DLA Piper and Clyde & Co become the latest firms to jump on the Canadian merger bandwagon

Every summer, rodeo fans flock to Calgary for the city's annual Stampede. This year they may be joined by a posse of managing partners from Am Law 100 and other international law firms looking to rope in a merger partner.

Top of the list of likely candidates are DLA Piper and Clyde & Co, both of which are currently in talks with Canadian firms about prospective tie-ups.

London-based Clydes is in advanced discussions with Montreal insurance boutique Nicholl Paskell-Mede, while DLA chairman Frank Burch recently confirmed that the firm has spoken to the majority of Canada's leading firms and remains in talks with several of them.

DLA denied claims that it has resumed talks with 650-lawyer Fasken Martineau, which it previously courted in 2008, and declined to comment on other firms. However, sources close to the firm say that it has approached Fraser Miliner Casgrain, Borden Ladner Gervais, and McCarthy Tetrault – the latter considered by many to be the number one target of international firms now looking at Canada.

A host of other US and international firms are also investigating potential launches after merger-mad UK firm Norton Rose sparked the sleepy market into life last November by announcing its combination with 450-lawyer Canadian practice Ogilvy Renault.

A senior source at White & Case confirmed that Canada is on the firm's radar, while Vinson & Elkins is also being linked with a move north of the border, although neither firm would comment.

Much of the action is centred on Calgary, Canada's third-largest city and the home to its vibrant energy and natural resources industry, which has been attracting growing levels of interest from resource-hungry emerging markets, particularly China.

Toronto firms have also been moving into Calgary in an attempt to tap into the booming market. With the arrival of Ogilvy and Torys since January last year, five of Canada's seven leading firms – the so-called seven sisters – are now present in the city.

As for native Calgary firms Bennett Jones, Macleod Dixon and Burnet Duckworth and Palmer, all three could be attractive prospects for international firms seeking a foothold in the market.

There are many other factors attracting international firms to Canada. The country's banks did not require bailing out; the Canadian dollar is trading at record levels; and local pension funds – such as Stikeman Elliott client the Ontario Teachers' Pension Plan – are aggressively buying assets abroad. It is also a culturally compatible, predominantly English-speaking jurisdiction, making international law firm mergers relatively straightforward prospects.

Shearman & Sterling and Skadden Arps Slate Meagher & Flom have both operated small Canadian outposts for years, but only practise US law. Baker & McKenzie, which first entered the market in 1962, is the only major Am Law 100 firm to have established a meaningful local law presence. A source in Bakers' management committee said the firm is looking to "significantly expand" its 60-lawyer Toronto office.

However, the real question is whether Canadian firms are interested in international mergers. McCarthy entered into an alliance with Fried Frank Harris Shriver & Jacobson in 2000, which lasted six years before the arrangement was terminated, and most firms appear reluctant to surrender their independence.

"For the most part, major Canadian firms see themselves as being well positioned and will not see a merger in their plans – at least for now," says Macleod managing partner Bill Tuer, adding that his 
firm is "considering its strategic options".

It is clearly a sensitive subject: of the 12 leading Canadian firms The Am Law Daily approached in relation to international mergers, only two others – Blakes and Davies Ward Phillips & Vineberg – would comment, and then only to say they were not interested.

There would also be the issue of relative profitability to contend with. Canadian firms are famous for their lack of financial transparency – McCarthy is the only 
firm to publicly disclose even its revenue.

However, three senior headhunters confirmed that the market's lower billing rates and associate leverage means that even the most profitable firms – such as Stikeman, Goodmans and Davies – struggle to achieve average profits per equity partner of more than $1m (£608,400).

A mere handful of star Canadian rainmakers earn more than $2m (£1.2m), they add. Norton Rose avoided this potential hurdle by structuring its Canadian deal under a Swiss verein, meaning that the two firms are not financially integrated.

For now, most Canadian firms seem happy to play the waiting game, but that could soon change.

"Ogilvy's merger with Norton Rose served as a wake-up call to everyone," says Heenan Blaikie co-managing partner Norm Bacal, who admits that his firm has spoken to a few US and UK firms – although not DLA Piper.

"We're not sure we quite understand why they did it, but we're looking at it 
with interest.

"We're sticking to our own strategy, but if DLA Piper or another big firm came in, then we'd all have to really rethink what to do next. You could see a lot more [mergers]."

This article first appeared on The American Lawyer, a US affiliate title of Legal Week.