"It's one engagement letter, one lead partner and one bill." So says managing partner Simon Davies of the relationship Linklaters enjoys with its alliance partners in South Africa and Australia, Webber Wentzel and Allens respectively.

Over the last 20 years or so, the legal market has become used to independent firms like Slaughter and May and Macfarlanes extolling the virtues of working with other like-minded top-quality international practices to undertake cross-border work. But it is much more unusual for the head of a global giant like Linklaters to express such sentiments, given the number of mergers the leading international firms have forged to create 'one-stop shops' for their clients. And the ambition of such unions seems to grow with each announced deal.

On 22 January this year, the legal community woke up to find that a new global power had taken over the title of world's largest law firm by headcount. This 6,500-lawyer behemoth, formed through the combination of Dentons and China's Dacheng, will usurp the throne from 4,245-lawyer global juggernaut Baker & McKenzie.

As yet untested, the deal nonetheless ushers in a new standard for the sheer size and scale of international merger deals. And yet exclusive alliances – so often characterised as an uneasy compromise between a full merger and a loose referral arrangement – refuse to go away.

Linklaters forged its Australian and South African alliances in 2012, the same year that Norton Rose announced its merger with Fulbright & Jaworski to create Norton Rose Fulbright and SNR Denton unveiled its union with European firm Salans and Canadian outfit Fraser Milner Casgrain to form the 2,500-lawyer Dentons.

So why did Linklaters take such a different approach? "Why didn't we merge? Had we done that it would have given rise to a period of instability and disruption that would have taken away from our focus on clients and service delivery," says Davies.

"We could have opened an office ourselves, but we thought that would be very costly and it would have been hard to build something of a similar quality to both firms in a reasonable timescale."

Referrals between Allens and Linklaters have just passed the 800 mark, while Linklaters and Webber Wentzel are currently working together on some 200 live matters in more than 30 countries, in addition to 230 historical referrals and an ongoing programme of secondments.

Davies (pictured) cites mandates with South African retailer Woolworths, Premier Foods, Anglo American and Absa Bank as examples of some of the client wins to have come out of the relationships with Webber Wentzel.

The firm's approach has given it rapid access and scale across both geographies, something that has so far eluded its magic circle peers. Take South Africa. Through its relationship with Webber Wentzel, Linklaters has access to some 800 people in Johannesburg and Cape Town and a referral client base including many of South Africa's top 100 companies.

Allen & Overy only made its long-anticipated entry into the jurisdiction in October when it secured a seven-lawyer team including four partners from Bowman Gilfillan to open a small office in Johannesburg.

Meanwhile, Freshfields Bruckhaus Deringer and Clifford Chance (CC) are yet to show their hands and instead continue to rely on informal referral relationships for their South African legal work, as indeed they do for all of the sub-Saharan African deals they advise on that require local law capability.

This puts Freshfields and CC in the same camp as the fifth member of the UK magic circle, Slaughters, although of course Slaughters relies on referral relationships for all of its international work. "We have been pretty steadfast in our approach," says Slaughters London practice partner David Wittmann. "What's behind it is that we think independent law firms produce the highest-quality service for our clients. You get the best local experience in that international setting – a single team that is truly global, but local."

Splitting up
While Slaughters works hard to maintain and nurture its 'best friends' network of allies, the relationships it enjoys with these practices are relatively informal. Making such alliances exclusive marks a significant tightening up of the partnership, potentially improving the quality of service but also raising the stakes for both parties given the need to eschew lucrative referrals from other firms. And there's the rub.
There are countless examples of exclusive relationships breaking down (see box), the most recent high-profile instance being the collapse of legacy Herbert Smith's longstanding alliance with Gleiss Lutz in Germany and Stibbe in the Benelux region in 2012 when the UK firm tried to push its allies into a merger.

The scarring experience of seeing its European strategy in tatters helped push Herbert Smith's traditionally conservative partnership in the direction of an immediate merger with Australia's Freehills.

Meanwhile, in South Africa both DLA Piper and Eversheds have had issues with exclusive alliance partners. Eversheds split with its local ally Routledge Modise over a conflicts issue at the end of 2012 (the South African firm subsequently went down the full-merger route with Hogan Lovells in December 2013). DLA Piper is still engaged in high-level talks with its local ally, Cliffe Dekker Hofmeyr, over conflicts arising when the two firms pitch for the same work, with some in the market suggesting last year that the pair may end their relationship – a development both firms have denied will happen.

