And their billion shilling corporate dealings
Five law firms rule the corporate and commercial landscape of Kenya – much like the Big Five of the Savannah – and together they have transacted multi billion dollar deals in 2013.
This prestigious and powerful group of wheelers and dealers spans a wide spectrum including sector behemoths Hamilton, Harrison & Mathews (HHM) which in 2013 marked its 111th anniversary; and Kaplan & Stratton (K&S) established in 1927. The three other law firms in the top five are much younger in comparison with Anjarwalla & Khanna (A&K) starting in 1958, Iseme Kamau & Maema (IKM) in 1987, and the youngest law firm Coulson Harney – an offshoot of K&S – opening its doors in 2008.
As Kenya shifts into gear for perhaps the largest batch of foreign investments that the 50 year old country has ever seen, these five law firms are positioning themselves for a larger piece of the action.
Four key sectors are emerging as the ones to watch in Kenya: renewable energy, mining and natural resources, oil and gas, and infrastructure. Some of the big ticket items in these sectors include the geothermal and wind projects, the upgrading of urban highways, and the road-rail-port-airport network under LAPSSET.
Market anticipation in some of these sectors is so high that “Even in areas where exploration has not been completed or is just beginning, we are seeing corporates buying into these oil blocks,” said Dr Daniel Wanjau, a partner at HHM.
Other growth areas that Philip Coulson, co-founding partner at Coulson Harney, points to include “hospitality and hotel management particularly by the international hotel brands, franchising, agri-business, financial services, real estate and the burgeoning development of the IT sector, Kenya’s Silicon Savannah.”
Various master plan developments like Konza City, Tatu City and Garden City are also being keenly watched.
Such projects will be bigger and more lucrative than the more traditional corporate and commercial deals, said managing partner at IKM, James Kamau since with a government that is deep in debt, the only option available to finance large scale investments is a public private partnership (PPP) model. Kamau also noted that a number of projects from the manufacturing and financial services were in the pipeline for his firm for next year as industries realigned themselves for a shift in the business environment.
As a result, a string of mergers and acquisitions (M&A) are also taking place.
“There is increased activity in mergers and acquisitions in Kenya as the economy continues to act as a magnet for foreign investors and as local investors expand their operations and outlook, both locally and regionally,” said Coulson.
The capital markets has also seen increased activity with several take-overs and listings. HHM, for instance, is acting for Access Kenya in its take over by Dimension Data and IKM for CMC in the takeover by the Alfutaim Group .
Market anticipation in some of these sectors is so high that “Even in areas where exploration has not been completed or is just beginning, we are seeing corporates buying into these oil blocks,” — Dr Daniel Wanjau, a partner at HHM
Karim Anjarwalla, managing partner of A&K disparages the value of such deals posing that they offer more publicity than business benefit to a firm.
“The big story for us is infrastructure,” he said, and made reference to large scale projects, such as the mixed use real estate development by Centum Investment. A&K is also handling some large projects in the mining and renewable energy sectors including the first ever coal concessions in the Mui Basin, which are to be granted to Fenxi Mining Co. Limited (China) on a public private partnership basis; and the development of an 83 MW thermal power plant in Athi River.
HHH and IKM have also witnessed a revival of privatisation projects, which had been held up initially because the Privatisation Commission had not yet been constituted.
HHM, for instance, is acting in the proposed privatisation of hotels in which government has a stake including Hilton and Intercontinental; and the Kenya Meat Commission.
They are also working with energy parastatal of Kengen as the latters seeks finance to boost production.
In preparation for an evolving landscape of corporate law, the top firms have set up teams dedicated to handle the emerging sectors. A&K, for instance, has set up a team of seven dedicated to infrastructure and construction in a move that has been lauded by market analysts.
“From a legal practitioners’ perspective, law firms probably will have to grow in size to meet the demands from the market, much like the large accounting firms did in the past,” said Coulson, alluding to how the current restriction on the numbers of partners that a law firm can have to just twenty may also be revised.
The increased need for specialist knowledge of particular sectors may also drive greater tie ups between local and international law firms. The top five law firms are already linked to different international networks.
IKM is affiliated with the DLA Piper Group which has a presence in over 40 countries; K&S is a member of Lex Africa, a network of law firms present in 28 African countries; HHM is part of the Dentons Africa Practice Network; and Coulson Harney is associated with the Bowman Gilfillan Africa Group. A&K is the founding member of ALN (Africa Legal Network) which spans 14 African countries.
“Given that Africa generally, with East Africa being no exception, is becoming an increasingly attractive investment destination, international law firms are looking to acquire a presence or alliances in the region. We can expect to see a lot of this type of activity in the short to medium term,” said Coulson.
He notes however that such a trend may not be straightforward for international firms looking to enter the Kenyan space, and that there is a possibility that high bars or restrictions may be applied to limit entry of non-local lawyers.
Law of the land
As new economic sectors developed, the legal framework has also mutated – partly in response to the constitution and the new government dispensation.
While the changes have been positively received, the top firms acknowledge that a period of adjustment will be needed during which time the new laws will be tested and refined.“We have all had to contend with new laws underlying those activities – a new Competition Act, an increased role for the COMESA Competition Authority. We have new land laws which have clarified some issues, failed to clarify others and in some cases presented us with new obstacles,” said Coulson.
