‘The main threat will be from legal tech in the long term.’
Christof Jäckle, Hengeler Mueller
Germany
Despite riding out a surprisingly competitive general election that threatened to disrupt the fruitful status quo, 2017 marked another year of growth for the German economy. GDP grew 2.2% compared to 1.9% and the year ended with an unemployment rate of 3.8%, though the country’s longstanding trade surplus fell for the first time since 2009 as domestic demand drew in more imports for the export-orientated economy. All the while the impending arrival of Brexit is met with equal parts indifference and anticipation.
Unsurprisingly, this all bodes well for elite German independents, which continue to be strong in the face of domestic and foreign competition. Corporate and capital markets continue to be active areas and the independents have managed to secure a string of lucrative mandates throughout the year.
Hengeler Mueller advised PSA Group on the acquisition of GM’s Opel/Vauxhall in a transaction valued at €1.3bn. Characteristically, the automotive industry continues to be a strong driver of client activity in Germany, with Gleiss Lutz advising Volkswagen and Audi’s supervisory boards throughout last year as the car manufacturers dealt with the legal fallout of the environmental clampdown on diesel-powered vehicles. Meanwhile, Bernt Paudtke, M&A and venture capital partner at GÖRG, believes the ‘lack of funding culture’ in venture capital has undergone a change of mentality.
Such fertile ground attracts attention from abroad, which so far German independents have been able to resist. However, Magic Circle players such as Freshfields Bruckhaus Deringer and Linklaters continue to make their presence felt. The cost structure of setting up offices often places a squeeze on profit margins for foreign firms in Germany, however Alexander Schwarz, co-managing partner at Gleiss Lutz, rightly points out that players such as Freshfields are still ‘clearly profitable’ in Germany.
‘The main threat will be from legal tech in the long term.’
Christof Jäckle, Hengeler Mueller
Frankfurt remains the focal point for UK and American firms for the medium term. New arrivals regularly emerge, with players like Greenberg Traurig joining more established American counterparts such as Latham & Watkins, which continue to expand and take talent from rival firms. In April, Covington & Burling opened a new office in Frankfurt – the firm’s third office in Europe – with a six-partner team from independent Heymann & Partner, which closed up shop after 12 years. The closing of Heymann reflects how the independent model proves sustainable for players in the top three, while domestic mid-tier and boutique firms prove vulnerable.
However, foreign competition is nothing new to German firms, and many partners claim imminent technological change, rather than international pressure, is the defining challenge facing independents. With investment in technology increasingly demanded, independents will have to match the investing power of leading internationals.
‘The main threat will be from legal tech in the long term,’ claims Hengeler’s Christof Jäckle, as German firms also face the pressure to continue recruiting talent against competition from start-ups and players outside the traditional domains of law.
But stability and economic abundance define the market in the major European country that has tilted most dramatically back in favour of local firms.
France
French independents have proven far more vulnerable to international pressure than their counterparts in Germany, with many domestic firms being absorbed by international players during the 1990s. However, compared to a couple of years ago when a tumultuous general election and sullen economy threatened domestic stability, as well as EU membership, there are many reasons to be optimistic in the Francosphere.
Emmanuel Macron has proved a stabilising influence, ushering long-awaited political reform that could prove lucrative for domestic players. ‘New laws may see more anti-corruption work,’ notes Bredin Prat managing partner Didier Martin, who argues the political climate is conducive to success for French independents. Legislative change in France, such as the new French foreign corrupt practices law, may see the domestic legal market broaden into more regulatory and white-collar contentious practices.
Bredin Prat posted €115.5m in revenue for 2017, and can boast that widening its coverage beyond its traditional corporate work has seen the firm perform well against local rivals such as Darrois Villey Maillot Brochier and Gide Loyrette Nouel. A new entrant into the Euro Elite this year is the 80-lawyer outfit Veil Jourde, a firm with a strong background in disputes, white-collar crime and public law matters, which has taken particular advantage of a more complex regulatory environment.
The Paris legal scene is still dominated by standout individuals, a culture that lends itself to acquisitive interest from international firms.
However, it is M&A that still provides the steady stream of activity in the jurisdiction, with Gide recently advising hotel investment and management business Algonquin Management Partners on its acquisition by Schroders, as well as acting for Zhejiang Semir Garment on its acquisition of the Kidiliz Group, a European leader in children’s fashion.
Meanwhile, the Paris legal scene is still dominated by standout individuals, a culture that lends itself to acquisitive interest from international firms. A ripening litigation market in France attracted US firm Hausfeld to Paris, which set up a new outpost in the capital with antitrust partner Laurent Geelhand at the helm.
Latham & Watkins has also been typically aggressive in the market, with the American firm securing a key mandate alongside Cleary Gottlieb Steen & Hamilton and Freshfields Bruckhaus Deringer on the €15bn merger between French Alstom’s and German Siemens’ railway operations.
Many French independents claim foreign players are too large in proportion to their share of the market, but Magic Circle duo Clifford Chance and Linklaters can still claim to be the strongest among UK players in the jurisdiction.
