Coming not long after the disappointment of NOT announcing at their partners meeting in Hong Kong this past March the anticipated merger of King & Wood Mallesons with WongPartnership, KWM is now expected to vote on a merger with SJ Berwin, a UK firm established by Stanley J Berwin in 1982. The effective date is speculated to be July 1.

SJ Berwin would lose its name but would be one of four financially distinct partnerships under KWM’s Swiss Verein setup, now including partnerships in China, Hong Kong and Australia, any of which could veto the arrangement.

For those of you not yet familiar with either KWM or the Swiss Verein legal services structure, a few words on the basics:  King & Wood is the made-up name (there is no Mr. King or Ms. Wood–the founding partners simply considered the names attractive for international marketing purposes) under which a group of five Chinese lawyers started practicing law together in China in 1993. Almost twenty years later, they numbered over 1000 lawyers in 16 offices with annual revenue increases over the prior ten years averaging 20-30%.  In March 2012, King & Wood merged with Mallesons Stephens Jacques, an Australian firm, giving the combined firm global revenues of over $650 million, 1800 lawyers and the 2012 Lawyer Award for International Firm of the Year.

KWM is headquartered in Hong Kong, with offices in Australia, China, Japan, the United Kingdom, and the United States, including Silicon Valley and New York City.  It is the only law firm currently licensed to practice Australian law, Hong Kong law, Chinese law, and English law, and is the largest law firm headquartered outside of the US or the UK.  Its strategic plan clearly includes substantial inroads into Anglo-Saxon territory and the next news is likely to be which US firm it adds to its stable.  Many consider KWM the 300 pound gorilla that will create huge waves in the international legal services business–providing Asian expertise internationally in a critical emerging market at below-US-rates.

The Swiss Verein structure refers to a Swiss-based arrangement of  independent but related business offices that is easily established.  These offices form essentially an alliance that keeps financials separate in the various partnerships, blurring the typical reasons for merging–consolidated costs and cross-selling revenues. The form is often used by multinational professional firms to limit global liability.  Because control of the firm is decentralized, offices are only bound by regulators in their own country.  Non-US offices of accounting firms in a Verein structure, for example, are not bound by SEC subpoenas.  Firms that use this structure include Baker & McKenzie, Deloitte, Crowe Horwath, DLA Piper, Hogan Lovells, Norton Rose and SNR Denton, among others.

Whether this sort of association is sufficient to enhance revenues or profits of individual partners is yet to be seen.  But the arrangement reduces risk and minimizes management conflicts among the partnerships.  Having said that, Mallesons’ Australia managing partner Tony O’Malley has recently announced a fairly abrupt leaving after a short stint, with little explanation.

SJ Berwin evidently entered into talks with KWM late last year.  Over the last couple of years, SJ Berwin failed to merge with New York’s Proskauer Rose, discussed a merger with Mayer Brown, saw its revenue and partner ranks remain static and most recently “reassessed” its capital structure, while paying out partner distributions late due to “increased profitability,” and evidently decreased cash flow management, as well.

The KWM gorilla will upon this merger, if it happens, be one of the largest firms in the world, both in terms of lawyers–at over 2300–and revenues, projected to be in the neighborhood of $1 billion.

Evidently one of the reasons Mallesons decided to merge with King & Wood is the perception that “China is the United States of the 21st century.”  And its law firms are the biggest new thing on the block.