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With the exit of four of its senior staff, Kaplan & Stratton, one of Kenya’s largest and best known law firms, is facing its biggest challenge to date in a development that will not only change the structure of Kenya’s legal industry, but also indicates that South African firms are making a renewed foray into this market. By Albert Muriuki
Two of Kaplan and Stratton’s top management team are exiting to partner with South African investors. This is not only going to change the scene of the Kenyan legal industry, but also indicates of South African firms’ entry into all sectors of the Kenyan economy.
Kaplan & Stratton are one of the key players in Kenyan business: One of the largest law firms in Kenya and one of the best well known law firms in the region, Kaplan & Stratton is cited by the Chambers & Partners Guide to the World’s Leading Lawyers and the legal 500 and international Financial Review 1000 as the leading law firm in Kenya. Founded more than 80 years ago, the company represents many of the companies listed on the Nairobi Stock Exchange and has handled several of the corporate bond issues on the Nairobi Stock Exchange such as the East African Development Bank, Shelter Afrique, PTA Bank, Safaricom Limited, and Celtel Kenya Limited.
Sources privy to the on goings at the leading firm say that two of the top partners in the firm, Richard Harney and Philip Coulson, are already in the process of packing and will be out of the firm’s offices in Williamson House in Nairobi’s Upper Hill by end of this month. The two partners will be leaving with two other long serving lawyers with the firm, Angela Waki and Joyce Karanja. But it is not the exit of the four lawyers that is going to cause ripples in the legal arena, but rather the partners they are going to join forces with in Kenya: All four are leaving to form a law firm together with Bowman Gilfillan.
Bowman Gilfillan are one of South Africa’s most prominent firms. Formed through the merger in 1998 of three of South Africa’s most prominent law firms – Bowman Gilfillan Hayman Godfrey (established 1902), Findlay & Tait (established 1885) and John & Kernick (established 1923), Bowman Gilfillan’s stealth entry into the Kenyan legal arena is the clearest indication that several South African companies intend to set up a base in Kenya and the larger East African region.
"Over the past five years, Bowman Gilfillan has been at the forefront of advising corporates, financial institutions and governments on the African continent," said Jonathan Schlosberg, the chairman of Bowman Gilfillan, in South African daily Business Day. To enter the Kenyan market, the firm could not enter into a merger with the Kenyan law firm: In Kenya, only advocates could be members of law firms. And Law Society rules in South Africa prohibit lawyers from entering into mergers with advocates, head of Bowman Gilfillan Africa Group Jonathan Lang explained in an interview with Business Day.
These developments in the legal sector are the clearest indication yet that the South Africans have put in place a new tactic of doing business in Kenya and penetrating the Kenyan market that has been most elusive to the South African’s, Africa’s largest economy. The biggest and most memorable failure by a South African company to get a foothold in Kenya was the hugely publicized failure of SABMiller attempted entry into the local alcoholic beverage market currently controlled by East African Breweries (EABL).
SABMiller’s attempted entry into the Kenyan market followed the classical mode that South African based companies used to get into other African markets. However, the Kenyan market proved resistant even after success in Tanzania, Uganda and Rwanda by South African companies. An expensive marketing war saw SABMiller and its Kenyan counterpart enter into a multibillion shilling deal that allowed both parties to exchange a 20% stake in their respective businesses in Kenya and Tanzania. Codenamed Thunderbird by McKinsey, the international strategy consulting firm, the case study has become a classic cautionary tale of how not to enter into the Kenyan business arena.
The poaching of four prominent lawyers from Kaplan & Stratton by one of the largest law firms in South Africa show that the South Africans have learnt a the rules of the Kenyan market and are upping their game - and it makes perfect sense, both legally and commercially. The old market entry approached by South African firms as typified by SABMiller, using big cash to outspend incumbents in whichever nation they chose to invade, is no longer the modus operandi for entering the Kenyan market with its peculiarities.
Under the Advocates Act of Kenya, the law that regulates lawyers practicing in Kenya, no person can be admitted as an advocate unless he is a citizen of Kenya, Uganda or Tanzania. This blocks any foreigner from practicing law in Kenya. This law therefore makes it impossible for any foreign company to come into the Kenyan market with its trusted lawyers. For any foreign company to do any legal work in the country, it has to look for Kenyan lawyers, and this has many disadvantages for the foreign businesses. Apart from the sharing of privileged secret information with new Kenyan lawyers, any foreign firm must built up a new relationship with, and rely on, a team of lawyers they have never dealt with before.