Unperturbed by its South African setback, Eversheds relaunched in the jurisdiction in 2014 with another alliance, this time with 10-partner firm Mahons, which was set up by former Routledge Modise chairman Terry Mahon a year before Eversheds' relationship with his old firm broke down.

This time Eversheds has taken its relationship with its ally a step further, with Mahons agreeing to adopt Eversheds' brand and become an affiliated office. The firm's new strategy for Africa – which was unveiled in December 2013 – has seen it open three other affiliated branches in Mauritius, Morocco and Tunisia, with more openings planned.

Like Linklaters' Davies, Eversheds chief executive Bryan Hughes maintains that exclusive alliances form a useful part of the expansionist international firm's armoury. "We are generally dealing with sophisticated clients who appreciate you won't have physical coverage everywhere," he says. "They do, however, expect you to provide the coverage that they need and that is our issue to resolve.

"With our alliance offices we don't have a shared balance sheet but we have a formal contractual arrangement dictating how we work, required service standards, etc. While we do not have the same [profit and loss account] we do have a formal cost-sharing agreement."

Stepping stones
One of the key ways Eversheds keeps its member firms up to scratch is with what Hughes calls an escalation policy, whereby, in the event of a significant dip in service standards, the Eversheds executive team has the right to gradually intervene in the affairs of the offending alliance firm. This could take the form of support for management, additional training or more resources. So far Eversheds is yet to trigger this mechanism. After all, not all alliances end in acrimony. Sometimes they can pave the way for mergers.

"Alliances can be a very successful way of seeing what the cultural fit is like and if the business synergies really are there," notes Tony Williams (pictured below), principal at consultancy Jomati. "Mergers aren't like some kind of speed dating. It takes time to get to know people if it's going to work. With a period of working together in a formal alliance you see just how strong the business case really is."

Before converting its cooperation agreement with Bird & Bird into a merger in October, Australia's Truman Hoyle tested 10 key clients on the marketing implications of the move, all of which described themselves as "highly enthusiastic", according to legacy Trumans managing partner Shane Barber.

"Digital business clients often did not know of Bird & Bird, but when we explained that it was essentially an international version of Trumans they felt good about it," explains Barber. "They didn't ask the question most guys do, which is 'does this mean our rates are going up?'

"There were some who were a bit sad to see the Truman brand go, but other than that sentimental issue it was fine."

Barber professes to have no regrets about the merger, despite organisational challenges such as trawling through around 3,000 clients to check for conflicts. At the time the two firms started discussing a possible merger deal, they'd only had around 20 referrals between them. But towards the end of the talks these referrals were accounting for around 10-20% of Trumans' revenue.

The alliance already went beyond sharing and referring work, extending to strategy and joint client teams for certain clients, smoothing the way for the transition to a merger.

Evolving strategies
There was a time about a decade ago when there was a strong consensus among law firm leaders and commentators that only a fully integrated merger would do. This notion was built on the understanding that the need to maintain a consistently high-quality service across the entirety of an international network was paramount and that any compromise on the level of integration would lead to an unacceptable erosion of quality.

When DLA Piper was forged in 2005 following the merger of UK-based DLA with US outfit Piper Rudnick, it was a matter of some controversy that the two parties maintained separate profit-sharing pools within the legacy partnerships. At the time, the combined firm's management team pledged to integrate the partnerships over time.

A decade has now passed and that goal has still not been achieved. However, not many people seem to care these days, thanks to the emergence of global giants like Norton Rose Fulbright and Dentons, which have made a virtue of the federal structures they have forged under Swiss verein agreements. Supporters of these types of deals argue that the search for perfection in the shape of fully integrated mergers is simply not practical and that clients in need of some level of consistent legal advice across the globe would prefer their firms to be more pragmatic.

In developing markets, where local firms inevitably have lower levels of profitability,
there is often no real alternative other than a Swiss verein union or alliance for those international firms that are set on gaining a significant foothold.

Given Linklaters' reputation for being one of the most centrally managed international firms, its deployment of alliances suggests that at a time when for many firms being 'international' is no longer enough and only 'global' will do, the one-size-fits-all approach to international expansion is out of date.

Click here for a timeline of alliance break-ups