PLC Cross-border annual law firm review: the road to recovery?

The private equity explosion represents a trend that is prevalent across the major European and US jurisdictions. In the Asia Pacific region, activity is most pronounced in Australia; by contrast, the Asian markets present more challenges - many local businesses are family owned and are less receptive to the idea of private investors taking management control or a majority stake in their companies.

Various factors may have contributed to the upturn: major public M&A deals remain less plentiful than they were before the economic downturn, especially in Europe; large-scale restructurings have spawned attractive investment targets for private equity firms; and private equity investors are more confident of finding exit strategies (via trade sales, IPOs or, as has been frequently the case in Europe, via secondary buyouts).

Among this year's Global 50 firms, one fifth have received the highest level and spread of recommendations for their private equity practices; for these firms, private equity has been identified as one of their "areas of excellence" (see PLC Which lawyer? Global 50 section at www.whichlawyer.com for further explanation). This gives an indication of the influence this practice area has had on the overall rankings this year.

UK firms Ashurst, Clifford Chance and Lovells all have excellent European coverage for private equity matters; the latter two also have achieved recognition beyond Europe - Clifford Chance in Hong Kong and the PRC, Lovells in Hong Kong.

Seven US Global 50 firms count private equity as an "area of excellence": Willkie Farr & Gallagher,Debevoise & Plimpton, Simpson Thacher & Bartlett, Weil Gotshal & Manges, Milbank Tweed Hadley & McCloy, Cleary Gottlieb Steen & Hamilton and O'Melveny & Myers. Worth noting is the broad geographic spread of their expertise: all but two have found success in the European market and are providing stiff competition for their UK rivals. With most also present in the Hong Kong market, it seems that, for the time being, US firms have a head start on their UK counterparts in this field.

Minter Ellison is the only Australian firm to gain recognition for its private equity expertise beyond its home jurisdiction (in Hong Kong) allowing this practice area to be classed as one of the firm's "areas of excellence". Firm rivalry is fiercely intense though, and the firm recently lost one of its top Australian specialists, Philip Kapp, to Clayton Utz.

Private equity also has been a driving force behind the development of some US firms' European practices over the past year. In particular, Munich, which has continued to be a hotspot for major private equity deals, has seen a stream of US arrivals over the past three years as public M&A work declined. The most recent newcomers are Milbank Tweed Hadley & McCloy and Skadden Arps Slate Meagher & Flom, which both launched Munich offices after hiring prominent private equity partners from established German players Freshfields Bruckhaus Deringer and Baker & McKenzie, respectively. Both firms already have a presence in Germany (in Frankfurt) and their move to penetrate the existing circle of dominant private equity players is a bold one that has stirred great interest.

Latham & Watkins, which enjoys a solid reputation for private equity work in the US, is also increasing its European profile in this field. Already a player in the UK market, the firm recently poached leading Paris expert Thomas Forschbach from Ashurst, which will be a considerable boost to its nascent French practice.

In line with the more optimistic global economic outlook, the stock markets are simmering with activity; consequently, firms are experiencing a renewed demand for equity capital markets expertise.

The rise in IPO activity has been particularly pronounced in the Asia Pacific region, namely in Hong Kong/PRC, Singapore and Australia. The latter's stock market reached a record high in 2004, witnessing the most intense levels of IPO activity since the "dot.com" related wave during late 1999 and 2000. Mining IPOs accounted for a significant proportion of new listings. The top six Australian firms are all leading or highly recommended for capital markets work (see PLC Which lawyer? for more details of these firms).

In Europe, although there have been several significant IPOs, the upward trend is not as convincing. This said, increased partner movement between firms is perhaps an indication that lawyers are preparing for busier times.

The US has seen two major IPOs in the technology industry, indicating a return of confidence to the sector that experienced one of the biggest crashes in history just four years ago. The flotations of Dreamworks and Google raised many eyebrows, but both companies have so far proven sceptics' doubts unfounded. Representing the companies in these IPOs were Cravath Swaine & Moore and Wilson Sonsini Goodrich & Rosati, respectively.

