Despite its close historical ties to Britain, Canada has few links with UK law firms - and London-based Stringer Saul's recent merger is unlikely to start a trend. Lucy Trevelyan asks why


A former British colony, Canada became constitutionally independent in 1982 but remains a Commonwealth member. With such close historical ties to the UK, it is perhaps surprising that there are few formal links between English and Canadian law firms.



Clearly identifying a gap in the market, London-based Stringer Saul will next month complete a merger with Fasken Martineau DuMoulin – one of Canada’s largest firms – to create a 650-lawyer practice and the first full-service Canadian-UK partnership.



The new firm – Fasken Martineau Stringer Saul – will be in the top 70 firms worldwide by number of fee-earners, with offices in London, Vancouver, Toronto, Calgary, Montreal, Quebec City, New York and Johannesburg. Turnover following the merger is predicted to be C$250 million (£111 million).



Both firms clearly see advantages to the union. Stringer Saul, which pre-merger has 20 partners and 32 other solicitors, is a bit of an afici0nado when it comes to deals in the Alternative Investment Market (AIM) – now formally known as London’s junior stock exchange. This merger will open up a world of opportunity: there are currently 283 overseas companies listed on AIM and in the last year alone 80 new global organisations were admitted – 44 of which were from Canada.



The Canadian market certainly looks attractive to a commercial law firm at present. Although the country’s Chamber of Commerce in its annual economic review and outlook predicts a slight slowdown in the economy this year – largely thanks to the lower US demand for Canadian exports as a result of continuing economic weakness south of the border – 2006 mergers and acquisitions (M&A) activity reached its highest level in years.



According to Toronto-based investment bank Crosbie & Company, for the first nine months of 2006 there were 1,430 announced transactions, representing a total value of C$18 billion. These figures were up 32% and 64% respectively compared to the same period in 2005. The number of transactions for the period are more than double the number reported for the same nine-month period in 2002 (661 deals) and 2003 (613 deals).



This heightened M&A activity, says Crosbie, was powered by factors including solid economic fundamentals, the availability of acquisition financing, and the continued strength in mid-market and cross-border M&A activity. Also significant has been high activity in the metals and energy sectors.



Norman Ziman, Stringer Saul’s managing partner, says: ‘Canada is one of the world’s most dynamic economies and our merging with a Canadian firm gives us access to some major clients in our specialist fields. Given the number of Canadian companies moving onto London’s AIM market in recent years, and the close cultural ties and Canada, this seemed to us to be the right way forward.’



The new partnership, Mr Ziman says, will position his firm as one of the top providers of legal services in its key disciplines and industry sectors. Fasken Martineau, he says, is a recognised leader in corporate finance, mining, banking, resources, technology and life sciences/ biotech, employment and litigation.



Stringer Saul’s expertise in the AIM market was a big draw. Faskens also maintained that it needed a stronger presence in London than its existing office in the Square Mile could provide. The lawyers there will move to Stringer Saul’s offices when the merger completes on 1 February.



Michael Fitch, senior partner at Fasken Martineau, says London has always been of interest to Canadian law firms. ‘Increasingly, Canadian corporations are looking beyond Canadian borders to expand their businesses or to explore a larger global market for financing their business enterprises, and the historical relationship between Canada and the UK makes London a natural landing place for many Canadian businesses.’



Canadian law firms, he says, want to facilitate their clients’ efforts in that regard by helping them to explore opportunities in the London financial market. ‘Clients with an interest in London cover many industry sectors, but the financial industry is particularly interested in London, as are companies with financing needs in the mining and technology sectors. All of these industry sectors are primary focus areas of Faskens.’



Andrew Fleming, senior partner at Ogilvy Renault, which has offices in Quebec, Ontario and London, says that although the Stringer/Fasken merger is an interesting development that gives the Canadian firm an impressive platform, particularly in AIM, others are unlikely to follow suit.



‘Canada is a well-developed legal jurisdiction where global firms have traditionally felt comfortable relying on local talent to supply high-quality legal services. This, combined with the different economics of the Canadian legal market, has meant there has been little interest in global firms expanding into Canada. This is not likely to change in the near future.’



His counterparts at other top Canadian firms agree. Robert Brant, managing partner of the London office of McCarthy Tétrault, says: ‘UK firms have focused on other markets in the past and I think they still are, so I don’t see [Canadian/UK mergers] catching on. Certainly the firms we might be interested in doing something with have bigger fish to fry in places like China, the US, Middle East and India.’



Pierre Raymond, chairman of Stikeman Elliott, notes that many Canadian firms are reluctant to tie themselves down to one UK partner. ‘Canadian premier law firms like to have access to referral work coming from all UK firms and a merger would prevent this.’



Jim Christie, chairman of Blake Cassels & Graydon, which has five offices in Canada, two in the US and one each in London and Beijing, also sees no advantage in merging with a UK firm. ‘We have excellent relations with key UK law firms and feel our clients are better serviced through working with them.’



The feeling is shared on this side of the Atlantic. John Young, senior partner at City firm Lovells, says: 'We have occasional dealings in Canada, but we don't have anything like the regularity to justify having an office there. Sometimes issues come up and we have relationships with different firms there – including Fasken Martineau – to deal with different problems. We take work to them and vice versa. We have no need for more formal links.’



He adds: ‘Canada is one of many sophisticated legal markets on a par, I suppose, with the likes of New Zealand and Australia. It has some highly respected firms and lawyers. If an issue arises, we can go to them with every confidence.’



The Canadian economy, Mr Christie says, has been extremely robust in the past couple of years: ‘Canada is a small, relatively concentrated economy, closely integrated with the US economy. As a result, Canadian law firms often face business conflict issues. This has resulted in many of the firms, including Blakes, focusing to a greater extent on opportunities in the international market. Hence our expansion in recent years in China and the US.’



Canada’s mature legal market, says Mr Fitch, has seen many of its larger firms merge over the last 20 years to form national law firms, with offices in all of the larger business centres. Faskens is an example of such a merger.



‘The growth of national law firms within Canada has seen many of the regional firms disappear. The mid-size practices have found it difficult to compete with the larger national firms for the more sophisticated legal business, with the result that the legal landscape is increasingly separating into smaller boutique firms with specialist practices and larger, full-service firms with a national presence.’



He says that although the work performed by a Canadian law firm is similar to the type of work performed by a UK practice, breaking into the Canadian legal market from the UK is difficult, given the different regulatory regime there and its existing well-established law firm network. ‘Most UK firms access the Canadian market through informal relationships with a number of the larger Canadian law firms,’ he adds.



The primary issue currently affecting Canadian firms is the trend towards globalisation of business and the resulting transfer of legal work from Canada into other parts of the world, he says. ‘The movement of work to the US in particular is an issue in Canada, given the many cross-border business connections within North America and the natural tendency of Canadian businesses to grow into the US, and for businesses in the US to acquire Canadian businesses.’



US law firms, he says, will sometimes attempt to perform the bulk of the legal work related to a Canadian M&A transaction, using Canadian firms for local support where required.



‘Canadian firms have an economic advantage over US firms, given generally lower billing rates than in the US and a weaker dollar. Those factors, coupled with the high level of competence available from Canadian law firms, make it difficult for a US law firm to directly compete with a Canadian law firm for Canadian legal work.’



It is, they say, always the quiet ones you have to look out for. Canada and its lawyers certainly fit into that mould – you have been warned.



Lucy Trevelyan is a freelance journalist