Rising transactional activity has given European firms in the City renewed confidence but playing in London remains a tricky game.
In April 2014, Iberian leader Cuatrecasas Gonçalves Pereira moved into empty London office space rented out by its French ally Gide Loyrette Nouel as part of the development of the firms’ referral alliance established two years previously. Located in London’s financial district at 125 Old Broad Street, Cuatrecasas was the third European law firm to take up space in the building, moving to the 14th floor; the previous year Italian practice Chiomenti had moved in one floor above after leaving its former offices in Mayfair.
Meanwhile, German leader Gleiss Lutz mulls its own City launch – having had a high-profile split in 2012 from Herbert Smith – its lawyers have been an increasingly common presence in Gide’s offices when passing through London.
Such is the competition of working in London as non-English qualified law firms, it is unsurprising that Europe’s major players should seek to team up.
Gide London chief Rupert Reece comments: ‘Our international network marks us out from other French firms. Most other French firms in this sector are already linked to an English firm or have been absorbed. It’s expensive coming to London. It’s hard.’
Yet against an increasingly heated London market, which has been further stoked by the sustained period of investment from US law firms, the attractiveness of the City as a strategic hub has only grown in recent years.
Data on transactional markets underlines this dynamic. Figures supplied by Thomson Reuters for 2014 showed that announced M&A activity for European targets totalled $869.8bn, an increase of 55% compared to the level of activity seen during full year 2013. In addition, acquirers listed on the London Stock Exchange were EMEA’s most acquisitive companies last year, with a combined total of $105.8bn in offers. And the finance market also proved one of the most profitable for advisers, with S&P Capital IQ Leveraged Commentary & Data (LCD), for example, showing new-issue volume for the European leveraged loan market jumped 17% to €78.4bn in 2014, the highest reading since 2007.
For many European firms in London, perseverance is a winning strategy.
Staying the game
Gide, against a backdrop of poor financial performance in 2011/12 with UK turnover plunging 30% and gross profit falling 63%, this year predicts the London office will make a profit for the first time in recent years. Reece says that lawyer headcount has grown to 38 from 31 in the last year, and the office is further boosting its English law capabilities, with 30 London-based lawyers now qualified or training as English solicitors (the firm has long been an outlier as a very rare European practice with a sizeable English law offering).
Similar sentiments are expressed by Cuatrecasas, which has experienced ‘significant growth’ in London since last year due to its ‘active participation in triggering and advising on distressed and corporate M&A transactions’, says London managing partner Antonio Baena. With Spain’s economic situation at last improving – the International Monetary Fund predicts the recession-ravaged economy will expand by 2% in 2015 – Cuatrecasas aims to capitalise on the appetite of foreign investors across energy, infrastructure, real estate and telecoms.
Baena, who oversees a modest two-man branch, is bullish: ‘We see Spanish companies, which continue to be highly-indebted, looking for international partners. London is the perfect scenario for gathering all kinds of global players interested in investing.’
Italian leader Bonelli Erede Pappalardo is also tackling the City. Its 13-year-old London arm is a gateway to other jurisdictions and recently opened a dispute resolution desk. ‘We look at the London office as a means to develop our international strategy at large, including pursuing further Africa and Asia work,’ says London head Andrea Carta Mantiglia. ‘London is ideally placed to develop those activities. We are also looking in the market to expand our presence here, we will relocate people and hire.’
‘We’re doing the German thing’
Hailing from Europe’s largest economy, Germany’s Hengeler Mueller and Noerr have two of the most significant London outposts.
Long established as Slaughter and May’s local ally and Germany’s top independent practice, Hengeler keeps a tight focus on its City offering. Having struck a similar arrangement to that of the Gide alliance after signing an 11-year lease with Italian referral partner Bonelli for 30 Canon Street in 2007, where they share the reception, five conference rooms and the office breakout room, private equity work is a growing area of work for the firm in London and clients on the roster includes Bain Capital and CVC Capital Partners.
Having launched its London offering in 2010 and housing a small three-lawyer team, Noerr largely now concentrates on financial service firms, funds, and companies in regulated industries following the appointment of Thomas Schulz as City head in September. ‘We felt we should concentrate on that grouping. I was sent here to generate business and one of the tasks of the London operation is to make the Noerr name more known in the Anglo-Saxon world and the international finance community. International financiers look at Germany but as part of Europe… for us being active here and being able to engage with financial intermediaries like investment banks is very important to us.’