Despite a promising year for the capital markets, future growth is uncertain. This is especially the case in Europe, where a large proportion of new private equity-backed listings were priced at the lower end of the market.

M&A activity is rebounding as the global economy recovers, and major deals have been particularly prevalent in the US market. Aided in part by the Sarbanes-Oxley Act reforms, which have helped restore faith in corporate governance, the upturn also has been boosted by improved stock market performances. Among the latest deals announced is the US$16 billion (about EUR12.4 billion) takeover of AT&T by SBC - if the deal goes ahead it will create the largest communications company in the US.

In Europe, M&A has seen patchy improvement and the reduced pool of work has only intensified competition between firms. In the French market, the KLM-Air France and Alcan-Pechiney mergers were headline deals. Historically the domain of top-tier national players and London firms, high-end French M&A work is increasingly being scooped up by US firms. Sullivan & Cromwell advised on the largest European merger of the year, Sanofi-Synthelabo's hostile takeover of Aventis, while Shearman & Sterling, Skadden Arps Slate Meagher & Flom and Cleary Gottlieb Steen & Hamilton have also played key roles in major deals this year.

The battle among the top 20 firms is fierce, and our overall firm scores show that just a few points can mean a difference of several places in the rankings. As confidence has returned to the global markets, and lateral hiring and regional expansion have resumed with vigour, the fates and fortunes of firms are by no means set in stone.

The balance between UK and US firms in the Global 50 has shifted firmly in favour of the latter, which now account for 32 of the total. With the exception of Freshfields Bruckhaus Deringer, UK firms have yet to make a serious impact on the US market, whereas many of their US counterparts have built impressive European practices and continue to expand. The surge in European private equity work, an area in which a number of US firms have long been active, has given them added leverage.

Despite the challenges and changes of the past 12 months, the premier international firms have demonstrated their staying power, and the top ten Global 50 firms remain largely unchanged since last year. All firms in this tier owe their success to outstanding cross-border transactional and finance expertise and consistent endorsements of their strengths both in their home jurisdiction and abroad.

Baker & McKenzie has taken the top spot for the second year running (see Still at sea: PLC Global Counsel law firm review 2003), a testimony to its unparalleled geographic spread and practice area diversity. Clifford Chance has come through a challenging year to take second place, buoyed by its formidable global banking and finance practice and impressive depth across many other areas. In third place, FreshfieldsBruckhaus Deringer continues to play to its strengths in complex cross-border matters, retaining a high overall score in most key European jurisdictions and making strong headway in the US and Asian markets.

Just six points separate UK rivals Allen & Overy and Linklaters, in fourth and fifth position, respectively. In addition to stable practices in Western Europe and Asia, both firms benefit from excellent coverage of the CEE region, especially in the key new EU member states of the Czech Republic, Hungary and Poland.

White & Case remains steady in sixth position, winning praise from clients and peers in the Middle East and Africa, South America, North America, Europe and Asia-Pacific. Lovells also retains last year's ranking, earning seventh place overall. The firm continues to excel in the European market, and has built a solid Asian presence in Tokyo, Hong Kong and Beijing. Hot on its heels is Latham & Watkins, a firm of proven international quality that achieves as much recognition outside its home jurisdiction (US) as inside. It has been at the forefront of some of the most significant cross-border transactions in Europe, and maintains its reputation in the US.

Premier New York firm Skadden Arps Slate Meagher & Flom has achieved rapid international growth based on its focused objective to handle only big-ticket work - a strategy that it has sustained even in leaner times, thanks to its skills in major restructurings as well as M&A deals.

In tenth place this year is US firm Shearman & Sterling, edging ahead of UK firm Simmons & Simmons by just three points. Besides its strength in the US and Asia, Shearman has enjoyed a particularly successful year in the European market and become increasingly prominent in headline deals.

See also PLC Which lawyer? Awards 2005.

Benelux. After several years of sluggish growth, the region is benefiting from the rest of Europe's slow economic recovery. Increased deal activity was particularly apparent in Belgium, where the successful flotation of Belgacom, the state-owned telephone company, triggered several more high-profile transactions. Luxembourg's importance as a financial sector has helped it maintain economic prosperity. Private equity is the primary driver behind investment in The Netherlands and Belgium, in line with the global trend. In Luxembourg, a new investment vehicle for private equity and venture capital was recently created, in anticipation of further growth in this area.