Brexit, of course, provides both uncertainty and opportunity as Paris plots to poach global banks from London which – as in Frankfurt – may provide a boost for local players. With French independents being well accustomed to international competition, and widely welcomed reform on the horizon from a pro-business government, key domestic players remain steady, rather than steadfast in the face of international pressure.
Switzerland
Switzerland has not shared the recent exuberance of some smaller European countries, although the Swiss economy did not have the paralysis which preceded it either – instead progressing in a sedate fashion. ‘One factor that’s helpful to a certain extent is that the euro, compared to the Swiss franc, is now stronger than it was,’ says Daniel Hochstrasser, senior partner at Bär & Karrer. Following the departure of M&A partner Till Spillmann, who joined Niederer Kraft Frey (NKF) last December, his firm is set to expand its dealmaking capacity with the imminent addition of a high-profile M&A team, including two prominent partners, in its Geneva office.
Homburger managing partner, Daniel Daeniker, points to more mid-market M&A activity and a surge in capital markets work. ‘There’s also been a glut of IPOs this year that has not been seen for many years. Sustained high-level M&A activity has been around for two years, but the frequency of bringing companies to the Swiss public markets is new. It’s kept a lot of firms busy.’ Nevertheless, Mergermarket data shows Homburger topping the table by deal value (volume) at $44.2bn (20) last year, followed by NKF – $31.8bn (9); Bär & Karrer – $13.4bn (29); and Walder Wyss – $2.6bn (47).
‘As long as the overall market grows robustly, the large Swiss firms tend to live and let live. But once the cycle ends, it will be a different picture.’
Hans Rudolf Trüeb, Walder Wyss
‘The markets are still very good,’ says NKF managing partner, Philippe Weber. ‘We have a very good pipeline, especially equity capital markets, but also some sizeable M&A deals. What we do not see so much now are mega transactions.’ Walder Wyss, which has recently become one of the largest Swiss law firms, tops the Mergermarket table by volume, although the average value of deals on which it advises is much smaller. Swiss law firm revenues typically grew between 5% and 10% last year, according to partner Hans Rudolf Trüeb. ‘As long as the overall market grows robustly, the large Swiss firms tend to live and let live. But once the cycle ends, it will be a different picture,’ he says.
Tax, regulatory work and investigations are also keeping many lawyers occupied. ‘Investigations are very busy – domestic, from the US Department of Justice and elsewhere,’ says Hochstrasser. Weber points to litigation and arbitration as ‘continuing to be a very important part of our business: we have some very interesting white-collar and investigation work, not only
criminal, but also in the regulation space’.
In February, Swiss regulator FINMA published guidelines on initial coin offerings (ICOs), a very active sector, particularly in Zug. Guy Vermeil, managing partner of Lenz & Staehelin says that his firm has been involved in an association ‘to develop this business in Switzerland with standardised documentation. We are proactive in trying to become market leader in this area’.
Overall pricing is stable. ‘Rather than pressure on rates,’ says Daeniker, ‘we sense an increased burden on the administrative front: electronic billing, complying with clients’ billing rules in how you record time, your ability to staff and charge for junior lawyers. There is a lot of discussion going on, especially with our biggest clients.’
Dominic Carman
Ireland
The managing partners of Irish independents are optimistic, and with good reason. ‘Ireland had the highest GDP growth in Europe for the fourth year in a row in 2017,’ says Barry Devereux, managing partner at McCann FitzGerald. ‘The 2018 projections are good. There’s a high degree of confidence that things are going to remain positive for quite some time.’ Julian Yarr, managing partner at A&L Goodbody, adds a note of caution: ‘Of itself, a strong Irish economy doesn’t necessarily drive the level of legal services activity that drives large corporate law firms, albeit that it does bring some opportunity.’
M&A was certainly busy in 2017. ‘The transaction flow has been excellent,’ says Matheson managing partner Michael Jackson. According to Mergermarket, the top firms by deal value (volume) were: Arthur Cox $11.02bn (34); A&L Goodbody $6.16bn (41), McCann $2.02bn (16); Matheson $1.91bn (22) and William Fry $1.38bn (36). Meanwhile, McCann advised Allied Irish on its €3bn IPO last May – the second largest in Europe in 2017.
‘There were fewer marquee deals, but instead a strong flow across the mid-market and international M&A coming into Ireland,’ says Brian O’Gorman, managing partner at Arthur Cox. Advising the Irish government on the Apple state aid case – over $13bn in taxes – William Fry was also involved in several construction IPOs. ‘There’s a lot of demand for office and residential space in Dublin,’ says managing partner Bryan Bourke.
‘Ireland’s data looks good, but there will be a price to be paid for Brexit. We’re not paying it yet.’