Schulz adds that his ‘mission’ is also to increase the work directly sourced from general counsel (GC) in London to equal the proportion of instructions coming in from law firm referrals.
‘We are doing the German thing – the plan is to enlarge the contact base we have and try to discover which funds are investing in Germany and those who have their eye on the region, particularly in the US. We have an entrepreneurial but planned approach – you need to concentrate in London.’
| Selected foreign players: a London overview | |||||
|---|---|---|---|---|---|
| Firm | Home country | London office opened | London head | Number of London lawyers | Recent London work highlights |
| A&L Goodbody | Ireland | 1988 | Niamh Ryan | 9 | Advising on the restructuring of the Irish Bank Resolution Corporation (formerly Anglo Irish Bank), after the European Central Bank agreed to exchange €25bn of promissory notes used to bail out Anglo Irish and the Irish Nationwide Building Society for long-term government bonds |
| Arthur Cox | Ireland | 2001 | Aiden Small | 10 | Advised Blackstone/GSO on the €412m Phoenix Park collateralised loan obligation (CLO) deal, the first CLO transaction to utilise a third-party entity to act as retention- holder for EU retention purposes |
| Bonelli Erede Pappalardo | Italy | 2002 | Andrea Carta Mantiglia | 9 | Advised Alitalia on its strategic partnership agreement with Etihad Pappalardo Airways, particularly on the aircraft loan and lease agreements to reflect the contribution of the air carrier operations from Alitalia CAI to New Alitalia, into which Etihad made its investment |
| Cuatrecasas, Gonçalves Pereira | Spain | 2006 | Antonio Baena | 4 | Advised JP Morgan Securities and Deutsche Bank on a €250m Gonçalves Pereira high-yield bond issue by Spanish hotel chain NH Hotel Group |
| Gide Loyrette Nouel | France | 2003 | Rupert Reece | 38 | Advising as English law counsel to Parpública, the Portuguese state-run management holding company, on a €600m debt issue |
| Maples and Calder | Cayman Islands | 1997 | Paul Govier | 19 | Advising the special committee of independent directors of Eurasia Drilling Company, a Cayman Islands company listed on the London Stock Exchange, on the merger under Cayman Islands law with EDC Acquisition Company which involved the delisting and acquisition of shares by Schlumberger in a $3.2bn deal |
| Matheson | Ireland | 1989 | Stanley Watson | 11 | Advised on the first Alternative Investment Fund Managers Directive (AIFMD) authorisation, not only in Ireland but also in Europe. Advised BlackRock in its application for AIFMD authorisation. The authorisation enables BlackRock to avail of a pan-European passport to market its Irish alternative investment funds under the directive |
| Noerr | Germany | 2010 | Thomas Schulz | 4 | Advising British outsourcing group Capita on its €210m (£157m) takeover of Germany’s avocis in February |
| Walkers | Cayman Islands | 2001 | Jack Boldarin | 8 | Acted as BVI counsel to United Capital Partners on the $1.47bn sale of a 48% shareholding in VK.com, Russia’s top social networking site, to Mail.ru Group |
| William Fry | Ireland | 2012 | Stephen Keogh | 3 | Advising on Irish law corporate aspects of the €1.36bn bid for Aer Lingus by International Airlines Group. Advising on Irish healthcare company Perrigo on a £3.11bn bid for Omega Pharma |
‘Do I really need the Magic Circle?’
If even leading European players have found that it pays to club together to make an impact in the huge London market, Irish and offshore law firms have been more bullish, making the most of their geographic and cultural ties with the UK.
Both camps have acquired significant mandates despite the lack of sizeable teams. Unsurprisingly, this is particularly prominent among Dublin’s top firms, including A&L Goodbody, Arthur Cox, McCann FitzGerald William Fry and Matheson.
Leading offshore leaders with established City profiles include Walkers, Maples and Calder and Mourant Ozannes.
To accelerate its City funds practice, Arthur Cox’s ten-lawyer London arm has undergone some shake-ups in line with firm strategy, and in February it hired investment funds partner Adrian Mulryan from specialist fund manager Source, where he was GC. The firm also appointed a new London head, finance partner Aiden Small, a securitisation specialist who previously worked at Allen & Overy (A&O), UBS and Morgan Stanley.