Following a period of significant regional growth for Dutch-based Benelux firms, 2004 has been less dramatic, with the focus on sustaining existing practices. Loyens & Loeff and NautaDutilh, which both expanded across Belgium and Luxembourg in 2003, are the only regional firms that have made an impact on all three countries. Stibbe, allied with UK firm Herbert Smith and German firm Gleiss Lutz, is a seasoned player in the Dutch and Belgian markets.

Benelux is a distinctive market as far as law firm mix is concerned. In contrast to many other countries in Europe where international firms are present, the top national practices maintain leading or very strong market positions. Dutch independent firms De Brauw Blackstone Westbroek and Houthoff Buruma, and Luxembourg-based Arendt & Medernach, Bonn Schmitt Steichen and Elvinger Hoss & Prussen are good examples.

The Belgian market is a complex blend of international, Belgian full-service and niche firms. Brussels continues to attract new international entrants in the competition law sector, especially US firms looking to develop transatlantic expertise (see main text, The US march on Europe). UK firms also have a strong foothold in the market; most are well established, and there have been no newcomers over the last year.

France. The French economy is at last showing signs of recovery after the worst downturn in ten years. This year saw an increased number of consolidations, driven by a desire to compete with the larger companies in the global market. Particularly notable were the KLM-Air France and Alcan-Pechiney mergers. Other practice areas that generated considerable activity included restructuring and insolvency and IP.

Competition is fierce in the French legal market, as the pace of M&A improvement is slow, and the number of lawyers continues to increase. Aware of this, clients are using panels and procurements to select external counsel, and the dominant criterion has become fees.

Those US and UK firms that have made a real impact on the French market tend to be large corporate powerhouses, branded by a strong collective image. They continue to make their presence felt and occasionally hire teams of well-known French lawyers. For example, Freshfields Bruckhaus Deringer recently acquired Bélier Associés, a leading employment law boutique. Also, newly arrived US firm Morgan Lewis recently hired six partners from reputable commercial firm De Pardieu Brocas Maffei. Also significant was the defection of private equity star Thomas Forschbachfrom UK firm Ashurst to US firm Latham & Watkins.

The upmarket French structures tend to be smaller and are often built around one or two strongly connected leading personalities. For example, Bredin Prat and Rambaud Martelare famous for (among others) M&A specialists Jean-François Prat and Jean-Pierre Martel, respectively. However, this model by no means applies to all French firms. The most internationally ambitious of domestic firms is Gide Loyrette Nouel, which is consistently involved in the biggest deals.

Germany. Despite optimistic forecasts, the German economy has shown little sign of improvement during 2004. For the past five to six years, growth has been at a standstill. Unemployment remains high, and insolvencies and restructuring work, mainly for small or mid-sized companies, keeps many lawyers busy.

Ironically, the lagging economy has brought an upturn in M&A work. The large number of keenly priced small and mid-sized German companies has lured investors and re-kindled market activity. Private equity investors looking to strike a bargain are the primary drivers behind these deals, which now represent 43% of all transactions in Germany. Law firms with expertise in this area reported a particularly successful year.

Anglo-German combines dominate the top end of the law firm market: Freshfields Bruckhaus Deringer, Clifford Chance, Linklaters Oppenhoff & Rädler and Lovells are among the top five players in PLC Which lawyer?'s most recent rankings. Hengeler Mueller stands out as an independent German firm of exceptional quality, competing alongside the top international firms.

US firms continue to show a keen interest in the German market. Skadden Arps Slate Meagher & Flom and Milbank Tweed Hadley & McCloy both launched their second German offices, in Munich, following lateral partner hires from Baker & McKenzie and Freshfields Bruckhaus Deringer, respectively. Private equity in particular fuelled these developments.

Competition between law firms is intense and partner defections increasingly common. The challenging market conditions have made profitability more crucial than ever, and some international firms have undergone considerable internal re-shuffling. Correspondingly, the number of new entrants has dropped substantially and most firms are focusing their efforts on reinforcing their existing practices.

