K&L Gates chairman gives case for Middletons merger

While it is yet to be finalised, a merger between national law firm Middletons and large American outfit K&L Gates seems a fait accompli. BRW spoke with K&L Gates chairman and global managing partner Peter Kalis who says: “There is an enormous first-mover opportunity available by being the first US-based global law firm to fully integrate with an Australian firm.

“Since 2005 there has been about $US550 billion of inbound US investment to Australia, which outsizes any other country over that period, including China. It creates a huge opportunity to brand ourselves, in conjunction with Middletons, as the legal solution for enterprises involved in that inbound and outbound commerce.”

If the merger goes ahead, it won’t be the first American firm to set up locally but it will be a significant merger. Until now most US firms here, with the exception of the global Baker & McKenzie, have small satellite offices that practise American law.

This group includes Jones Day, Sullivan & Cromwell, Skadden Arps and Dorsey & Whitney. However, an influx of global law firms from the United Kingdom, such as Clifford Chance and Freshfields, in the past two years has focused the attention of lawyers around the world on the local scene.

For the past year, US firms have been actively exploring tie-ups with domestic firms. Squire Sanders expanded its local footprint last year when it raided Minter Ellison’s Perth office and it is understood to now be eyeing the east coast.

White & Case has come very close to establishing a substantial presence with some local lawyers but the confirmation from Middletons and K&L Gates that they are in final-stage negotiations is the first serious sign that Australia’s legal market is firmly in the Americans’ sights.

Kalis has been visiting Australia often since 2007, meeting with various legal leaders. “I was trying to become more knowledgable about the local legal market and culture,” he says. “Very early on I was struck by what an extraordinary asset Australia would be to any law firm with serious aspirations in the Asia-Pacific market because in the region Australia is the greatest source of legal talent that are trained in the rule of law. Right from the beginning, my guess was that these dominoes will start falling.”

He says we should expect other US firms to arrive. “When you look at the sort of advantages that can accrue to a US-based global law firm in being able to bring a highly regarded Australian firm into that family, I have a hard time believing that other American firms aren’t focusing on this as well,” he says. “The case is too strategically compelling.”

Kalis indicated that a merger with Middletons would be a full financial merger, something that has been a stumbling block in legal alliances as more profitable firms can be loath to share their spoils. “Middletons and K&L are totally aligned on the issue of full integration. By that I mean a single profit pool, integrated governance, integrated technology platform and a single approach to partner compensation.”

He is adamant that for law firm combinations to work effectively, they must become one fully integrated operation. K&L Gates has merged with a number of US firms over the past decade and has always followed this method. “The only way we have ever done a combination has been full integration right from the get-go,” he says. “It’s the only way we know how to do it and I’m too old of a dog to learn new tricks.”

According to The National Law Journal, K&L Gates is the eighth-largest law firm in the US with 1800 lawyers and annual revenue over $US1 billion. In 2007, K&L Gates was formed through a merger between two large US firms, Kirkpatrick & Lockhart Nicholson Graham and Preston Gates & Ellis. The latter firm was set up in 1883 in Seattle and the “Gates” in the name refers to Microsoft founder Bill Gates’s father, William H. Gates.

BRW estimates that in the year to June 2012, Middletons earned $112 million with just over 300 lawyers. On this basis, Middletons would comprise about 10 per cent of the firms’ combined revenue.

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