newly resplendent in his role as Clifford Chance’s Sydney managing partner, Mark Pistilli shares the story with ALB’s Renu Prasad.Mark Pistilli is feeling a little misunderstood. The legal press has been replete with dire predictions of the Australian legal services market being hijacked by rapacious Magic Circle newcomers and the decline of traditional top tier mega-firms – a narrative which is perhaps understandable in the context of Allen & Overy’s aggressive market entry last year. It is easy to take an adversarial view of the Australian market, with international firms closing ranks against the likes of Clayton Utz and Freehills. But as Pistilli is at pains to point out, he has no interest in waging war against the Australian mega-firms. He is here to praise the traditional top tier, not bury it.
Pistilli has been on message since the merger was announced in January. He has devoted considerable time to visiting managing partners and CEPs at rival firms to explain the Clifford Chance model and how other firms will fit into the picture. “We are huge supporters of the collegiality of the legal profession,” says Pistilli. “Sure, we will compete for particular kinds of work but given our narrow focus we are going to have to remain good friends with other law firms. We’re certainly looking to place lots of work in areas beyond our expertise – not just with specialist firms, but also the top tier. And we’ll still look to get referrals out of the top tier.”
Referrals were always an important part of the Chang, Pistilli & Simmons (CP&S) model. “A large part of our work comes from what we call spillover work,” explains Pistilli. “National tier one firms have very strong brands but there aren’t many of them. So in a big contested bid, for example, they get taken up very quickly by targets, competing bidders, financiers and so on. So then the work spills to the next level and I’d like to think that CP&S was at that next level with firms like Gilbert + Tobin and Johnson, Winter & Slattery.” CP&S commonly received referral work from all of the “big six” firms. A mutual trust is an important part of this relationship. “Our ethos is that we insist that referrals go back to the firm that refers them,” says Pistilli. “We can’t force them to go back, but we suggest that they should. Also, not being full service means we can’t fulfil their full service needs going forward. What we don’t do is try and poach clients.”
Inception
Normally finely attuned to the latest industry news, Pistilli admits that the first he heard of the Allen & Overy raid on Clayton Utz was through the media. It proved to be a decisive moment for CP&S. Pistilli says that he had already been well aware that the market was on the cusp of important change, but it was the A&O merger which brought the point home and underlined the need for a counter-response. He says he is grateful to Allen & Overy for providing that prod. “They made the merger decision for us here easier than it would have been - we should be grateful for that,” he says. “We knew the market was changing, but they brought forward the time in which it would change.”
One particular concern CP&S had about the A&O merger was the impact it would have on the firm’s referral work. While CP&S had enjoyed the privileged status of being one of only a handful of firms with the reputation and quality to receive top tier referral work, the arrival of new players meant that this status was under threat. “The whole line [of referees] was longer and we saw potential for the market to change so that, rather than having five or six competitors at the top end we might be one of 13 or 14 which was quite a different dynamic to us,” explains Pistilli. “So in part our decision was defensive to deal with that change in market dynamic - but also we could sense the market was changing anyway. We would rather be the people who are driving the change rather than just reacting to it.”
Pistilli initiated the process by contacting Clifford Chance partner Scott Bache in early 2010. Another six months would go by before the CP&S partnership decided to pursue the Clifford Chance/ CLCL merger in earnest. Approval from the CC partnership occurred almost exactly a year after the first discussions with Bache. “These things take time if you do them properly,” says Pistilli. “I’ve read that the Norton Rose-Deacons merger took up to two years and of course Mallesons were in discussions for years. So it’s naïve to think you can put something together quickly.”
Pistilli is complimentary of the Deacons partnership and their role in securing a partnership with Norton Rose. “There’s no doubt Norton Rose has been incredibly successful – it’s a win for the Deacons partnership and Norton Rose as well. They’ve got a market presence beyond where they were - we’re seeing them more and more [on top tier work].” Pistilli says he is not sure of the reasons behind this success. “Maybe the market was ready to start accepting international firms and they were just in the right place at the right time,” he observes. “Whatever they’ve done, they’ve done it right.”
Market impact While Pistilli retains a strong respect for the traditional top tier firms, he agrees that it is going to be a challenging time for these firms. Based on the experience in other countries, he says that it is likely that the Australian market will end up being dominated by international firms, with the remainder of the top space being occupied by “one or two” large premium domestic firms and a number of small boutiques. “I think if you came back and looked at the market in five or seven years time you would not recognise it - particularly in terms of who is doing the top end corporate and project work,” he says.
Like many lawyers, Pistilli sees the mega-firms as reaching a cross-roads with several options on the horizon, such as a merger or a non-financial integration with an international firm as a stopgap measure. He also believes that de-integration of particular practices along profitability lines might be an option. “It’s a very hard structural change to implement but you can see it happening,” he says. “It stops internal tension in a partnership where there is disparity in profit areas. It also gets firms down to a much smaller size so they can start growing again. That’s the major challenge Australian firms are facing now. A lot of large nationals have grown to be completely dominant and not having a forward growth story affects them in a lot of areas. They can’t bring through good people, who are then lost to other firms. It’s always a very difficult position to have only one way to go.”
Clifford Chance is clearly in the opposite position, with a necessity to build capacity and grow. It is a point not lost on lawyers seeking their next role. “We have had a huge amount of interest, particularly from the non-partner senior associate market because the firm will clearly grow,” says Pistilli. “Whereas some of the other domestics are going the other way, looking at reducing size and partner numbers.”
Quick Facts:
Merger partners: Clifford Chance, Chang, Pistilli & Simmons, Cochrane Lishman Carson Luscombe
Initial partnership size: 16 (8 Sydney, 8 Perth)
Target size: 25 to 30 partners
Managing partners: Mark Pistilli (Sydney), Michael Lishman (Perth)
Key practice areas: M&A, strategic corporate, complex litigation, general advisory, project finance
Asia managing partner: Peter Charlton
Partnership structure: Lockstep equity global partnership
Global PEP FY2010: £933,000 (25% growth)