Africa rising
As international law firms look for ways to boost their revenues in the current global markets, Africa's star continues to rise. The continent presents a wealth of new opportunities, welcoming a multitude of investors drawn by its rapidly-growing oil, gas, mining and telecoms industries, as well as major infrastructure developments. In a year when billion-dollar transactions were still few and far between, deals such as Bharti Airtel's $10.7bn (£6.6bn) purchase of Zain Africa and the $2.7bn (£1.7bn) acquisition by China Petroleum & Chemical of a 55% stake in Sonangol Sinopec International were a cause for celebration for the Africa practices of Allen & Overy (A&O) and Herbert Smith. On both deals, the firms advised the bidder. Linklaters meanwhile, adviser to the seller of Zain Africa, Mobile Telecommunications Company, notably dominates mergermarket's league tables by not only value but volume.
November 16, 2010 at 05:29 AM
12 minute read
Many regions have been caught napping by the explosion of growth on the African continent. Caroline Hill looks at how local lawyers are cashing in as international firms move to boost their presence in the territory
As international law firms look for ways to boost their revenues in the current global markets, Africa's star continues to rise. The continent presents a wealth of new opportunities, welcoming a multitude of investors drawn by its rapidly-growing oil, gas, mining and telecoms industries, as well as major infrastructure developments.
In a year when billion-dollar transactions were still few and far between, deals such as Bharti Airtel's $10.7bn (£6.6bn) purchase of Zain Africa and the $2.7bn (£1.7bn) acquisition by China Petroleum & Chemical of a 55% stake in Sonangol Sinopec International were a cause for celebration for the Africa practices of Allen & Overy (A&O) and Herbert Smith. On both deals, the firms advised the bidder. Linklaters meanwhile, adviser to the seller of Zain Africa, Mobile Telecommunications Company, notably dominates mergermarket's league tables by not only value but volume.
However, local firms in Africa are pained by the misconception that international lawyers leave the crumbs for them; in fact many of the leading law firms across north and sub-Saharan Africa are in great demand and are more profitable than London firms. But if ever international outfits downplayed their commitment to the continent, that is no longer the case – they talk competitively about who has the best strategy, the most dedicated team, the best network – and many of the top UK firms are quietly considering opening a physical presence in North Africa.
Strategy
The majority of top international firms operating in Africa rely on a fairly loose and non-exclusive network of local firms (a decision to a certain extent dictated by the unwillingness of top local practices to commit to one firm given the amount of instructions they receive from the multitude of firms active in the region). So Norton Rose's announcement this week that it is set to tie up with South Africa's Deneys Reitz marks it out as an exception. From June next year Deneys Reitz, one of South Africa's top-tier firms, will join the Norton Rose group with deputy chairman Rob Otty sitting on the Norton Rose executive committee.
Deneys Reitz has offices in Johannesburg, Durban and Cape Town but also has a Tanzanian alliance. Norton Rose Group chief executive Peter Martyr said there are plans to further extend the African footprint following the merger.
Meanwhile A&O has over the last couple of years moved to further tighten its 'best friends' network across 48 African countries. In September, the firm held its second annual conference for its African best friend firms. A&O's Africa group head Tim Scales says: "We are excited about Africa and have been investing accordingly." The magic circle giant conducted a comprehensive review of local counsel around two years ago, selecting one or two firms in each country to operate on a preferential basis.
While a number of competitors argue that they could not generate the levels of work that would entice local firms to commit, Scales says he is "convinced" that A&O will provide enough work to make the arrangement worthwhile. The firm's best friends are working on a number of initiatives, including a detailed analysis of practice and procedure across the various African countries, to create a legal roadmap of the continent.
A&O is currently looking at ways to further its Africa practice, including the possibility of setting up a physical presence, and Scales says: "Establishing a more concrete presence in Africa is not out of the question and it is certainly something we are considering conceptually, given the amount of work we are already doing and the potential we see. We would be mad not to consider it."
