Euro elite: focus Ireland – Back with a bang

Independent firms dominate the Irish legal market but a slowdown in inversion-style deals threatens a robust post-crisis recovery.

‘The Irish economy is very small, open and independent, which is to a large extent very dependent on international capital,’ says Brian O’Gorman, managing partner of Arthur Cox. ‘One of the things that helped Ireland recover from the financial crisis and beyond was the willingness of international private equity and in particular major US private equity to invest in Ireland.’

Irish law firms have generally enjoyed a strong market since 2013, particularly in transactional work. Says Mason Hayes & Curran managing partner Declan Black: ‘We have had two years of spectacular growth, in two years revenues are up 50% from €42m to €78m. From the middle of 2013, the market rebounded with a real vengeance.’

However, he adds that this benefit has been consolidated at the higher end of the market and among some specialist players rather than being broadly felt throughout all Irish law firms. The set-up of the Irish legal market is relatively simple – there are six larger domestic firms in terms of headcount: A&L Goodbody, Arthur Cox, Matheson, McCann FitzGerald, Mason Hayes & Curran and William Fry, which all have between 200 and 300+ lawyers. Smaller firms in the 50-100 lawyer bracket include Beauchamps, ByrneWallace and Eugene F Collins. Work is sourced primarily from the US, UK and Germany as well as the Far East with a focus on clients who want to use Ireland as a gateway to Europe.

And these firms are currently operating among the backdrop of an economy which is now growing at one of the fastest rates in the eurozone, enjoying 7.8% GDP growth in 2015, according to the latest Irish Central Statistics Office figures.

According to Matheson chair Liam Quirke, there were a number of elements driving corporate activity in the Irish market in 2015: ‘The principal drivers were a number of the larger corporate migrations, which were still taking place last year. There were a number of very substantial secondary sales of previously distressed assets, there was continued work on the sale of state assets, continuous sale of loan portfolios by the Irish banks, and an improvement in the availability of financing and funding generally in the Irish market.’

Perhaps this is most evident for law firms in the M&A arena, where continued domestic and international business confidence has seen Irish companies involved in a number of marquee transactions. Deals include the €8bn Paddy Power/Betfair merger, where Arthur Cox acted for longstanding client Paddy Power. The firm also advised Irish building supplies company CRH on its acquisition of LafargeHolcim assets for an enterprise value of €6.5bn.

The Euro Elite: Ireland	Total lawyers	Total partners	No. of offices
Arthur Cox	347	87	5
A&L Goodbody	322	85	6
Matheson	319	74	4
William Fry	320	79	5
McCann FitzGerald	322	70	4
Mason Hayes & Curran	242	77	3
ByrneWallace	115	37	2

According to KPMG’s M&A outlook for 2016, the majority of dealflow is expected in the healthcare, pharmaceuticals and life sciences sector, while technology and the agribusiness and food sectors also continue to perform well. Nevertheless, an economy such as Ireland, which welcomes international capital and business, also leaves itself very sensitive to changes in both the US and UK economies – as do its law firms. There is growing uncertainty on the global stage, which is impacting negatively on the volume of deals handled by Irish firms so far for 2016.

‘In terms of 2016 to date, it is definitely a softer market,’ says O’Gorman. ‘The pipeline is still very strong, the deal sheet is still very strong but the difference in 2016 compared to 2015 and 2014 is that clients are moving more cautiously and they are taking a lot longer to get to signing and closing. And that is because of all the uncertainty around Brexit, the US situation, China and the Far East.’

‘We have had two years of spectacular growth. From the middle of 2013, the market rebounded with a real vengeance.’
Declan Black, Mason Hayes & Curran

However, the continuing importance of M&A activity to Irish law firms is evident in the recent lateral hire by Arthur Cox of A&L Goodbody’s M&A rainmaker Cian McCourt. Laterals at a very senior level are rare in the Irish market, particularly between the Dublin elite but McCourt, who was a resident partner in New York for A&L, has acted on deals including Medtronic in its $49bn acquisition of Covidien and for Ryanair in its hostile takeover bids for Aer Lingus, making him a welcome asset in Ireland’s current economic environment.

‘It is something we are very excited about. We have done a number of deals with Cian over the years. He is an absolutely top-class M&A lawyer,’ says O’Gorman.

According to data from Mergermarket, Irish firms have advised on 25 deals during the first quarter of 2016 with a combined value of €16.6bn, compared with 31 deals worth €5.2bn for the same time last year. Although there were six fewer ranked deals this year, the deal value has increased due to the €15bn acquisition of Tyco by US-based Johnson Controls in January.

The reverse takeover has reignited the debate on tax-driven inversion deals, which have slowed due to a US Treasury clampdown. Inversion deals have been one of the major features of Ireland’s robust transactional market since 2012, driven by corporations seeking lower tax bills than those currently levied at 35% of profits in the US. Leading domestic law firms took advantage of Ireland’s competitive 12.5% corporation tax to provide counsel on company law, tax and takeover regulation issues.

One example is last year’s $18bn merger of equals between Willis (which has an Irish-incorporated holding company listed on the New York Stock Exchange) and Towers Watson. Matheson acted for Willis on the transaction, with the newly-merged Willis Towers Watson having an Irish-incorporated, US-listed parent.

According to Black, the slowdown in inversion deals leaves the major firms more exposed because those firms are primarily handling these large corporate transactions.

‘I’m moderately optimistic in terms of the economy,’ he says. ‘But there are a lot of geopolitical risks that cause me concern. The fact that inversions aren’t going to be as popular is unhelpful, but against that most deals aren’t inversion-led and our corporate guys are busy, and there seems to be a reasonable pipeline.’

A&L Goodbody managing partner Julian Yarr strikes a similar note: ‘Inversions over the last two or three years have kept Ireland and our firm really busy; we have done 90% of them. I can tell you at the moment our order book and our current deal flow is out the door, and before inversions it was as well, so we don’t see a dip in M&A activity and we may not see the end of inversions either. There will be other corporate activity, either similar in structure to inversions or different types of deals.’ LB

kathryn.mccann@legalease.co.uk