Global London: European firms move into the unknown

Last year European partners voiced their fears over the possibility of the UK leaving the EU. Now they could be preparing for grim reality.

The issue on every European partner’s lips in London is the outcome and fallout of the UK’s Brexit referendum on 23 June. In last year’s Global London report, there was a palpable hope that Britain wouldn’t vote to leave the EU. Now European firms have to prepare themselves for that possibility.

One significant aspect is the threat (and opportunity, depending on your view) that a significant tranche of banks and companies headquartered in the City would want to have a presence in the EU, and may have to leave London.

As the prospect of a Brexit looms, firms such as Italy’s Bonelli Erede Pappalardo, Ireland’s Arthur Cox and William Fry, and German leader Noerr, have all strengthened headcount in London.

Arthur Cox’s London office head Aiden Small tells Legal Business: ‘Regardless of the outcome of the Brexit vote, London will remain of strategic importance for the firm since, together with New York, it will continue to be a key global financial centre.’

Despite the uncertainties facing European firms based in the City in the coming months, there’s a notable confidence over the importance of the location and the sustainability of a London practice beyond 2016. Although many are open about their concerns for the coming year, London office heads are quick to point to their successes in light of the financial crisis and their drive to make sure they ride through any challenges the next year throws at them.

Nonetheless, a number of European firms have cut back on headcount in their London offices in the last 12 months. The most notable exponent of this is Gide Loyrette Nouel, which with 32 lawyers is still by far the largest of the European-independent firms in London and the only Europe-based firm to make the top 50 table for Global London. It has six fewer lawyers than last year. In percentage terms this is a fall in headcount of 16% – the biggest fall in the Global 100 – virtually cancelling out the growth made by the firm in the City in 2014. On a five-year track, headcount is down 22%, despite London head Rupert Reece telling Legal Business last year that he anticipated the office turning a profit for the first time in years.

The other firm that has seen a surprising fall in headcount in London is Irish challenger firm Matheson, with the number of fee-earners down from six to just two. However, one of those two lawyers is the firm’s chair Liam Quirke, who spends half of his week in London – an unusual move for a major Irish player to have a senior member of the executive sitting outside Dublin. Quirke says that London needs to be properly serviced as a legal market but not necessarily by having lots of bodies on the ground.

‘If you aspire to being the Irish law firm of choice for international companies and financial institutions, you must be in London and you must be participating in that legal services market,’ he says. ‘If the transaction requires it, we will be there, but we’re not looking to have people working in the London office except where it is required. The people who are in the London offices – their predominant role is managing key relationships. That extends to clients but also extends to the many law firms that we are working with every day.’

Staying competitive

Conversely, Bonelli has made significant additions to its London office of late, not least a lateral hire from a Magic Circle firm. Stepping down from his position as Bonelli London managing partner, Andrea Carta Mantiglia will be succeeded by Massimiliano Danusso, who joins from Allen & Overy (A&O) where he was Italy senior partner. Cited by The Legal 500 as a leading individual in debt capital markets work, he joined the firm in January with five others from A&O. Bonelli also hired the former general counsel of Novartis Oncology in Europe, Helen Roberts, to its London office in November.

‘We don’t have much competition because of the new people we’ve hired from A&O who are very strong in the market,’ says Mantiglia. ‘We will strengthen our position, particularly with investment banks and other financial institutions, like insurance companies, and we will do better with them than we did in the past.’

At Noerr, office head Thomas Schulz describes the London market as extremely important. He outlines his job accordingly: ‘Following people, following leads, following deals, engaging early with the constituency and making our name known is very important for us. It’s key to our strategy.’

But unlike other EU firms Legal Business spoke with, particularly the Irish firms who rely heavily on referrals from UK players, Schulz expressed the feeling of competition with London’s major players and clearly does not feel pandering to the global elite is the way forward, particularly with London’s big four.

Selected European players: a London overview
Firm	Home country	London office opened	No. of London fee-earners	London head
A&L Goodbody	Ireland	1988	9	Niamh Ryan
Arthur Cox	Ireland	2001	13	Aiden Small
Bonelli Erede Pappalardo	Italy	2002	14	Massimiliano Danusso
Hengeler Mueller	Germany	2000	6	Martin Geiger and Daniel Kress
Gide Loyrette Nouel	France	2003	32	Rupert Reece
Gómez-Acebo & Pombo	Spain	2007	3	Mónica Weimann Gómez
McCann FitzGerald	Ireland	1986	5	Hugh Beattie
Matheson	Ireland	1989	2	Liam Quirke
Noerr	Germany	2010	7	Thomas Schulz
Uría Menéndez	Spain	1992	6	Juan Carlos Machuca
William Fry	Ireland	2012	5	Stephen Keogh

‘They are our competition obviously because they’re all in Germany. They have big offices here and big offices in Germany. It’s a competitive market. But I think once you have a clear strategy here and once you’re really able to have people focus, having access to a good network is important from an investment perspective and, of course, a law firm like Noerr is increasingly being used as one of these network partners because we see a lot of these transactions.’

Spanish firms have an extra air of uncertainty to contend with in the foreseeable future after an inconclusive election in December last year saw the placement of an interim government. The London heads of both Uría Menéndez and Garrigues say political uncertainty at home and in the UK is an additional challenge they will have to deal with across the coming year, but both are confident London will remain a crucial hub for their firms.

Uría’s London resident partner Juan Carlos Machuca notes that the firm will mark 25 years in London in 2017 and adds: ‘In my view, Spain is not yet feeling the fact that we still have an interim government. Investments and transactions are happening business-as-usual, but what I see as challenging across the next year are many of the things happening in Europe and the world, the instability in the markets, the throes of the crisis and Brexit, depending on what the UK decides on 23 June. It will definitely have an impact on the City, this country and Europe, whatever happens. It’s been a very challenging year, but so far we have not failed. 2015 was a record year for us in terms of revenues so we’re very excited.’

Quirke sums up the prevailing view: ‘New York is probably as big [as London] in terms of legal services, but in terms of international legal services purchased either directly or indirectly in London, it is the largest international legal market in the world. If you stand back and look at the fact that 80% of our business is with international companies and financial institutions who see Ireland as their base for doing business in Europe, then you can see how important it is to us.’ LB

madeleine.farman@legalease.co.uk