Arthur Cox managing partner Brian O’Gorman comments: ‘London is critical to any major Irish law firm. It wouldn’t be unusual to have five to ten partners there in any given week. And ideally we feel the London office should be a finance one, which is why three of our finance partners are London based.’
‘The market in Ireland is much more favourable – what we’re doing here in London and the workflow reflect that,’ says Stanley Watson, Matheson’s London head. ‘We’ve been doing quite a lot of loan book sales on the buy side. There’s been a lot of interest in loan books in the last 12 months – it’s a legacy of what I call the meltdown period. The investment funds team is flying – we act for a lot of banks and have people seconded there.’
William Fry, which centres its London offering on corporate and investment funds work, has seen the level of referral work rise sharply in the last year. Having taken up more space in its City offices at the Heron Tower, the team has managed to secure some major deals, including Irish healthcare company Perrigo’s $3.11bn bid for Belgium’s Omega Pharma, on which A&O passed William Fry the mandate as Irish counsel, and the recent €1.36bn bid for Aer Lingus by International Airlines Group that came about through an introduction from Slaughter and May.
While London head Stephen Keogh says the firm is currently recruiting for a banking lawyer to broaden service lines in the City, he adds: ‘Our strategy isn’t to have 30 fee-earners doing Irish law from the London office – it’s having people in key sectors to send work back to Dublin. We’ll never have lots of people beavering away here. What makes it successful is being ultra-responsive and available whenever clients referring colleagues need us. It’s no more sophisticated than going the extra mile.’
Paul Govier, London managing partner at offshore practice Maples and Calder, is equally emphatic about the precise role an offshore firm like Maples is suited to play in London: ‘Our approach is very structured. We’re not at the aggressive end of the business development spectrum. We identify and build relationships with partners – we stay very close to onshore firms. We often turn down work where people ask us to work with the client and they say: “Do I really need the Magic Circle?” And I say: “Yes, you do.” We want to ensure we keep our relationship with the Magic Circle.’
At Cayman Islands-based Walkers, City head Jack Boldarin takes a similar view, stating that while London is ‘naturally a good place for us to be, we’re always mindful of not practising English law but being available’.
It is apparently paying off. Boldarin says Walkers has been instructed by 80% of the top 50 UK law firms, while revenues last year for London are up nearly 50% from 2013.
Boldarin, who was part of a trio of partners relocated to the London office in 2013 to boost its local practice, adds: ‘London is a very important market for Walkers and always has been. In addition, we continue to enjoy strong work flows from other key jurisdictions in the time zone, including the Netherlands, Switzerland, Luxembourg and, most notably, sub-Saharan Africa.
‘The Walkers brand travels very well amongst the leading international banks and corporates… and the two most well-regarded Caribbean firms (Walkers and Maples) continue to pull well ahead of the pack – this is particularly evident with regard to bank panel relationships.’
Certain interviewees have also touched upon major changes in the dynamics of the funds industry, and the exodus of lawyers to US law firms as part of their London strategy, leading European and offshore firms to build relationships across a wider spectrum. One partner comments: ‘The biggest change in dynamics for the industry and in the private equity world, has been this huge diaspora of the core teams of firms like Clifford Chance and SJ Berwin going to US firms. We have had to follow those people. It’s worked really well because our relationships get spread over more firms. For us, those people just have a new home.’
By wide consensus, London has defied predictions that its status and importance to foreign law firms would be damaged by the fallout of the banking crisis. Indeed, European and offshore firms are actively diversifying and consolidating to secure work now that there are a wider range of potential clients and referral partners.
London has seen several new European entrants in recent months, including Pérez-Llorca, which announced its office launch in October in order to gain a place in the ‘finance capital of Europe’, and Paris boutique AyacheSalama, which opened its first international office in the City with four partners in December, seeking to advise on investment from London into France more efficiently.
But with a general election looming for late spring, what will be cause for concern are the increasing questions over Britain’s status within the European Union, given the Conservative Party’s pledge to offer a referendum.
O’Gorman echoes the feelings of many when he says: ‘We hope that Britain will not leave the EU – the effect an exit would have on Irish law firms in London would to a great extent reflect the effect on Ireland as a whole. There would be a great deal of uncertainty initially as part of the adjustment. There would also possibly be some opportunities for Ireland as regards banks and companies who would want to have a presence in the EU and may have to leave London.’
The big question, of course, remains out of the hands of O’Gorman and his peers. But European players have learned to adapt to the changing rules of the game. LB
sarah.downey@legalease.co.uk