Declan Black, Mason Hayes & Curran
This resurgence is reflected by ‘the number of cranes on the Dublin skyline’, says Mark Thorne, managing partner at Dillon Eustace, which has been advising Tristan Capital Partners/SW3 Capital on the EXO development – set to be Dublin’s tallest office building. ‘Real estate: we are obsessed with it,’ confirms Declan Black, managing partner at Mason Hayes & Curran (MHC).
Unlike other leading Irish firms, which reported strong 2017 revenue growth, typically in the 7-8% range, MHC revenues declined by 1% last year, down by €1m to €76m. Looking ahead, his concern is palpable.
‘Ireland’s data looks good, but beyond 2018, my dominant sentiment is one of uncertainty because there will be a price to be paid for Brexit,’ he says. ‘We’re not paying it yet.’
Yarr notes that A&L Goodbody ‘increased rate rises last year for the first time in a long time – our realisation held up reasonably well, but we have found that the market has become a bit more normalised: there is more competition for the work.’ The most recent arrival, in May, was DLA Piper which announced the opening of a Dublin office with the hire of William Fry corporate partner David Carthy. DLA follows Pinsent Masons, Simmons & Simmons, Lewis Silkin and Covington & Burling as the fifth international firm to open in Dublin since the Brexit vote.
But this is not preventing expansion. Bourke is anticipating a 4% to 5% headcount increase this year; McCann ‘has recently made 13 lateral hires and now has 57 mixed-discipline staff in its project and digital business’, akin to Allen & Overy’s Peerpoint, according to Devereux; while Matheson appointed 15 new partners last year and ‘a further eight this year’, says Jackson.
Goodbody also continues to expand strongly, while Arthur Cox hired a three-partner funds team from William Fry last July: Tara O’Reilly, Ian Dillon and Cormac Commins. ‘We look at growth strategically,’ says O’Gorman. ‘If you do that, the numbers look after themselves.’
Dominic Carman
Iberia
Spain’s legal industry has had quite a year. In the space of a few weeks between October and November, it was shaken by Catalonia’s unilateral declaration of independence and US giant Latham & Watkins launching its assault on the market with the hire of DLA Piper’s senior partner Juan Picón.
While the first event and the following political unrest have understandably caught the eyes of the world far more than the latter, it is Latham’s move that is bound to have the strongest impact on the local legal elite in the short term. Its previously low-profile, 20-strong local operation now counts one of the most renowned professionals in the country. The global partnership has set expansion in Spain as one of the priorities for 2018, with plans to grow headcount to 50 by the end of the year.
The local economy has weathered well repeated periods of political uncertainty to grow GDP by over 3% for three consecutive years. After a long-lasting financial crisis, foreign investors are back, sectors such as real estate, energy, infrastructure and life science buoyant.
National champions Garrigues, Cuatrecasas and Uría Menéndez have repeatedly featured in the top spots of the Euro Elite since our inaugural 2016 survey, also thanks to their growing Latin American operations.
‘Since 2013 we have been on a clear path of recovery, all our offices and practices are doing well,’ says Uría’s managing partner Luis de Carlos. The best-regarded national player, his firm grew revenues 6% to €235.2m in 2017.
‘The political situation in Catalonia doesn’t appear to have affected us.’
Fernando Vives Ruiz, Garrigues
Garrigues’ and Cuatrecasas’ growth was more subdued at 2%, but they can still point to a successful year having turned over €357m and €247.8m respectively. ‘Looking at our results, the political situation in Catalonia doesn’t appear to have affected us,’ says Fernando Vives Ruiz, executive chair of Garrigues, which remains Europe’s largest and top-billing independent firm.
Such figures dwarf the performance of the main players in neighbouring Portugal. Morais Leitão, Galvão Teles, Soares da Silva & Associados, VdA and PLMJ all billed around €50m last year.
However, while Portugal’s ‘incredibly low’ fees are likely to keep international firms away from its Atlantic shores for the foreseeable future – the only relevant exception being Linklaters’ 2002 Lisbon launch – Latham is hardly the only global player plotting to grow on the other side of the peninsula, meaning competition is growing in an already mature market.
After years of retrenchment, there are plans for growth coming from London’s Big Four. Allen & Overy moved into larger Madrid premises in February and aims to grow from 100 to 130 lawyers and from 14 to 18 partners over the next three to four years. Despite remaining much smaller than the local elite, 120-lawyer Linklaters is regarded as a strong competitor for top-end corporate and banking work.
But interest in Spain is also growing among the UK mid-tier. Pinsent Masons opened in Madrid in May 2017 with seven partners and has since grown to ten. Fieldfisher plans to follow suit shortly, its managing partner Michael Chissick describing the country as ‘Europe’s hidden gem’.
With Spanish firms traditionally growing organically, lateral hires have been a rare exception. A look at Picón’s CV (which includes spells at Clifford Chance, legacy Squire Sanders & Dempsey as well as DLA) shows that international firms are pursuing a different strategy. Expect a busier lateral market as they grow their presence.
Spain’s resurgent economy has built the success of a group of independent firms. Having made the country more appealing to international players, it also means that keeping their dominance will get more challenging.