Stronger together – amid turbulent times, Europe’s top indies remain in bullish mood

As Brexit, China and Trump take their toll, our second Euro Elite report finds the continent’s leading independents in bullish mode

For many, 2016 was a year that threatened to halt the forces of globalisation. Anxieties over the global economy, particularly in China, and falling energy prices gave way to political shocks delivered by voters in the shape of Brexit and President Trump. From this maelstrom, Europe emerged in relatively good shape. As did its independent law firms.

Although collectively Europe may be large, it is not homogeneous and this inevitably plays out in the varying performance of its independent law firms. Our second annual Euro Elite report identifies 100 leading firms in around 40 European jurisdictions. These firms have been selected using a methodology that blends size, reach and quality across key product lines.

Overall headcount across the Euro Elite is up on last year – 25,039, up 4% on 24,007 in our inaugural report. Noticeably, the Nordic region has increased market share in terms of number of firms occupying the 100, with 27 firms coming from the region compared to 24 last year. This has come largely at the expense of firms from Turkey and Ukraine, where unsettled markets occupied by a number of small firms has seen them outgunned by larger firms elsewhere in Europe.

While improved GDP growth of 1.7% across the eurozone area last year is reflected by an increase in many of The Euro Elite’s revenues, many law firms in the larger economies continue to suffer from the same structural problems as the domestic markets that underpin them: they are mature with limited room for growth.

‘It is difficult to increase much in this position,’ says Fernando Vives, managing partner of Garrigues, which leads The Euro Elite and is the largest independent firm in Europe with over 1,400 lawyers. ‘It is important to bear in mind that our revenues in Spain are €295m. This is 35% more than the next firm.’ Notwithstanding his caution, Garrigues had a good year overall, increasing its revenues 3% from €339m to €349.4m. ‘It’s the best in our history,’ he adds.

 

The Euro elite average lawyers/partners per region

Breaking down

The same challenge faces the largest firms in the three biggest European economies: Gianni, Origoni, Grippo, Cappelli & Partners in Italy, Gide Loyrette Nouel in France, and Noerr in Germany. While revenues at Gianni were up by 5% at €124m (2015: €118m); at Noerr €207.2m (€207.7m) and Gide €190m (€192m), revenues were notably flat.

Gide made a conscious decision to focus less on the top line in 2016 and more on improving cost control, says Stéphane Puel, the firm’s managing partner. As a result, Gide’s profitability reached its highest level since 2007.

Noerr’s static revenues in 2016 follow strong 5% growth in 2015. Tobias Bürgers, the firm’s managing partner, points to increased revenue per fee-earner and profitability in its German offices, again with a focus on cost management. The drag on overall revenues occurred largely because of its six CEE offices, especially Moscow.

Total number of lawyers in The Euro Elite: 25,039

Gianni Origoni’s founding partner, Francesco Gianni, says that his firm is applying its focus ‘more strategically’ to compete – and to expand. Given a relative absence of deals in Italy – although it did advise on the €953m privatisation of Grandi Stazioni last year – the firm has reshaped its overall practice with increased litigation capacity, now accounting for 25% of total fee income, and appointed 19 new partners in under a year.

For many of the largest players in the biggest domestic markets, overseas growth is key. Following the example set by US and UK firms over nearly three decades, they are planting an increasing number of flags in jurisdictions where shared language, culture and law have a long history.

Gide has a well-established clutch of offices in francophone Africa – Algiers, Casablanca and Tunis – although the revenue impact from them remains minimal. However, the Austrian pairing of Wolf Theiss and Schoenherr, with their multiple offices across CEE countries, derive most of their revenue from outside their Vienna hubs.

As the aggregate GDP across the CEE pushes above 3%, many of the region’s economies are at last rebounding. Erik Steger, co-managing partner of Wolf Theiss, says profits-wise the year was successful despite revenues falling 10% from €78m to €70m (see ‘Focus: Wolf Theiss‘). Jason Mogg, managing partner of specialist CEE firm Kinstellar notes: ‘The markets have been good. I sense there is a degree of stability in most of the region that perhaps is not widely known.’

Even in Russia, there is room for optimism, according to Sergey Pepeliaev, managing partner of Pepeliaev Group, with western sanctions boosting local industries like pharma and agriculture: ‘The market seems quite sustainable and is developing well.’

Meanwhile, the Baltic States have emerged from a period of consolidation with four pan-regional firms dominating The Euro Elite: Sorainen, Cobalt, Ellex and TGS Baltic. ‘The Baltic market is developing pretty well,’ says Laimonas Skibarka, co-managing partner of Sorainen. ‘Changes and developments in alliances have finally settled.’ Rolandas Valiūnas, managing partner of Ellex adds: ‘The M&A market was booming last year, especially in the TMT sector.’

But the significant new growth in overseas practice development has come in Spain, Portugal and, more recently, Italy. Last August, Garrigues integrated Chilean firm Avendaño Merino into its network, taking its Latin America lawyer total past the 100 mark in Colombia, Peru, Mexico, Brazil, as well as Chile.

Given their relative size, geographical spread and dominance in their home markets, it comes as no surprise that three Spanish firms – Garrigues, Cuatrecasas, Gonçalves Pereira and Uría Menéndez – occupy the top three places in the Euro Elite. It is no coincidence either that all three have needed to find revenue growth internationally.

