Rationalisation and consolidation have been the hallmarks of the year in New Zealand, as the drift of corporate head offices to Australia has forced practices to meet the challenge of ever increasing competition within a shrinking domestic market. “I’d say the market in New Zealand has been a lot more competitive for a lot longer than it has been in Australia, so there isn’t a lot of inefficiency,” says Mark Verbiest, group general counsel of Telecom New Zealand.
As a result, firms have been busily restructuring their practices, re-evaluating their business strategies, reducing their numbers and watching their rivals. Closely.
“There has been rationalisation … there is still some rationalisation to go on. Some of it’s occurring now. I don’t want to name particular firms, but there are a couple in particular, one in particular that I can think of in the top six, that seem to be dropping away in some respects,” says Verbiest.
Leading that top six are Bell Gully, Russell McVeagh and Chapman Tripp, which based on reputation and their share of top end work are considered to sit in their own tier. Simpson Grierson, Buddle Findlay and Minter Ellison Rudd Watts have traditionally made up the six. But the sustainability of this number of large practices in what many consider an over-lawyered market is now well and truly under the microscope.
There’s no doubt the market has consolidated,” says Gary McDiarmid, CEO of Russell McVeagh, citing “cyclic and systemic” factors as the primary driving forces. “There are 10-year cycles that affect professional services and the last time we were in a cycle like this … would have been in the early 90s,” he says. But the drift of companies offshore and a growing reliance on a domestic client base will have longer-term consequences. “I think it’s a permanent shrinkage that’s happened,” says McDiarmid.
Matthew Cockram, the chairman of Bell Gully, supports the view that there is a breakaway group of firms. “I think the old flight to quality is probably part of it,” he says. “It’s increasingly difficult for perhaps firms a little lower down to offer the range and breadth of service at the high level as consistently as the leading firms might do – and that’s probably taken place over time. It’s harder and harder for those firms to pick up top graduates – and it’s the top people who give you top market positioning.”
McDiarmid puts the total share of high-end work between the top three firms at around 70%. Russell McVeagh had three big tender wins this year – multinational dairy Fonterra Co-operative Group (which it shares with Simpson Grierson), Telecom NZ (with Chapman Tripp) and IAG. It also counts Carter Holt Harvey and Western Australia-based grocery retailer Foodland Associated, which has operations in New Zealand, among its clients.
One of the firm’s biggest transactions this year was Foodland’s NZ$690m acquisition of Woolworths (NZ). Lion Nathan is another client, its Sydney-based general counsel Duncan Makeig describing Russell McVeagh as “our Mallesons [Stephen Jaques] in New Zealand”.
Cockram describes Bell Gully’s client base as “absolutely blue chip”, with a large stable of corporate, institutional and government clients. The firm’s panel appointments include Carter Holt Harvey, Contact Energy, Independent Newspapers and Air New Zealand. Another client is Fletcher Building, which uses the firm for its corporate and M&A work.
Says Fletcher’s legal counsel Charles Bolt: “[Bell Gully] has an historical connection with the company … a very good understanding of our business and also gives us excellent service.” But not all practice areas have been busy. Says Cockram: “Our finance people have had a very, very good year. M&A’s been quiet. Tax has been reasonable. Commercial property’s been better than okay. And probably the absolute star [area] for us is litigation.” One of the firm’s biggest pending deals is the NZ$4.9bn acquisition by Australia & New Zealand Banking Group and ANZ Banking Group (New Zealand) of National Bank of New Zealand from Lloyds TSB. It is also advising Independent Newspapers on its NZ$600m takeover of Sky Network TV.
Chapman Tripp’s managing partner Rupert Wilson says the flow of corporate head offices to Australia has led to more legal work with a New Zealand content being handled there. He also cites a reduction in the size of investment banks in New Zealand and less M&A activity as a factor in shrinking market. The firm nonetheless boasts a solid client base. It sits on the panels of Westpac and Telecom NZ, and is also an adviser to top 10 NSX-listed companies Independent Newspapers and NGC Holdings.
Capital markets and banking and finance have been particularly active practice areas this year. But future growth is limited. “None of the New Zealand firms are growing in size. All the firms are realising that the market’s not growing … although there are a few small, top-end, specialist boutique firms springing up.” Niche New Zealand practices include IP specialists Baldwin Shelston Waters and AJ Park, employment practice Kiely Thompson Caisley and insurance and shipping specialist McElroys.
However, not all firms accept that the market is as easily segmented as some suggest. The Asia Pacific Legal 500 has consistently ranked Simpson Grierson among the leading New Zealand firms in a number of practice areas, and the firm’s chairman Rob Fisher says it has had an “excellent” 12 months, winning a number of new blue chip clients and acting on high-profile deals.
Key panel appointments include ANZ and Fonterra, while Virgin Blue and Toll Holdings have also appointed the firm as their New Zealand legal adviser. Other clients include Fisher & Paykel, for which the firm recently acted on its joint NZ$311m acquisition of Farmers Holdings (the NZ department store and consumer finance subsidiary of Foodland Associated), and Dominion Breweries, which moved its IP work across to the firm. Simpson Grierson was also the only New Zealand firm to act on the A$2.1bn IPO of insurer Promina in May.
Another firm to watch out for is Buddle Findlay, which was named in a 1999 National Business Review survey as New Zealand’s fastest growing law firm. Chairman David Mackenzie says client feedback reveals that the firm is perceived as young, vigorous and accessible. It has also been described as punching above its weight – a comment that amuses Mackenzie. “I thought it was a bit patronising actually,” he laughs.