Iberia. Closely tied to the fortunes of the rest of Europe, the Iberian economies have seen gradual improvement during 2004, although growth levels were not as high as early forecasts predicted. Spain and Portugal both endured an unexpected change in government part way through the year, which created a degree of instability. The Spanish market also had to cope with the tragic Madrid train bombings.

Law firm consolidation across the Iberian market has continued, and Spanish leaders Uría & Menéndez, Garrigues, and Cuatrecasas are all now present in Portugal (see main text, Consolidation - a worldwide trend).

Madrid is considered a key Iberian location by most UK City firms, which dominate the financial markets. Clifford Chance, the first international firm to open in the capital, is a clear leader for domestic banking and capital markets work. US firms are less visible in the market, with Baker & McKenzie and Jones Day the only players to have made any significant impact.

The Spanish and the Portuguese legal markets are both de-centralised and most Spanish firms have offices in several regional capitals as well as in Madrid and Barcelona. In addition, Portuguese firms often have bases in Porto and Lisbon.

Italy. While the Italian economy is still suffering the effects of an economic slowdown, there have been small improvements in some key areas. The car, aviation and shipping industries have continued to do well, and telecommunications, particularly third generation technology, has seen considerable development.

M&A work has not re-attained the level of activity it enjoyed two or three years ago and there have been few large deals. However, the slight improvement on last year's performance looks set to continue for the immediate future. Real estate, projects, restructuring and insolvency, dispute resolution and banking were among the most active areas in 2004.

Most lawyers view the current state of general stagnation, caused principally by the economic slowdown, as a temporary problem. Money is still being invested in Italy, especially in traditional, low risk areas like real estate. It is hoped that the potential for greater investment, and the increase in legal work that this entails, will soon be realised.

Among the most high-profile partner moves in 2004 were the defection of Roberto Casati from Allen & Overy to Cleary Gottlieb Steen & Hamilton, and that of Gian Luca Rabitti from Clifford Chance Studio Legale Associato to Chiomenti Studio Legale. Gianni Origoni Grippo and Partnerswas the success story of the year for Italian independence, as the firm continued to flourish following its highly publicised break with Linklaters in April 2004.

Scandinavia. The Scandinavian region weathered the global economic downturn with characteristic resilience. M&A activity is once again picking up and transactional lawyers are expecting a busy time ahead.

Domestic firms continue to dominate the regional markets. In Finland, Roschier Holmberg, Hannes Snellman and Castrén & Snellman, the only firms with a full service offering, are head and shoulders above their competitors. In the highly competitive Norwegian market, Wiersholm Mellbye & Bech still has the edge over its rivals. Kromann Reumert leads in the Danish market, while in Sweden, Mannheimer Swartling sets the standard for the other firms in the market.

The EU accession of the Baltic states Estonia, Latvia and Lithuania has created new opportunities for Scandinavian law firms with an eye for international expansion. In particular, the Finns have been quick off the mark to form alliances and networks within the region. Borenius & Kemppinen has joint ventures in Estonia, Latvia and Lithuania, while Roschier Holmberg has entered into a regional network alliance with Estonian firm Raidla & Partners. (See below, Central and Eastern Europe, for further details on Baltic partnering.)

UK. Increased confidence in the UK economy has helped end the stagnation in M&A. A significant upturn in private equity has transformed the area into one of the most lucrative fields of practice. Banking work is increasing, with lending very busy compared to the last two years. IP, tax and competition/anti-trust law have also been very active.

The "magic circle" firms continue to dominate the legal market. However, the more affordable quality firms have attracted those private domestic clients who find the magic circle too expensive. Also, commercial conflicts have directed some work away from the top law firms. For example, in June Freshfields Bruckhaus Deringer was prevented in the High Court from representing Philip Green in his high-profile bid for Marks & Spencer, and the work fell instead to Ashurst.

