When Norton Rose merged with Ogilvy Renault and Macleod Dixon, many predicted a wave of international deals in Canada. That hasn't happened yet, but, as Grant Murgatroyd asks, could the country still follow Australia's lead?

Canada and Australia have a lot in common. They are both huge countries (9.98m sq km and 7.7m sq km respectively), sparsely populated (34.7m and 22.9m), literate (both 99%), wealthy ($41,500 (£27,000) and $42,400 (£27,500) GDP per head) and rich in natural resources. 

So when UK law firm Norton Rose announced mergers with two Canadian practices – Ogilvy Renault in 2011 and Macleod Dixon in 2012 – there was naturally speculation that Canada's legal market would follow the pattern set by its Australian counterpart, where almost all of the big domestic firms jumped into bed with international partners within a couple of years of each other.

As David Corbett, managing partner at Canadian firm Fasken Martineau DuMoulin, recalls: "At the time of the Norton Rose merger, there was a lot of talk among the managing partners here as to whether Australia was a good analogy. The conclusion was that nobody knew and we would have to wait and see."

Two years on, Corbett says "there hasn't been much activity since", which suggests that predictions of an Australian-style merger frenzy may have been overstated – for the short term at least.

Indeed Paul Olney, practice partner at Slaughter and May, points out that Canada lacks the thing that sets Australia apart: direct access to all-important Asia. "Could Canada follow in the footsteps of Australia in seeing a spate of mergers and alliances? I think it is far less likely given the position of firms in the Canadian market and the very different dynamics in the Australian and Asian markets." 

Nevertheless, there are still expectations that Canada's corporate legal sector will open up further to global partnerships; just at a more sedate pace than Australia's. There are regular rumours about British firms looking for big Canadian partners and Toronto's position as an international financial centre for the mining and energy sectors guarantees the country's attractiveness.

Scott Jolliffe, chair and chief executive officer at Gowlings, another large Canadian law firm, says he "would expect to see more alliances, combinations and mergers, but not as quickly". 

"There isn't the level of anxiety that there must have been in Australia  and so things will not change as quickly as they did down under," Jolliffe adds. "Canadians tend to be very pensive about their future – some might say naive – but we like to think things through for longer than our counterparts in the US, Australia or even the UK."

Strong glue

Norton Rose's Canadian marriage partners certainly did not act in haste. John Coleman, managing partner of Norton Rose Fulbright Canada (pictured, below) – the same position he held at Ogilvy Renault before the merger – says his former firm first started discussions about a global tie-up back in 2008.

He says Ogilvy Renault tried an alliance with another Canadian firm in the 1990s to set up representative offices around the world to attract work from companies looking to invest in Canada. "That model was not successful for us," is his blunt evaluation of the experiment. "In today's world, where clients want strong local lawyers on the ground in the jurisdictions where they do business, a representative office doesn't do it for them. We don't believe that alliances work. They are loose arrangements that don't have any glue. We have a strong glue across the partnerships around the world and are very much acting together.

"We saw that many of our clients had global aspirations and we saw an opportunity for us to stay with them if we were part of a truly global firm. We also saw a lot of investment coming into Canada from Asia, Europe, the US and Australia. Canadian lawyers are needed for this inbound work. We had a number of approaches and because of the cultural aspects, we chose Norton Rose and they chose us."

How many is too many?

Unsurprisingly, some rival firms say they do not agree with Norton Rose's Canada strategy, arguing that such a strong presence is not something their own clients want. 

"Canada is a very prosperous country, but it is a prosperous country of 34m people, so it is not the same depth of market as a country with a billion people," says a senior partner at a British magic circle firm. "Geographically, you have to be in a lot of different provinces and for us it didn't make sense to be there and our clients weren't pushing us to do it. Does it make sense for a global firm to have 700 lawyers in Canada? If you have 700 lawyers in Canada, how many do you need in the US, which is 10 times as big?"

Olney at Slaughters says his firm will not be setting up an office or entering into an alliance in the Canadian market, which "would be inconsistent with our international strategy, which is to work with the leading local firms who can offer the best local advice". He adds that the "workflows in Canada are not as significant as they are in some other jurisdictions". 

Slaughters says it relies instead on its standard approach of investing time and money in maintaining long-standing relations on the ground: in particular with the 'seven sisters', the soubriquet for Toronto's leading law firms.

"We work with the seven sisters on a regular basis," says partner Hywel Davies. "We would describe ourselves as a virtual one-stop shop. We spend a lot of time with these people, working with them on deals, meeting them in the UK and travelling to see them in Canada on a regular basis."