“We [also] have a new Consumer Protection Act, which looks like it will play a large role in regulating business interactions, and not just at the traditional consumer level. We are to expect a new Companies Act and also much-needed new insolvency legislation, which is likely to permit much needed corporate recoveries along the lines of Chapter XI in the USA.”
Market statistics suggest only 15% of the continent’s corporate and commercial deals are handled by African firms
The devolution of the counties has also challenged the status quo, and while it offers opportunities in the long run, “at present there are still serious teething problems, with the lack of clarity of roles leading to ‘turf wars’ between different governmental authorities and agencies at practically every level”, he added.
And even though the governments are not moving fast enough towards regional integration of the markets, Kamau says that the East African people are ahead of them.
“They are already out there, looking for opportunities and tapping into them so that is accelerating business and providing opportunity for lawyers,” he said.
Insiders and outsiders
While the excitement among local law firms is palpable, most of the work in Kenya’s emerging economic sectors continues to be handled by international law firms.
“Typically the local law firm will handle only certain aspects of the brief such as due diligence and regulatory issues,” said Kamau of IKM.
Market statistics suggest only 15% of the continent’s corporate and commercial deals are handled by African firms. 85% of Africa’s corporate and commercial legal business continues to be handled by international law firms who are headquartered in Paris, London, Washington and New York.
While Kamau accepts that this is partly because Kenya is only now experiencing what other markets already have – such as a sovereign bond – which naturally gives international firms the upper hand since they have experience in handling such transactions, he questions the longevity of outsourcing legal work.
“The trend has been for the local lawyers’ involvement being limited to local legal opinions which would typically translate to a very small percentage of fees,” said Kamau. “This trend is bound to change with local lawyers playing bigger roles in transactions and thereby earning bigger percentages of fees.”
Kamau adds that IKM has set up a team to handle projects in infrastructure, mining, oil, gas and energy, and that in future international firms will face stiff completion from local firms that are building greater capacity.
Deals by the numbers
Infrastructure – Hamilton Harrison Mathews
Renewable Energy – Kaplan Stratton
Finance – Iseme Kamau Maema
Consumer Goods – Anjarwalla Khanna
ICT – Coulson Harney
The managing partner of A&K also notes that when negotiating international deals, his firm is rarely on the other side of the table with a top Kenyan law firm, suggesting that local firms are not competing with each other but against international firms.
Anjarwalla is however optimistic that the tide has begun to change.
“We have managed to turn this a little on its head, so for example in the power sector, we are very involved in the Lake Turkana wind project. And in solar as well,” he said.
As Kenyan lawyers loose out to international firms, Kenya is also loosing regional projects which if they had happened in Kenya would have provided good revenues.
Kamau of IKM said that because of the appetite of FDIs (Foreign Direct Investment), big projects are taking place in Tanzania.
“They are ahead of us in mining. They are building a lot of ports. And there is still quite a bit of privatisation there. These are projects worth billions of dollars,” he said.
However the continued establishment of regional offices by multinationals in Nairobi gives him hope that Kenya will continue to be the hotbed of corporate and commercial deals.
“A lot of the companies set up here first and then go into the other countries and acquire some of the smaller players in those countries,” he said. He explained that this was the motivation for local law firms to establish a regional network of lawyers to service these clients.
In contrast, A&K has found that the Kenyan market matters less to them as they grow across Africa, and that projects in countries like Rwanda are of growing importance in their business.
Display of trophies
As the country’s top five law firms review their strategies in order to consolidate leadership in corporate/ commercial transactions, they are receiving growing recognition from international bodies including Chambers Global, The Legal 500, Legal Week and IFLR (International FInancial Law Review).
Many of them monopolise the first and second tier rankings among the various award groups. In 2013, for instance, Coulson Harney moved into Chambers and Partners’ top tier of the corporate and commercial sector. Kaplan & Stratton has been ranked as a leading law firm for 10 consecutive years by Chambers Global. While A&K was named African Law Firm of the Year by Legal Week, and ranked first in Kenya by various legal guides, including Chambers Global, IFLR, and Legal 500.
Advocates from the Big Five have also received special mention including Richard Harney from Coulson Harney, William Maema of IKM, Richard Omwela from HHM and Amyn Mussa from A&K.
The top names to watch also include some women lawyers such as Rachel Mbai of Kaplan & Stratton, Joyce Karanja-Ng’ang’a of Coulson Harney and Anne Kinyanjui of IKM banishing perceptions that the Big Five are an all boys club and suggesting that women are rising to the top in an increasingly competitive corporate law arena.
But while the awards are trophies to display in boardroom cabinets and footnotes on letterheads, the system has been criticised on a number of counts. First that it is sticky in nature – once a rank has been achieved it is difficult for a company to be dislodged; second, its commercially driven nature since business decisions influence objective decision making; and third, that big names retain brand appeal.
Analysts pose that this latter reason is why firms like HHM and K&S continue to be ranked among the country’s top when the calibre of deals they are involved in today are “a mere shadow of what they used to be”.
The younger firms – the cheetahs of the corporate law arena such as Coulson Harney, A&K and IKM – are the ones to watch, they say, as Kenya mobilises to become a middle income country by 2030.