The mantra that London is a stepping stone to Europe still rings true, and the City continues to attract US firms. However, many have found that the transition is not without its difficulties, as cultural conflicts and different methods of partner remuneration can cause problems. Others are finding that the market has fulfilled its promise, and our rankings reveal several who have made significant inroads. Among the most established US firms in London are White & Case, Baker & McKenzie, Latham & Watkins, Skadden Arps Slate Meagher & Flom, Kirkland & Ellisand Sullivan & Cromwell.

Other developments in the legal market included the continued partner defections from Simmons & Simmons following a decision to raise profitability and reduce the number of equity partners. There were also several significant changes in management, as Simon Bromwich and David Gold were appointed managing partners of Ashurst and Herbert Smith, respectively.

Eight of the ten countries that joined the EU on 1 May 2004 are in Central and Eastern Europe (CEE) or neighbouring areas.

For these new members - the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia - preparation for EU entry was a gradual process, both in terms of legislative development and the maturing of legal services. This meant that accession itself generally involved a smooth transition. It is hoped that the countries' new status will enhance their attractiveness to investors, boost export markets and promote a strong business climate and economy.

In the key CEE markets of the Czech Republic, Hungary and Poland, the pool of law firms remains stable despite recent downsizing measures taken by a number of international firms. While EU accession means that lawyers from other member states may practise freely in the newly acceded CEE countries, a fresh influx of international firms is considered unlikely, given the maturity of the markets and the aggressive competition among current players in these markets. Prominent international firms include White & Case, Weil Gotshal & Manges, Allen & Overy,Baker & McKenzie, Clifford Chance, Linklaters and Salans. Domestic firms hold a strong position in certain niche areas, such as IP, labour law and dispute resolution.

The Baltic states of Estonia, Latvia and Lithuania have seen a marked increase in foreign investor confidence since their accession to the EU, and GDP growth forecasts are high. In the past year, Baltic partnering has been the major trend among law firms. Estonian firm Raidla & Partners created alliances with firms in Latvia, Lithuania and Finland, forming the RoschierRaidla group; Lithuanian firm Lideika Petrauskas Valiunas ir partneriai formed LAWIN, a group including Law Office of Lepik & Luhaäär in Estonia, and Klavins & Slaidins in Latvia. Despite the ripe investment climate, no present threat of international firms is perceived, as the markets are relatively small and most firms are content to co-operate with the top domestic firms.

Despite the war on terror and tensions over Iraq, and the internal instabilities plaguing the region, the economic situation throughout the Middle East is relatively buoyant. Substantial amounts of Arab money have been directed away from the West and been reinvested closer to home, especially in the UAE.

Privatisation is considered an important way of attracting much-needed foreign investment, and projects across the region are keeping lawyers busy. Certain sectors, such as telecoms in Saudi Arabia, have already undergone partial privatisation; water and electricity are among the sectors expected to generate further work. The Islamic finance market has seen continued development, especially in Bahrain and Abu Dhabi. Firms with growing expertise in this area include Norton Rose, Allen & Overy, Denton Wilde Sapte and Clifford Chance.

International firms have a strong regional presence, many operating broad practices from a base in one or two countries. Clifford Chance is represented in the key markets of UAE, Saudi Arabia and Bahrain, either through a standalone office or through an association with a local firm (in Bahrain this is the only legitimate way for foreign firms to practise). In the UAE, it shares a leading rank with Denton Wilde Sapte and Clyde & Co; the latter was the first firm to move into Iraq, by forming an alliance with a Baghdad firm. US firms are prominent players in Saudi Arabia in particular, largely thanks to historical ties. White & Case, Baker & McKenzie, Akin Gump Strauss Hauer & Feld and French firm Gide Loyrette Nouel are all well established.

The Russian and CIS economies have prospered during the previous year, benefiting from high oil prices and strong trade from other natural resources produced and exported.

In Russia, M&A activity has been buoyant, the capital markets are opening, and several major investment banks recently have made large-scale acquisitions. However, investor confidence continues to waver, partly in response to recent scandals, such as the failed Yukos-Sibneft merger, and partly due to persistent concerns over governance style. The string of horrific terrorist attacks in Russia has shaken confidence even more.

