Euro elite: focus Central and Eastern Europe – The tiger by the tail

Price wars, political and economic tensions and prolonged attention from large Anglo-Saxon players in the region have made the going challenging for independent firms in CEE.

With a few notable exceptions, the last five years have seen some international law firms retreat from Central and Eastern Europe (CEE) – in part a belated reaction to the financial crisis – while others have downsized due to profitability problems. But for independent law firms, good opportunities remain in the region as local markets recover. On aggregate, the CEE economies grew by 3.6% last year and are projected to increase by 3.1% this year, according to the International Monetary Fund.

‘In terms of revenue and profits per partner, our firm has done better every single year compared to the previous one,’ says Jason Mogg, managing partner of Kinstellar. Established in 2008 as a CEE spin-off from Linklaters in Prague, Bratislava, Bucharest and Budapest, lawyer numbers fluctuated post-crisis. But it has since grown opportunistically, expanding via new offices in Belgrade, Istanbul, Almaty, Sofia – and this year, in Kiev. Each additional office dilutes specific-country risk.

‘Being in a number of jurisdictions creates natural diversification. If any one market implodes it doesn’t kill the firm,’ adds Mogg. His strategy is to be a leading player not just in CEE, but in central Asia. ‘Kinstellar’s model is to focus on relatively difficult markets that are not terribly interesting for most major international law firms headquartered in London or New York.’

Not every regional player is thriving. Noerr, the largest German independent, has six CEE offices servicing its automotive and Mittelstand clients. ‘These markets are a bit more volatile than Germany,’ says Tobias Bürgers, the firm’s co-managing partner. That volatility is evident from its figures. Despite domestic revenues growing by 7% in 2015, in CEE ‘the difficult economic climate put a strain on the firm’s business activities, with turnover falling by 9% to €17.5m’, according to Noerr’s latest financial statement.

The two biggest regional players are Vienna-based and their dominance across a number of CEE jurisdictions as well as their home market secures their position within the top ten of the Euro Elite: Schoenherr with 303 lawyers and 14 offices, and Wolf Theiss with 307 lawyers and 13 offices. CEE work predominates in both firms with less than a quarter being purely Austrian. Last year was particularly strong for Wolf Theiss, as its revenues swelled by 7% to €78m. So which markets are driving growth? Managing partner Erik Steger says: ‘Every year it will flip from one country to another, very much depending on politics.’

The Euro Elite: CEE	Country	Total lawyers	Total partners	No. of offices
Wolf Theiss	Austria	307	66	13
Schoenherr	Austria	303	42	14
Cerha Hempel Spiegelfeld Hlawati	Austria	180	45	8
Kinstellar	CEE	125	26	9
Binder Grösswang	Austria	86	22	2
Nestor Nestor Diculescu Kingston Petersen	Romania	135	24	5
Dorda Brugger Jordis	Austria	85	35	1
Peterka & Partners	Czech Republic	130	23	9
PRK Partners	Czech Republic	100	15	3

This year, he cites Poland, Romania, the Czech Republic, Hungary, and Slovenia. Giving a similar list, his counterpart at Schoenherr, Christoph Lindinger, suggests ‘for the foreseeable future expansion is over’, although he highlights Slovenia as ‘very interesting’ because of its privatisation programme, and Romania, ‘which has developed very strongly in classic areas: corporate M&A and real estate’.

One independent Romanian firm makes the top 100 of Euro Elite firms, largely because it has five offices across the country. Nestor Nestor Diculescu Kingston Petersen has 135 lawyers and four offices outside Bucharest; its status in Romania saw it advise Lafarge on the divestment of all its Romanian operations, part of a restructuring to facilitate its global merger with Holcim.

Together with Vienna and Istanbul, Warsaw is one of Schoenherr’s three regional hubs. The region’s best-performing economy, and the sixth largest in the EU, Poland has long been a magnet for law firms. It remains the only CEE market with a significant number of international firms on the ground competing alongside strong local players. Such is the strength of international firms in Poland and the relatively small size of local firms, like Wardyński & Partners and Domański Zakrzewski Palinka, that no independent Polish firms make the top 100.

However, Lindinger predicts a market decline in Poland over the next few years. ‘Local firms have very strong market positions – it is more difficult for us there,’ he adds. He also expresses some doubts about the capacity of some CEE governments to protect or promote long-term stability and growth.

Established local firms routinely complain that new entrants use cut-throat competition to gain market share. They give outraged accounts of hourly rates as low as €80 in Poland; €60 in Hungary; €50 in the Czech Republic and Slovakia; and as low as €20 an hour in Bulgaria and Romania.

‘Luckily we avoided joining the race to the bottom,’ says Lindinger. He suggests that standard rates range from €220-250 in Turkey to €500-550 in Austria. However, Steger suggests the spectrum stretches from €150 in some jurisdictions up to €480 in Austria, and almost that much in Poland.

Mogg says that Kinstellar is not interested in pure price competition: ‘If we think that price is the only thing the client cares about, it’s probably not the right client for us.’

Across the region, many national independent firms originated as spin-offs from international firms and some have developed a wider regional footprint. Founded in 2000 by ten lawyers, Peterka & Partners split from Gide Loyrette Nouel in Prague. Today, it has nearly 140 lawyers and offices in ten jurisdictions, the latest of which opened this year in Croatia. Two 100-plus-lawyer firms based in the Czech Republic make the top 100 – the other is PRK Partners, which straddles Prague and Slovakia.

According to Peterka’s eponymous founder, Ondřej Peterka, it is ‘the only fully integrated firm in the region’ and ‘a bit less expensive than its competitors’. That, in a hard-fought CEE market, can give many firms the edge. LB