With Brexit dominating the EU agenda and causing widespread paralysis in the continent, Germany’s law firms are simply going about their business
Turbulence and trauma may have been the global hallmarks of 2016 – at least according to the headline writers – but not so in Germany. For the third year in a row, the German government did not borrow any money, unemployment fell to a 26-year low of 5.8% while GDP grew by 1.9%, the highest rate in five years. Meanwhile, Germany’s trade surplus has hit another record high.
And local law firms have gratefully reaped the rewards. ‘German enterprises are performing well, so there are more transactions involving German corporates investing abroad but also within Germany,’ says Tobias Bürgers, managing partner of Noerr.
Georg Seyfarth, co-managing partner of Hengeler Mueller, adds that for a transaction-heavy firm, the M&A market remains strong: last year was its best since 2007/08. He suggests that while German companies are striking more domestic deals, they are doing so at a higher value than before.
This assessment is borne out by Mergermarket data for domestic German M&A: a 27.2% increase in deal value and a 5.7% increase in deal volume for 2016 – €72.2bn in 866 deals, compared to €56.8bn in 819 deals for 2015. Energy has become an important driver of Gleiss Lutz’s M&A practice, according to managing partner Alexander Schwarz, pointing to the firm’s transactional work for E.ON and, more recently, for The Blackstone Group in Italy.
As elsewhere, Chinese acquisitions in Germany have increased dramatically, albeit from a low base. However, last November, the Chinese government began trying to restrict Chinese investments in Germany. Berlin policymakers swiftly followed suit, placing a severe drag on future Chinese dealmaking.
The biggest deals are, nevertheless, still cross border, such as the €38.2bn Praxair-Linde merger of equals where Hengeler advised Linde. Innogy also turned to Hengeler for its carve-out from RWE and subsequent €5bn IPO – the largest since 2000 and the fourth-largest IPO in German corporate history.
However, the continued fallout from the Volkswagen (VW) diesel emissions scandal is ‘an important matter in the market’, according to Schwarz, who says that many Gleiss lawyers (out of a firmwide total of 275) are advising on compliance cases arising from the US investigations into cheating in the diesel emissions tests by the Environmental Protection Agency and Department of Justice.
The matter continues to dominate elsewhere. It was a key driver of German revenues last year for Hengeler, which also has a large team advising VW’s component supplier Bosch, which produced electronics for nine million of the 11.5 million cars with the defective device.
Of course, not every independent firm has had a client like VW or increased big-ticket M&A to bolster revenues. Some found last year a bit more challenging. For Heuking Kühn Lüer Wojtek, ‘2016 was quite a difficult year, especially because there was hard competition in classic areas like corporate’, says Andreas Urban, the firm’s managing partner. Heuking’s revenues increased by just 1% to €133.4m, as did lawyer numbers – from 307 to 311. ‘The drivers of growth were especially litigation and arbitration, which did very well,’ he adds. ‘Also the public sector, infrastructure projects – for example, for the German forces – IT projects, and real estate are doing very well in Germany.’
At Noerr, 2016 was a year of consolidation. Following robust growth of 7% in 2015, revenue and lawyer numbers were flat last year – at €207.2m and 428 lawyers respectively. ‘The strongest practice groups were corporate, regulatory, compliance, litigation and, to some extent, employment and pensions,’ says Bürgers. ‘We had a lot of transactions in real estate again, but not with the same volume as in previous years.’
‘Brexit will strengthen the rest of Europe, especially Germany, which is in a very good situation because we have good infrastructure.’
Andreas Urban, Heuking
Noerr’s profits per fee-earner in Germany increased, whereas the firm’s six CEE offices – save Hungary and the Czech Republic – had some difficulty. ‘Other offices, Moscow in particular, are still suffering from the economic and political circumstances,’ says Bürgers.
Increased demand for premium legal services has had a positive impact on local fee rates. ‘Due to the heavy workload of German firms, rates are currently increasing, following other European markets such as the UK, which from our perspective appears reasonable,’ says Seyfarth.
‘When you sometimes hear about the partner rates of US firms here, you get a bit sad as a German firm,’ adds Schwarz. ‘Allegedly, they are charging up to $1,200 an hour. This is far from the market in Germany, and it is also far from the UK market now.’
By consensus, international firms still represent very strong competition, even though several big players have reduced their local footprint. Notably, some US firms have been looking to steal a fresh march on their UK counterparts by servicing big corporate transactions in Germany – sometimes by offering salaries in excess of €3m, guaranteed for up to five years. ‘Such big investments are a risk, which can pay out, or not,’ says one local managing partner.
The recent news that Freshfields Bruckhaus Deringer plans to cut German partner numbers by up to 20%, from 103 to 80 over the next three years, will only add further to the available pool of talent. Latham & Watkins, ‘which has expanded various practices tremendously in the last 24 months’, according to another local managing partner, is certainly making inroads.
On the ubiquitous topic of Brexit, Urban believes that Germany may well benefit over time. ‘It will strengthen the rest of Europe, especially Germany, which is in a very good situation because we have good infrastructure. Some business will shift to Germany. I will not overestimate the effects, but there will be a lot of Brexit-related work.’
Bürgers, however, is cautious: ‘If it is really a full Brexit without bilateral treaties, some London-based financial institutions may move some resources to the continent, but I doubt that London will lose its global position as a financial and commercial hub for the world.’
Seyfarth is equally circumspect, pointing to a recent best friends meeting [with fellow elite firms Slaughter and May, Bredin Prat, BonelliErede and Uría Menéndez] where they discussed what Brexit would mean ‘for our respective firms and how can we serve our clients’. Their conclusion was that London will remain ‘an extremely important place for the financial industry in Germany – and so for our operations in London’. Hengeler has no plans to scale down its London office.
A slightly different take on Brexit is offered by Schwarz: ‘We certainly have no Schadenfreude because for Europe this is a general issue. We’re not speaking about the little things at the moment and hope it will all go smoothly.’ LB
| Firm | Total lawyers | Total partners | No. of offices |
| Rödl & Partner | 635 | 150 | 106 |
| Noerr | 428 | 90 | 15 |
| Heuking Kühn Lüer Wojtek | 311 | 132 | 10 |
| Luther | 284 | 116 | 16 |
| Beiten Burkhardt | 278 | 182 | 8 |
| Gleiss Lutz | 275 | 84 | 7 |
| GÖRG | 270 | 94 | 6 |
| Hengeler Mueller | 264 | 90 | 7 |
| Flick Gocke Schaumburg | 155 | 71 | 7 |
| P+P Pöllath + Partners | 101 | 30 | 3 |