Elsewhere, Herbert Smith's approach to the continent is vastly different but it, too, has not ruled out the possibility of setting down roots. The firm's Africa practice has, according to practice head Stephane Brabant, grown by around 30% year-on-year and now includes 20 to 25 lawyers completely dedicated to African work. "We have lawyers like me who are 100% dedicated to Africa," Brabant says, "not like some firms, which do Africa work on a case-by-case basis. This is a real strategy to develop the Africa business."
The firm has, however, avoided ties with local firms, instead opting to choose counsel on a case-by-case basis. "We have some good friends but no network," says Brabant. "We have made the choice for now that we have identified the best law firm for a given practice."
The choice is in part dictated by the fact that very few African law firms are full service. However, Brabant is also of the view that exclusive arrangements are difficult to operate in the region: "They have to be open to other law firms and you can't ask them to work exclusively for us, and we respect that," he says.
Notably SNR Denton, which has one of the most formal networks, to the extent that associate firms are branded 'in association with SNR Denton', also does not insist on exclusivity. The firm has 12 associate offices across Africa and co-chairman of the Africa committee Paul Bugingo says: "Our role as an international law firm is not to advise on the local laws of the different African jurisdictions where we are active. This is why we associate with the best law firms in Africa; they are the qualified local law experts. We simply add the sector expertise and international experience."
Elsewhere, Clyde & Co, recently allied with leading Tanzanian firm Ako Law, describes its alliance as a "close association".
French independent Gide Loyrette Nouel, highly active throughout Francophone Africa and notable for being the only international firm to have two offices – in Casablanca and Tunis – has more than 50 lawyers based permanently in the region, yet according to managing partner Christophe Eck, outside of the firm's own offices the only way to develop a more extensive Africa practice is through non-exclusive relationships. "For a leading African firm to give exclusivity, you would have to give them a lot of work and I don't think many would be interested."
However, when it comes to the deeper and more stable markets in North Africa, a number of international firms are said to be looking at opening an office. "I would be surprised if over the next few months or year a number of US or Anglo-Saxon firms didn't announce they will open an office," Eck says.
Further to the south and east of the continent in Lusophone Africa, meanwhile, highly active Portuguese firms have continued to develop their practices, capitalising on a shared language and culture. In October, Portugal's Abreu Advogados announced an exclusive tie-up with Ferreira Rocha & Associados in Mozambique and in November, PLMJ became the first international firm to set up an international lawyers' 'cabinet' in Angola, operating under the name Gabinete Legal Angola (GLA), creating a new independent professional structure that complies with local regulations barring the creation of law firms. The firm, which had five unsuccessful joint ventures in the past, now has an exclusive international co-operation agreement with five local lawyers fully trained by PLMJ who operate closely with another five Angolan lawyers integrated in PLMJ's Africa desk in Lisbon.
According to PLMJ real estate and Africa desk partner Tiago Mendonca de Castro, the local offices in Luanda will have complete autonomy, acting as another arm of PLMJ's international legal network. De Castro says: "We have supported and created not a law firm but the structure of a law office. Our project was to create all the logistics of a law firm and find the best professionals to gather them in the same place permanently and give them all the resources and professional conditions to work with us in accordance with international standards." Systems have been put in place to enable lawyers in Lisbon to call Africa internally to "save on costs and give the feeling of proximity".
Chinese investment in Africa
PLMJ has also been quick to respond to the explosion of Chinese investment into Africa, announcing a tie-up in October with China's Dacheng Law Offices and DSL Lawyers in the former Portuguese colony of Macau, hoping to capitalise on inbound and outbound investment in Portuguese-speaking Africa.
Its arrangement with DSL Lawyers means it will be able to have Chinese documents translated into Portuguese and De Castro (pictured) says: "In Angola and Mozambique the Chinese are major investors, especially in construction, infrastructures and in oil for their own development processes. While discussing a contract or producing a legal memo, we are capable of producing Portuguese-Chinese translations in Macau. The clients appreciate being fully briefed in their own language or when signing a contract in Portuguese with a validated translation on their side."