This must be one of the reasons that Bowman Gilfillan is trying to avert. Being one of the largest law firms in South Africa, it has some of the biggest corporates in Africa among its clients, including Absa Bank with which Barclays Bank Kenya has intertwined interests. Through a complicated reverse takeover in 2006, Absa now owns Barclays Africa, which in turn owns Barclays Bank Kenya. Barclays Bank is one of Kenya’s largest bank with assets worth over KES160 billion
South African business have been making inroads into Kenya, albeit at a much slower pace than elsewhere on the continent: Standard Bank of South Africa owns Stanbic Bank Kenya that recently acquired CFC Bank for KES19bn. Sanlam, one of South Africa’s largest financial services firms is also the majority owner of Pan African Life, an insurer ranked in the top five leagues in Kenya. South African owned Deacons, which owns the Woolworth’s, TruWorths, 4U2 and Identity franchise, also has a foot hold in Kenya and together with Mr Price.
Johnnic Communication’s (now known as Avusa) with its Nu Metro cineplexes also has a presence in Kenya. Naspers owned Multichoice DSTV from South Africa also has a strong presence in the Kenyan paid for satellite television market. Media 24 owns stakes in the magazine publishing industry in Kenya with titles such as True Love, Drum and local start-ups such as Twende and Adam. South Africans now control AAR, the health maintenance organisation.
In the last one year, there has been a major influx of money by South African based private equity and venture capital funds targeting mid-sized businesses. In the marketing communications business, South Africans continued to enjoy growing success with their investment in Ogilvy East Africa, which has in the last two years notched several high value clients such as Barclays Bank and recently Econet Wireless Kenya.
For Bowman Gilfillan therefore, a Kenyan presence is therefore in the interest of its diverse clientele base and new potential entrants to the Kenyan market. Partnering with some of Kenya’s top corporate lawyers and having ownership of the new law firm that the four will form makes a lot of business sense. Not only will the South Africans companies now have trusted lawyers to transact their business, they will have circumvented the provisions of the Advocates Act effortlessly. Sources aware of the exit of the four lawyers say that a new law firm is in the offing that will have a large number of South African lawyers working as ‘consultants’ in the new firm.
Kaplan & Stratton is a founder member of Lex Africa, the leading law firm network spanning 26 African countries. The partners leaving the firm, Philip Coulson and Richard Harney are some of the most experienced lawyers in the firm. “To be honest, Philip and Richard are Kaplan & Stratton, without them the firm is definitely going to hemorrhage a number of their top clients,“ commented a lawyer who declined to be named.
Philip Coulson is an expert in mergers and acquisitions and joint ventures and a Kenyan citizen by choice-he was born in United Kingdom. He is a member of the Law Society of England and Wales and practiced law for some time at the firm of Joelson & Wilson in London from 1988 to 1992. The other partner exiting the firm, Richard Harney, is an expert in Kenya’s capital markets, corporate finance, mergers and acquisitions and joint ventures. Harney practiced law in London with Clifford Chance LLP, the worlds biggest law firm in terms of profit turnover. Born in Iran, Richard is also a Kenyan citizen by choice.
Business relations between South Africa and Kenya have become more entrenched in the couple of years since the exit of SABMiller and in terms of trade balance; it is hugely in favor of the South Africans. The level of exports to South Africa have edged up by KES1.3bn in the last five years to stand at KES2.3bn last year, whereas imports from South Africa within the same period have ballooned by KES12bn to stand at KES35bn in 2007. In May this year, Tiger Brands, South Africa’s largest fast-moving consumer goods company bought a controlling stake into Chris Kirubi’s controlled Haco Industries Kenya.
By poaching some of Kenya’s best lawyers from one of Kenya’s oldest and most reputable law firm, the South Africans are showing that rather than head on confrontation with local players, it is better to resort to mergers and acquisitions with domestic strategic partners as their local markets as avenues for growth become saturated. Getting a foothold in the Kenyan legal market is therefore a complete entry into all important aspects of the Kenyan market that will give the South Africans an edge over many foreign businesses and could be an indicator that such buyouts will become more frequent in future.
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