Ukraine, although part of the region's free economic zone, is gradually developing a more euro-friendly outlook as the borders of the EU creep ever closer. Various recent reforms have brought the country more into line with the EU, and the country is focusing on transparency, and raising its economic game to international, WTO standards.

A number of international firms have developed strong regional practices across Russia and the CIS. Baker & McKenzie stands out as a clear leader in Russia, Kazahkstan and Ukraine; the only other firm to match its geographic reach is Salans. White & Case, Coudert Brothers, Clifford Chance and Denton Wilde Sapte are among other prominent regional players.

Canada. 2004 was a promising year for the Canadian economy. The Canadian dollar reached its highest levels since the early 1990s, and the telecommunications and mining industries were particularly active. While M&A work has reached a sustainable level as compared to previous years, it has not yet picked up as much as some would have liked. Notable deals include the Alcan-Pechiney takeover and Manulife Financial's acquisition of John Hancock Financial Services.

A consequence of the consolidation of Canada's legal market that began in 2001 has been that the top domestic players have maintained their grip on high-end corporate activity. The top five firms in PLC Which lawyer?'s rankings share a strength and depth of expertise in the key areas of commercial law. These firms are McCarthy Tétrault, Osler Hoskin & Harcourt, Blake Cassels & Graydon, Goodmans and Torys.

The market is currently characterised by stability, and so far no foreign firms have attempted to penetrate this close-knit community. Some alliances with US firms exist, but only Baker & McKenzie and Shearman & Sterling have an office in Toronto. Meanwhile, Canadian firm Blake Cassels & Graydon opened offices in New York and Chicago.

US. The deal market has been resurgent in 2004, with announced US M&A deals valued at US$833.5 billion (about EUR635 billion) and New York's traditional corporate leaders and private equity houses posting strong increases in deal value and volume. Although the year fell short of the predicted full-fledged recovery, it ended with several large M&A deals (see box, New opportunities: Practice area developments), a positive indicator for 2005. And spurred by the well-publicised troubles in the insurance and pharmaceutical industries, US securities class actions continued to increase in number and size.

Consolidation was also on the up, with 2004 seeing a total of 47 law firm couplings. These mergers, most of which occurred in the first quarter, represented a 34% jump from the previous year. Washington DC and Boston were the main hotbeds for change. Wilmer Cutler Pickering Hale and Dorr spearheaded the consolidation of the US legal market, by forging a giant in terms of numbers and turnover, in April. Additionally the future of independent IP specialists continued to look uncertain with New York's Fish & Neave taken over by Boston outfit Ropes & Gray. Reed Smith and Hall Dickler also joined forces in 2004, and a three-way transatlantic merger created DLA Piper Rudnick Gray Cary.

Whether further transatlantic tie-ups will follow remains a talking point on both sides of the Atlantic. UK-based firms have continued to re-organise their US strategies, the prime example being Clifford Chance, which continued its worldwide cost cutting programme that saw the firm shrink in size by 25%, a loss of 104 lawyers in total, along with the closure of two of its three West Coast offices. However, it is still ahead of its Anglo-Saxon rivals, such as Freshfields Bruckhaus Deringer, Allen & Overy and Linklaters which, although solid, are yet to make a serious dent in the all-important US market.

The Latin American region is finally showing signs of recovery after the recession that dogged many countries during 2001 and 2002. Forecasts predict positive economic growth for the year ahead across most parts of the region. Many law firms report an upturn in M&A work as transactions have resumed, although corporate and financial restructuring also continue to generate substantial work. Alongside increased M&A activity, there has been renewed interest from foreign investors, particularly in the form of private equity. Real estate and property development also have emerged as significant growth sectors, especially in Argentina, Colombia and Mexico.

In the key markets of Argentina, Brazil and Mexico, large corporate-style law firms are becoming more prevalent, but this trend has not spread through the region as a whole, and many lawyers still operate as sole practitioners. Most commercial firms tend to span a broad range of practice areas, giving lawyers a steady stream of work not only when deals are plentiful, but also when restructuring activity is high.

