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Big Law Firms Circle a Global Firm Under Stress

Nov. 29, 2016, 2:09 PM

Last week the global law firm King & Wood Mallesons announced that its European and Middle East operation was considering a merger, following a slowdown in collections and a subsequent failure to raise enough capital from its partners to right the ship.

As of Monday, two big law firms were reportedly in discussions to hire partners from the 2,200-lawyer law firm, which reported $1 billion in revenue for 2015 and also has a large presence in China and Australia.

A Goodwin Procter spokesman said in a statement on Monday that the firm has hired funds partner Michael Halford in London and also has “extended offers to certain other London-based KWM partners” although he did not identify them.

“These offers are subject to Goodwin partnership vote, which we expect will take place over the coming weeks,” he said.

Meanwhile, the legal publication, Legal Business, reports that King & Wood Mallesons funds partners Ajay Pathak, Patrick Deasy, Ed Hall and Shawn D’Aguiar are also set to join Goodwin.

Secondly, Covington & Burling is in talks to hire King & Wood Mallesons’ head of litigation Craig Pollack, a lifer at SJ Berwin, a UK-based firm that King & Wood Mallesons merged with in 2013, which represents the European and Middle East part of the firm in question.

That’s according to multiple London legal publications, including The Lawyer, which described Pollack’s possible exit as a final chapter of sorts to SJ Berwin’s legacy within King & Wood Mallesons.

He is the last of the big name SJ Berwin litigators to exit the firm following the departures of: [Alex] Leitch to Covington, Hilton Mervis to Arnold & Porter, Tim Beale to Byrne & Partners and Justin Michaelson to Fried Frank Harris Shriver & Jacobson.

Pollack was understood to be one of the most vocal supporters of riding out the turbulence at KWM over the last year, and is understood to have held several discussions with more junior lawyers about remaining at the firm.

However sources close to Pollack said he has been in talks with Covington for a number of weeks.

King & Wood Mallesons spokeswoman Judith Green declined to comment on the potential departures.

“We are refusing to comment on speculation around partners being in discussion with other firms,” Green said.

She also said that the firm’s European and Middle East operation continues to explore “strategic options available to us, and will not be commenting further until that process is completed.”

Sources close to the firm tell Big Law Business that the financial turbulence that King & Wood Mallesons is experiencing relates largely to SJ Berwin, which is one large business unit within King & Wood Mallesons, that now appears to be disbanding because partners couldn’t raise the necessary capital to improve its financial profile and pay partners on time. The firm had previously deferred payments to partners because of what its global managing partner Stuart Fuller called cash flow issues caused by a slowdown in collections in its transactional practice.

At the time King & Wood Mallesons merged with SJ Berwin in 2013, SJ Berwin had more than 500 lawyers including 165 partners, according to headcount figures reported at that time in The American Lawyer. Although the firm did not provide headcount figures for legacy SJ Berwin today, King & Wood Mallesons’ EUME business (which includes U.S. offices from legacy King & Wood of China) staffs 130 partners.

The firm said it asked partners partners in its EUME operation to chip in $18 million to bring its capital pool up to the same levels as the firm’s other business units in Asia and Australia. But partner departures ensued and the firm wasn’t able to meet that goal, the firm announced last week. This prompted the firm to consider a merger for the European and Middle East arm, among other “strategic options.”

One industry source wrote to Big Law Business:

“This is more about the legacy of SJ Berwin than KWM. The firm hit a crisis in 2008/2009 from the property slowdown and even though it bounced back somewhat, it never really gained its momentum. Top people keep leaving and there was no direction. As you know the firms are not really merged. It’s a Verein. The Australians and Chinese will just carry on.”

The source also said that SJ Berwin did not seem to mesh well with practices at other parts of King & Wood Mallesons. “It never made any sense as a merger, and now this is the outcome,” the source said.

For instance, he said that SJ Berwin was known for its U.K. property and private equity work. But he questioned how those practices fit into King & Wood Mallesons’ overall business: “Although there are some big investors from China in U.K. property, there is not so much in Chinese PE funds.”

Outside of SJ Berwin, which the firm said constituted 27 percent of global revenues in 2015, King & Wood Mallesons is comprised of large Asia and Australia operations, formed from a merger in 2012 between China’s King & Wood PRC Lawyers and Mallesons Stephen Jaques of Australia.

The firm is structured as a Swiss Verein, meaning that it maintains separate law firm business entities under a common brand. Under this King & Wood Mallesons umbrella, the firm is comprised of four member firms: One in Australia, one in China, another in China’s Hong Kong, and a fourth in the EUME, which accounts for Europe, the Middle East and a small presence in the United States in New York and Silicon Valley.

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