While many of the details are yet to be finalised, Japan's legal market is still coming to terms with the shock announcement this month that Nishimura & Partners and Asahi Koma Law Offices are in talks to unite.
Japan's second and fifth largest law firms have reached an agreement in principle to combine their operations which, if successful, would give the newly-merged entity more than 80 partners and almost 350 attorneys in total.
That is considerably more than Japan's largest law firm to date, Mori Hamada & Matsumoto, which houses 225 fee earners including 65 partners.
While both firms have been reluctant to divulge any further details of their discussions, which are believed to have started earlier this year, the statement issued by Nishimura & Partners did reveal the underlying reasons for such a move.
First is the need to bulk up in order face the unprecedented level of competition now coming from the international firms following last year's regulations that permit enhanced cooperation between Western and Japanese-qualified lawyers.
"As consumers of legal services in Japan require top-notch legal advice delivered under time-sensitive conditions, and international law firms begin to develop a Japanese law capability, Nishimura & Partners determined that its success and premier position would be further entrenched if it could offer greater depth and enhanced practice areas to satisfy Japanese market demands," read the statement.
Recent changes in the Japanese system and a series of Japanese legislative reforms have increased the demand for highly skilled Japanese law-qualified attorneys. But while the number of Japanese attorneys is expected to double over the next 10 years from the current level of 22,000 attorneys, such an increase may not keep pace with greater demands for Japanese attorneys to assist on large, complicated transactions.
Linklaters' joint managing partner Tony Grundy clarified the challenge to ALB last year. "Given the increasing cross-border activity of businesses operating in Japan," he said, "both Japanese and international firms will seek to provide domestic and international advice."
So while many of the international firms, as expected, have considerably boosted their bengoshi headcount since 1 April, domestic firms are now starting to respond in kind.
"A lot of people look at this as Nishimura & Partners and Asahi Koma trying to keep Japanese work as opposed to going after international work," said Morrison & Foerster partner Matt Berger. "This is part of a trend of a more active bengoshi Bar, with firms wanting to stay independent and continue to do Japanese market legal work."
Responding in part to the inevitable wave of departures to the internationals - but also to maintain and indeed boost the level of critical mass necessary for many of today's cross-border transactions - Japanese firms have been seeking rich pickings from the graduate community.
"Everyone's trying to recruit like crazy," added Berger. "Retaining talent is very important now in Japan and associates might be attracted to the merged firm's size and staying power."
As revealed in Issue 5.12 of ALB, Nishimura & Partners was the most active graduate recruiter last year of Japan's Big Four firms - hiring 27 new lawyers to the firm on 11 October. Managing partner Akira Kosugi told ALB: "We're always looking to recruit the highest quality of graduates, and this year our recruiting process was extremely successful."
And positioning itself as the firm of choice for the best and the brightest young law graduates in the future is one of the main considerations behind the merger with Asahi Koma Law Offices. "The two firms don't seek mere size expansion to maintain their competitiveness, but to create a stronger platform to attract and develop human resources that will lead the future generation of the Japanese legal industry," read the statement.
So just what sort of impact will the merger have on the Japanese legal market? Attention will inevitably now turn to how Japan's remaining legal heavyweights will respond to this latest development.
Each of Japan's largest firms is the result of consolidation among the domestic elite as they prepared for the inevitability of full market liberalisation. "Asahi Koma just keeps merging and merging," said one lawyer. "It's continuously latching on to people." At the last count, the firm had evolved to include 139 fee earners including 44 partners.
But there is quite a gap in critical mass between Asahi Koma and the next largest law firms in Japan. The clearest indication of possible merger targets for Japan's remaining legal heavyweights may ultimately come from recent transactions. After all, late nights in the office thrashing out the finer legal points of a deal is exactly how Nishimura & Partners found its comfort level with Asahi Koma.
Among other deals in recent years, the two firms last year jointly advised Advantage Partners which, along with Industrial Revitalisation Corporation of Japan and Marubeni Corporation, made a special fund for the corporate revitalisation of the debt-laden retailer Daiei.
And the level of comfort between the firms is further evidenced through plans to leverage the organisational platform of Nishimura & Partners and introduce advanced information technologies to promote the management of knowledge, experience and know-how between the firms.
Although the name of the combined firm and the date for completing the integration has not yet been determined, the merger of Nishimura & Partners and Asahi Koma is the latest development in Japan's fast-changing legal market. But their nearest and dearest rivals remain bullish over their prospects post-union.
"One reaction among the partners here is that this merger will create more opportunities for us because of an increase in conflicts for them," said Anderson Mori & Tomotsune partner Tatsu Katayama. "Furthermore, these talks have been among a small number of people at the two firms. And we think there may be hiring opportunities with people who aren't comfortable with the merger."
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