International firms are showing a growing interest in the Latin American market. Baker & McKenzie has a longstanding presence in the region, and White & Case is a strong player in Mexico. Shearman & Sterling is a more recent entrant, and opened an office in São Paulo in mid-2004 to offer US law advice. Brazilian lawyers expect other New York-based firms to make similar moves within the next few years.

Spain and Portugal maintain strong links to their former colonies and Latin America is an important market for Iberian multinationals. Reflecting this, there are several Iberian-Latin American law firm networks, among them Uría & Menéndez's network and Cuatrecasas' alliance.

Australia. The Australian corporate market remained resilient throughout 2004. John Howard was re-elected Prime Minister for a fourth consecutive term in government with a commitment to maintaining and building upon the impressive performance of the economy. Significant free trade agreements were signed with Singapore and Thailand, strengthening Australia's relationship with its closest neighbours. The country also entered into a free trade agreement with the US.

Little has changed at the top of the legal market. Mallesons Stephen Jaques remains the country's pre-eminent law firm although Freehills is chasing hard on its heels to obtain that position; generally, there is little to separate the two firms. However, Mallesons stands out for its regional capability having pulled off probably the most significant merger in Asia last year (see below, Hong Kong/PRC).

Allens Arthur Robinson achieved a respectable third position in the PLC Which lawyer? rankings. The firm is still viewed as a corporate heavyweight by competitors despite the loss of some its leading partners, many to in-house positions, over the last two years. Clayton Utz, Minter Ellison and Blake Dawson Waldron round off the top six firms in the country. Johnson Winter & Slattery has suddenly emerged as the firm to watch in the future. The Adelaide firm has made its ambitions clear by opening a new office in Melbourne and hiring two well known lawyers, Damian Reichel (M&A) and Aldo Nicotra (competition), from Blake Dawson Waldron.

Hong Kong/PRC. With SARS now eradicated, normal business and a renewed sense of optimism returned to the Hong Kong market in 2004. Many law firms reported an increase in workload of 50% in the first part of the year with some even reporting having to turn work away. Equity capital markets proved particularly busy; this was in stark contrast to 2003 when China Life was the only major IPO.

The Chinese Mainland continues to attract much foreign inward investment with the encouragement of the government, which is keen to introduce foreign management techniques and know-how in order to reform its state-owned enterprises and make them more efficient.

A more recent trend is the increase in Chinese outbound investment into the rest of Asia as well as in Europe and America. The PRC and Hong Kong entered into the Closer Economic Partnership Arrangement (CEPA), which took effect on 1 January 2004. The agreement will give Hong Kong businesses preferential treatment when doing business or investing on the mainland.

In the legal market, the most significant news in 2004 was the merger between Australian law firm Mallesons Stephen Jaques and local law firm Kwok & Yi. The merger gives the Hong Kong and Beijing offices of Mallesons capability in corporate areas such as M&A and equity capital markets.

Japan. There have been a number of significant changes in the Japanese legal market over the last 12 months. The Japanese Bar is expected to raise the ceiling of the number of people passing the bar exam each year to 3,000; in the past, only around 1,000 law graduates were permitted to pass causing a massive shortfall in lawyers in a country with a population of over 120 million.

The Japanese Bar has also permitted joint venture operations between domestic and foreign law firms to become fully integrated from 2005. Linklaters is taking advantage of the new rules when it opens its local office this month (April), having hired leading bengoshi Mitsuhiro Yasuda and Akihiro Wani from top tier firm Mitsui Yasuda Wani & Maeda. There has also been further consolidation in the market with the merger between Anderson Mori and Tomotsune & Kimura, now operating as Anderson Mori Tomotsune.

Singapore. 2004 proved to be a busier year than 2003 with the domestic IPO market being particularly buoyant. M&A activity was, in comparison, much slower. Singapore is building up its private banking sector and as a result European private banks are establishing offices on the island.

Singapore is also focusing on building its reputation as a centre of excellence in education, life sciences, electronics, healthcare and finance. Competition legislation was also introduced for the first time at the end of 2004.

Clifford Chance Wong, Baker & McKenzie Wong & Leow and Linklaters Allen & Gledhill occupy the top three positions in the PLC Which lawyer? rankings this year. Rajah & Tann is the country's leading independent local law firm.