The move looks set to be mirrored by the majority of top Portuguese law firms as PLMJ rival Morais Leitao Galvao Teles Soares da Silva & Associados also announced in October that it had tied up with Macau law firm MdME.
Chinese investors are active in almost every sector of Africa, from construction through to the more controversial 'farms race', in which China, alongside Korea and Japan, is buying land to ensure the future ability to feed its own people. One partner comments: "It is said that China has a strategy for Africa but Africa doesn't yet have a strategy for China."
Norton Rose's Martyr meanwhile, also cited exposure to the Chinese market through its investment in Africa as a key reason for expansion into the region.
South Africa
Another region said to have been caught napping in its strategy for Africa is South Africa. A combination of politics – for years South Africa acted in isolation under apartheid – and the fact that in recent years many local firms have been surprised by the willingness of investors and law firms alike to go direct into sub-Saharan and North Africa – means some firms are playing catch up when it comes to developing their Africa practices, in doing so setting themselves up as direct competition for London firms.
Leading South African firm Werksmans was very much ahead of the curve when it set up its pan-continental network Lex Africa around 16 years ago. Firm chairman Des Williams says: "As South Africa was coming out of years of isolation we said we needed to re-establish connection and we did it at a time when no other firms were doing it." The firm now claims competitive advantage, with its track record and history standing in its favour as other leading firms move to refine their own networks.
According to Williams, many foreign law firms still find it more convenient to turn to Werksmans to manage their African relationships but the firm has no plans to tighten up its arrangements or move towards exclusivity: "One of the attractions of the network is there is flexibility and no formality," Williams says.
Elsewhere, top-tier South African firm Webber Wentzel relies on a network of best friend firms across the continent to service its Africa work. Head of Africa group Roddy McKean says: "Probably our single most important strategic objective is to become one of the important regional players in the African market."
Webber Wentzel practises English law alongside a number of other top firms and one partner says: "All of us see our principal competition as London law firms."
As South African firms increase their exposure to the rest of the continent, local lawyers claim that the competition is narrowing, citing examples of top UK bluechips that have turned to lower rate South African firms in favour of London firms, saying proximity, strength of network and cost are three key factors. McKean says: "I think South African firms are definitely picking up more work and being seen as a credible alternative to London firms. When clients are tendering for a new project, people would look to South African firms, not automatically default to London."
DLA Cliffe Dekker Hofmeyr regional corporate and commercial practice head David Thompson adds: "It is noticeable that many European clients used to use London firms but have turned to South African firms with the same quality of service but lower rates."
Locally, M&A has picked up and recent deals include HSBC's now abandoned bid for a controlling stake in South Africa's Nedbank, thought to be worth up to R49.9bn (£4.4bn) in which Slaughter and May acted alongside Bowman Gilfillan for Nedbank's majority investor, Old Mutual, and Linklaters lined up alongside Webber Wentzel for HSBC.
The wave of consolidation that saw Johannesburg-based firms merge to gain wider national coverage, including Werksmans' tie-up with Cape Town firm Jan S De Villiers last year and Webber Wentzel's merger with Mallinicks in 2008, appears to have slowed and one partner says: "I suspect Werksmans will be the last."
Privately, some partners are questioning the real value that a Cape Town presence brings when many big-name clients are based out of Johannesburg. One partner comments: "There is debate within South Africa as to how essential Cape Town is; you tend to find businesses are local businesses and while some major players are based there they are usually also based out of Johannesburg and serviced from there."
A further question being asked by South African lawyers is whether, as African work becomes more of a priority to international law firms, setting up in South Africa may become a more attractive proposition.
Serviced by highly-professional large law firms with little room for domestic competition, South Africa has until now attracted very few legal outsiders but, as local lawyers boast to potential clients of their network and proximity, they may well be looking over their shoulders.
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