China Law Firm Acquisition Market Heats Up with Multiple M&A Deals
SHANGHAI – The push to get into the Chinese legal services market has been heating up with the announcement that Ernst & Young, one of the “Big Four” auditors, have acquired Shanghai-based law firm Chen & Co. Meanwhile, two of China’s largest domestic firms, Jun He and Zhong Lun, have proposed a merger deal that will see them become the largest Chinese law practice.
Along with King & Wood, whose own merger with Mallesons took place just two years ago, these firms made up the “Big Three” law practices in mainland China.
The King & Wood Mallesons firm went a step further last year by swallowing up SJ Berwin to create the first China-Asia practice. That firm now has 2,700 lawyers across 30 offices in Asia, signifying the shift of commerce and accompanying professional services to the Asian region.
The Jun He / Zhong Lun merger brings together complimentary services. Jun He specializes in foreign investment and capital markets, while Zhong Lun focus their expertise in real estate, projects and domestic M&A deals, creating a healthy mix of international MNC’s and large Chinese corporates. Both have also opened up offices overseas. Jun He became the first Chinese firm to open an office outside China in 1993, when it established a presence in New York. In 2010, it opened another American office in Silicon Valley. Zhong Lun opened in Tokyo in 2006, followed by a London office in 2012 and a New York office last year.
The Ernst & Young acquisition marks a leap into the legal services market by the firm. As one of the Big Four global accounting and audit practices, the move marks a shift in the firm’s emphasis of services provision. All of the Big Four firms have merged with smaller Chinese accounting practices over the years to build up their China domestic presence, however, the Chen & Co acquisition is only the second time such a move has been made into legal services, with Deloitte’s establishing a law firm early last year. Badged as Qin Li and based in Shanghai, the firm is a licensed Chinese law practice and is promoted as part of Deloitte’s global network.
This makes the Ernst & Young legal acquisition of a domestic Chinese law practice the first time a law firm has been acquired in China by a non-legal practice.
Along with its Shanghai office, Chen & Co commands a staff of over 40 lawyers throughout China, including a branch office in Beijing and a liaison office in Hong Kong. Under the deal, Chen & Co will join EY’s Global Network and will retain their China law license. The firm has built a reputation for advising privately owned Chinese companies during the IPO process, both within China and overseas.
Ernst & Young also operate legal service providers via locally acquired practices in Australia, India and Japan, and is set to open up similar practices in London and Singapore.
Chris Devonshire-Ellis of Dezan Shira & Associates comments, “I predicted that the China legal services industry would go through a period of M&A several years ago. The Communist Party wants to create a handful of powerful global Chinese practices and, frankly, the domestic firms need foreign involvement to upgrade their services capabilities. These acquisitions also largely reflect the growing importance of building a practice that reaches beyond China and that can provide services internationally, with Asia seen as key. The proposed liberalisation of foreign law firms ability to practice Chinese domestic law, at least within the confines of the Shanghai Free Trade Zone, is also indicative of China intending to gradually open up the legal services market. We will see more mergers and acquisitions in professional services over the coming years in China – firms with a proven infrastructure in the country and licensed to operate in the country will be in demand, especially those with an Asian or international presence.”
“Foreign firms operating in China by sub-contracting foreign client work to local domestic firms will not be able to compete as the demand for hands on China service increases. It is key to have a fully functional and operational presence in China in order to progress in the professional services market, and ideally one that already has an international aspect to its corporate structure. Multinational clients are increasingly demanding a more consistent level of service, an ability to understand and absorb legal and tax cultural and compliance regulatory differences, with direct partner liaison contact and a wider geographical spread,” he further commented.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam in addition to alliances in Indonesia, Malaysia, Philippines and Thailand as well as liaison offices in Italy and the United States.
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