Friederike Heine assesses the background to the tie-up between Ashurst and Australia's Blake Dawson

After more than a decade overshadowed by strategic angst and a string of aborted merger attempts, Ashurst has finally travelled halfway around the globe to secure what it hopes will be a transformative deal.

The firm's tie-up with Australian leader Blake Dawson, which was confirmed in a dual partner vote on Friday (23 September), comes after failed merger talks with Latham & Watkins and Fried Frank Harris Shriver & Jacobson in 2000 and 2003 respectively.

There is no doubt that the union, which will see the two firms unite under the Ashurst brand and combine operations in Asia next March ahead of a vote on a full financial merger in 2014, represents a major and high-stakes change of direction for the UK firm, which has previously been seen as a byword for City conservatism.

According to senior partner Charlie Geffen (pictured), the about-turn is recognition of a rapidly changing global legal market which no longer revolves around the New York/London axis that dominated the industry before the financial crisis.

"Our view is that the market will demand quality with scale and we believe that there will only be a very small number of top-tier firms which do not have global reach. We think the much preferred structure is a single worldwide profit pool and that is what we are aiming to achieve."

He added: "The pace of change is such that the organic growth we achieved in Europe is not realistic for Asia-Pacific and we are delighted that a firm of the quality of Blake Dawson shares that vision."

There were two other developments that helped form Ashurst's view on the changing dynamics in the global law market: Norton Rose's 2010 merger with Deacons and the union between Hogan & Hartson and Lovells.

With Deacons widely regarded to have benefited from the Norton Rose tie-up and Allen & Overy, Clifford Chance and DLA Piper since securing major initiatives in Australia, it has also become clear that the once-ignored national market is now viewed by many law firms as a key jurisdiction in the hugely important Asia-Pacific region.

Ashurst's relationship with individual Blake Dawson partners dates back nearly a decade, with Australia-based corporate partners Ian Williams and Rupert Lewi having worked closely with Ashurst's Tokyo arm over the years.

Most recently, the firms jointly acted for Kogas and Total during their acquisition of a 15% stake in the $16bn (£10bn) Gladstone Santos LNG project. Other shared clients include corporates such as Daewoo, General Electric, Mitsui and Mitsubishi, as well as financial institutions including Royal Bank of Scotland, Lloyds and ANZ.

Tentative discussions between Blakes and Ashurst management began in the autumn of 2010.

There was little doubt that the firms share considerable ground in terms of practice focus, including projects, energy, technology & infrastructure and financial institutions. Once a view had been taken on potential conflicts, details of a possible tie-up began to take shape in earnest from March onwards.

That the deal will see the two firms combine under the Ashurst brand has been viewed as a sign that Blakes is struggling. Geffen, however, strongly refutes this claim, arguing the decision is recognition on Blakes' part that, while the firm has built a strong reputation in Australia, its brand has limited reach internationally.

Geffen also argues that Blakes has been far more willing to reshape its business than other 'big six' Australian firms in order to more dramatically reposition itself in the rapidly developing international market.

Blakes' recent financial performance would appear to bear that out, undermining the perception that profitability at Australian firms is a major bar to foreign mergers. Blakes seems to have set itself apart from its peers by implementing rigorous cost-cutting measures, resulting in a 25% increase in profitability for the past two years.

Its revenues have also grown substantially, from £236m in 2009-10 to £250m in 2010-11, while the firm's profitability is understood to be around 90% of Ashurst's, which stood at £723,000 in 2010-11, greatly smoothing the path to full integration.

Blakes chair Mary Padbury (pictured) comments: "In order to reach our joint objective Blake Dawson will be run tightly, but generally we are confident that our profitability will continue to rise, noting we have increased profitability by 25% in the last two years. There will be no redundancies as a result of the combination, neither domestically nor in Asia."

With a strong roster of bluechip clients including BHP Billiton, Rio Tinto, Santos, Telstra, National Broadband Network and the Australian Government, Blakes is well-positioned to continue growing revenues and profits, in which case a full financial merger with Ashurst will become a possibility in 2014.

Even if rivals are undecided about what to make of the new business, which will have combined revenues of around £550m, Ashurst has secured, on some measures, the largest merger in the wider Asia region and finally made a decisive step towards globalisation.

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Blake Dawson – key facts

• Number of partners – 190
• Total number of lawyers – 828
• Offices – Adelaide, Brisbane, Canberra, Melbourne, Perth, Sydney, Shanghai, Singapore, Port Moresby, Tokyo and Jakarta (associated office)
• 2011 revenue – A$380m (£250m)

Ashurst – key facts

• Number of partners – 229
• Total number of lawyers – 915
• Offices – Abu Dhabi, Brussels, Dubai, Frankfurt, Hong Kong, London, Madrid, Milan, Munich, New York, Paris, Rome, Singapore, Stockholm, Tokyo and Washington DC
• 2011 revenue – £303m

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Ashurst/Blake Dawson – market reaction

"The deal is reminiscent of Linklaters' initial steps into Europe over a decade ago – the firm initially struck alliances across the continent which eventually resulted in full mergers. The fact that Blake Dawson has agreed to give up its own brand is indicative of a very strong commitment from both sides." – John Young, senior partner, Hogan Lovells

"The Australian and Asian legal services markets have long been highly competitive and the top ranks of law firms in the market have never been able to afford to be complacent. Freehills will continue to compete fiercely with Ashurst as it did with Blakes by focussing on its clients and its people rather than competitors." – Gavin Bell, chief executive, Freehills

"This is an interesting move, and is likely to be motivated by the same reasons we went into Australia. There are many different ways to structure your business, the right one is the one that works for you. They obviously feel comfortable with this arrangement – we will have to wait to see how things develop over the three years" – Peter Martyr, chief executive, Norton Rose

"While there remain strong independent law firms with whom we can work in Australia, we do not see a compelling strategic need for us to be on the ground. We'd rather grow our Asia practice directly from Hong Kong." – Will Lawes, senior partner, Freshfields Bruckhaus Deringer

For more analysis, see: Editor's comment – Ashurst does the math on a fast-changing world.