‘The markets have been good. There is a degree of stability in most of the CEE region that is not widely known.’
Jason Mogg, Kinstellar

At Uría, managing partner Luis de Carlos points out: ‘75% of the firm’s revenue is from the Iberian market, and 25% from international markets.’ Increasingly, that means Latin America: Bogota, Lima, São Paulo and Santiago, where Uría has further benefited from its strategic alliances with local firms as Philippi Prietocarrizosa Ferrero DU & Uría.

By comparison, Italian law firms have been relative latecomers. Last October, BonelliErede announced new offices in Cairo and Addis Ababa. ‘These outposts are the linchpin for the firm’s growth in the African continent,’ proclaims the firm’s website. Bonelli’s managing partner Stefano Simontacchi points to further growth in the Mediterranean, east Africa and the Gulf, particularly the Gulf as a hub for investment into Africa. Gianni Origoni also has African ambitions, focused on west and South Africa.

Meanwhile, the German market continues to thrive. ‘We have had very good business in Germany again,’ says Alexander Schwarz, managing partner of Gleiss Lutz, which was much in demand during the Volkswagen emissions scandal, as was Hengeler Mueller, which advised on a cluster of big cross-border and domestic deals, as well as IPOs. In overall revenue terms, VW was the single biggest matter in the German market in 2016. But not every firm benefited. After several years of growing their lawyer headcount, Heuking Kühn Lüer Wojtek’s revenues were flat. Andreas Urban, the firm’s managing partner, describes last year as ‘quite difficult.’

 

The Euro elite average number of offices per region

Blaming Brexit

Smaller jurisdictions in the Euro Elite do not generally feel as much pressure from external forces: it is simply uneconomic for most global firms to operate local offices there. These states can, however, be potentially more volatile and subject to external shocks. After a resurgence in 2015 when the economy grew by a remarkable 7.8%, and law firm activity was frenetic, international firms have started to encroach in Dublin with DWF expanding its offering and Pinsent Masons planning to launch in the City. Nonetheless, the same five independent Dublin firms that made the upper quartile of the Euro Elite in 2016 retain their status with the addition of Mason Hayes & Curran (see the main table).

Significantly, Ireland has also begun to feel the Brexit effect. Brian O’Gorman, managing partner of Arthur Cox notes: ‘Turnover grew fairly rapidly between 2014 and 2016 for most of the big firms in Dublin. For the next two or three years we are probably looking at more of an environment of consolidation and low growth.’

Elsewhere, Brexit has already taken its toll. For some, it was short term. Jean-Marc Ueberecken, managing partner of Arendt & Medernach in Luxembourg, says: ‘We definitely had some slowdown just after Brexit – in July, August and September of last year.’ Nevertheless, revenues for the year were up 7% to €114m. Like Ireland, Luxembourg hopes to benefit from a post-Brexit outflow of funds from the City of London.

For others, the effect was more pronounced. Geert Potjewijd, managing partner of Dutch leader De Brauw Blackstone Westbroek, says the firm’s revenues were down 2% overall in 2016, from €152m to €149.4m, largely because of the influence of Brexit on the corporate practice, with many deals put on hold amid the climate of uncertainty.

Interestingly in the Nordics – which has by far the largest representation in the Euro Elite – firms are not blaming Brexit, revenues are largely growing and the mood is robust. ‘Brexit hasn’t affected our market; everyone is waiting to see what happens,’ says Pauliina Tenhunen, chair of Finland’s Castrén & Snellman.

‘The Nordics as a region is doing fairly well,’ says Kjetil Hardeng, head of corporate M&A at Haavind in Oslo. ‘I would be surprised if anyone was pessimistic.’ He does, however, point to last year’s fall in energy prices hitting Norway.

 

‘For the next three years we are looking at an environment of consolidation and static or low growth.’
Brian O’Gorman, Arthur Cox

 

 

Simon Evers Kalsmose-Hjelmborg, managing partner of Denmark’s Bech-Bruun, is also upbeat: ‘It has been a good year for everyone. A fantastic M&A market: we led the tables for the fifth consecutive year with 65 reported deals in 2016.’ He adds that the firm has ‘received a lot of large mandates, especially within green energy and offshore and nearshore wind farms’.

Nonetheless, there are more specific factors at play than the spectre of Brexit. Price pressure from legal procurement departments continues, although perhaps more acutely in what European lawyers prefer to call the Anglo-Saxon world, rather than in Continental Europe. Likewise, technology is having an impact to the point where there is a general unease among Europe’s managing partners in discussing it too much. As one of their number says: ‘Lawyers are on their toes not knowing whether there’s going to be the next Uber that kills the entire legal services industry – without being able to point at the killer app that will kill big law firms.’ But that problem applies everywhere.

The total revenue of the top 25 firms is €4.03bn

Overall, a picture is building of independent firms in jurisdictions where international firms are prevalent experiencing negative or flat growth pointing to a slowdown in deal work after the UK voted to pursue Brexit a year ago. However, blaming Brexit seems to cover the cracks that may be inherent at a more local level, and focusing on the issue can be a distraction. As one Euro Elite managing partner puts it, endless discussion with his counterparts in other countries has achieved very little. ‘No-one really knows how this will affect us for good or for bad – but it will have a big effect.’ LB

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