Dentons dives in

Norton Rose is, however, not alone in taking the plunge into Canada. Dentons now boasts 500 lawyers at six offices in Toronto, Montreal and Ottawa in the east and Vancouver, Calgary and Edmonton in the west. The substantial Canadian footprint is the result of March's 'mega merger' of the UK's SNR Denton, Salans of France and Canada's Fraser Milner Casgrain.

"We are unique among our Canadian competitors in that we are reasonably equally balanced in headcount between the east and west," says Christopher Pinnington, CEO of Dentons Canada. "We have particular strength and competitive advantage in sectors that are not only the economic drivers of Canada, but also becoming more important on the global stage, including energy, financial services, mining and natural resources, infrastructure, construction, P3 [public-private partnerships] and technology, media and telecoms."

Dentons Canada is also the first law firm in the country to be a founding partner in a global firm with a substantial US presence, according to Elliott Portnoy, global CEO at Dentons in Washington DC. 

"The defining success of the combination is that we have teams of lawyers in the Canada region working side by side with lawyers in the US, the UK, Europe, Asia Pacific, the Middle East and Africa on shared client matters," he says. "Today we have more than 700 cross-regional matters that we are working on and the Canada region has been a particularly active originator of opportunities for the global firm."

Looking for allies

Mergers are, of course, difficult things to pull off and, for some, an alliance provides an effective way of testing the water. UK firm DAC Beachcroft, which specialises in insurance-related work, is a case in point after it entered into a formal alliance with McCague Borlack in 2012. It had decided that Canada merited a different approach to markets such as Chile, where it opened an office last year, and Colombia, where it will shortly be setting up shop.

"In Latin America, we are able to open our own offices more readily and quickly because they are immature markets and the opening of an office is not a particularly huge transaction," explains David Pollitt, partner at DAC Beachcroft. "It is about finding the right people, getting close to them and moving to a merger quickly. Canada is a more developed market and in McCague Borlack, we have teamed up with a large, well-established insurance practice, which has been built up over a number of years. 

"So you don't go straight to a merger because that is a big transaction and the association agreement gives us a period of time over which get to know each other well, see what opportunities each can bring to the other, and whether a transaction is a good thing for us both and on what terms."

Some large firms maintain that even an alliance is an unnecessary step in Canada. Freshfields Bruckhaus Deringer instead concentrates its resources on a Canada desk, which is populated by people in London and New York who have ties to Canada and have worked with Canadian entities. "Canada is well-served by lots of good law firms, so I don't see any need for us to be in Canada," says Laurie McFadden, lead Canada country partner at Freshfields. 

"We get involved in major Canadian transactions, such as the attempted merger between the London and Toronto stock exchanges. We act for a lot of the big Canadian pension funds when they go abroad. We don't think we need to have an office there. 

"If the matter is something that makes sense for us to be involved in, then people are happy to involve us even though we don't have an office. A lot of stuff can be handled more economically by Canadian counsel." 

Canadian firms also need to think carefully about whether an alliance would threaten revenues from referral partners, particularly those in the crucial neighbouring US market. "Canada has always had a very strong trading pattern with the US, and US firms have by and large been content to rely on referral arrangements with Canadian firms," says Corbett. "Most Canadian firms have relationships with a large number of US firms, so it hasn't really made sense for them to tie up with US firms. It is only in the last couple of years that European firms have shown any interest in Canada."

Earlier this year, Faskens merged with a firm in South Africa, giving it the largest footprint outside Canada of the domestic firms, with the exception of Dentons and Norton Rose Fulbright. 

"It started out as being almost exclusively work involving Canadian clients, but now we are picking up clients from outside looking for firms with expertise in natural resources and a presence in Canada," Corbett says.

Mining money

The sectors in which a firm specialises are also likely to play a crucial part in the decision on whether a Canadian firm needs to extend its global reach through an alliance or merger. Media and entertainment, for example, offer up a rich vein of work for Canadian firms, but is seen as a largely domestic sector. The booming mining and energy sectors are, on the other hand, unmistakably global in their outlook.

"Mining is very international," says Shawn McReynolds, a partner in the M&A and capital markets practice and a managing partner at Davies Ward Phillips & Vineberg. "The Toronto Stock Exchange has been a centre for mining finance internationally for a long time and the whole infrastructure of the industry is present in Toronto, with bankers, consultants, engineers and lawyers all present, so it doesn't really matter where a project is or what continent it is on – there is a reasonable chance that the financing for the project will be done in Toronto or by a Toronto-listed company."

McReynolds is not unduly concerned by the arrival of international firms on the scene, instead arguing that offering something different is the key. "As long as we continue to differentiate ourselves as a centre of excellence there will always be demand," he says.

"The danger is that the market is segmenting into clients who view law as a commodity service and those that see it as a source of strategic advantage. The biggest threat to us is clients deciding that all lawyers are fungible."