The largest law firm in mainland China has struck a deal to combine forces with Dentons, an expansion-minded global law firm, a novel tie-up that could signal a growing desire by Chinese officials to give their fast-growing companies easier access to Western markets.
But it comes at a time when other ventures by Western firms in China have often proved unprofitable, partly because China places strict restrictions on Western lawyers working in the country. This week, New York-based international firm Fried, Frank, Harris, Shriver & Jacobson LLP said it would effectively shut down its Hong Kong and Shanghai offices after about a little less than a decade in Asia.
In the deal, which has been approved by the partnerships of both firms, Dentons has agreed to combine with Dacheng, a firm of approximately 4,000 lawyers spread mostly throughout China.
Dentons, a firm known for its bankruptcy and mergers-and-acquisitions practices, among others, is itself the product of several mergers in recent years. It was formed in 2013 by the three-way merger of Canada-based Fraser Milner Casgrain LLP; Salans, a firm founded in Paris with offices throughout Europe; and SNR Denton, the product of a 2010 cross-Atlantic merger.
The combined firm, with over 6,500 lawyers spread across more than 50 countries, would be the largest law firm in the world, by lawyer head count. The deal proposal awaits approval from Chinese regulators, which management teams from both firms expect as soon as early next week.
Dentons, which represents a roster of large multinational companies, including?0?2Coca-Cola?0?2Co. ,?0?2Total?0?2SA and?0?2HSBC Holdings?0?2PLC, had revenue of about $1.3 billion in 2013, the last year for which figures are available.
In recent years, Dacheng has represented a host of big Chinese companies, includingChina Railway Construction?0?2Corp. , China Development Bank and Sunshine Insurance Group Corp. Revenue figures for the firm weren’t available.
For decades, Western lawyers in China have generally been barred from appearing in court or from appearing in front of the government—restrictions that often lead Western firms to hire “local” Chinese counsel to handle issues inside the country.
“It’s an extremely difficult place for Western firms to practice and to practice profitably,” said legal consultant Brad Hildebrandt.
But the Dentons-Dacheng deal, if approved, will allow Dentons clients access to a stable of lawyers cleared to practice in China without hiring another firm, according to Joseph Andrew, the global chair of Dentons.
The firm involves an increasingly common structure known as a verein, an association between partnerships that share a common name, but remain financially independent. The only other combination between a Chinese and a Western firm—the 2012 deal between King & Wood, based in Beijing, and Australia’s Mallesons Stephen Jaques—was also structured as a verein.
Law-firm mergers, even those following the looser verein structure, sometimes suffer from insurmountable cultural differences or other problems—such as approaches to partner pay. Deals that span time zones and involve language barriers can be especially tricky to pull off. Another possible issue, according to some law-firm experts: worry by some clients that sensitive information passed to firm lawyers may fall into the hands of Chinese competitors, or even the Chinese government.
A spokeswoman for Dentons said that the firm has developed a “comprehensive” cybersecurity approach, and that “only lawyers and professionals who need to know the client’s business…will be able to access client information necessary to collaborate in serving the client.” The firm will be known as Dentons outside China and Dacheng inside China. The firm’s logo will include the Chinese characters for Dacheng, followed by the Dentons name.
Mr. Andrew said the deal would give the firm’s clients “unparalleled access” into an economy that has witnessed explosive growth over the past decade—and stands poised to keep growing.
The president of Dacheng, Peng Xuefeng, said that the deal would bring the firm’s clients in much closer touch with the rest of the world. “Now is the time for Chinese enterprises to go outbound, to invest in the rest of the world,” he said.