The Euro Elite: France – La vie en rose

Any conversation with a French lawyer these days turns at some point to the volatility of the market and the unpredictability of the future. But there is more substance to these words this time around than a reflection of the industry’s traditional caution.

In just over two years, France has gone from an election that might have ended up with a populist anti-EU leader to the enthusiasm for the victory of business-friendly, pro-European Emmanuel Macron… and then to the rude awakening of social unrest and economic slowdown.

Ever busy abroad, the country’s corporate champions are also affected by troubling news from every other corner of the world: from the escalating US-China trade wars to the deteriorating relationships between the West and Iran. The M&A market is feeling the strain, with a slowdown between the last quarter of 2018 and March this year, and a shortage of high-value mandates (see box, below, for some of the largest deals).

Nonetheless, the unpredictability of the French legal market is its main attraction for domestic and global players alike. France also has the benefit of generating margins closer to London rates than any other major European jurisdiction. After generally failing to expand as expected during the first decade of the 2000s, a more expansive mood has gripped the local market in recent years, fired in part by substantive levels of private equity activity. As a market still largely defined by star individuals and in which foreign firms have historically had an easier time, Paris has much less established hierarchies than any other large western jurisdictions, meaning opportunities for new entrants to shake up the place are significant… if they get their tactics right.

Carpe diem

The vast majority of law firm leaders say 2018 was a good year overall, thanks to a still booming private equity (PE) scene and a healthy level of foreign investment. ‘There is a paradox here,’ says Gide Loyrette Nouel managing partner Stéphane Puel. ‘Politics is pretty hectic, but the market hasn’t been this active in years.’

Bredin Prat senior partner Didier Martin adds: ‘The M&A market for large deals is clearly slower, but if you put [those] aside we have a good number of deals.’

Government reforms to the labour market and the tax regime have provided a boost, as has the relocation of bankers to France from London off the back of Brexit. And while public M&A has gone quieter, the still huge state-owned groups remain an important source of work. Litigators are busy too, even more so after the establishment of an English-speaking international division of the Paris Court of Appeal.

‘Politics is hectic, but the market hasn’t been this active in years.’
Stéphane Puel, Gide

A number of international law firms of all shapes and sizes have seized the opportunity. Paris office launches since the beginning of 2017 have included DWF, Hausfeld, DAC Beachcroft and Signature Litigation. However, the most significant entrant is, of course, the world’s highest-grossing law firm. Kirkland & Ellis sent a jolt through the market recruiting Linklaters’ M&A star Vincent Ponsonnaille and young partner Laurent Victor-Michel. Coming more than two decades after London and 14 years after Munich, the opening of Kirkland’s Paris branch in March 2019 is a particularly significant move for a firm typically conservative with international expansion.

While Kirkland insists on keeping a low profile, the firm is known to be actively scouting for finance and restructuring lawyers to bulk up the office. Although it does not anticipate growing beyond a few dozen lawyers focusing on sponsor clients, few doubt it will have a significant impact on the market, particularly because there is plenty of room for new diners at the top table.

Not that Paris lacks established players. The reputation of Cleary Gottlieb Steen & Hamilton as the top US player in the market has, if anything, grown. One of the firm’s largest offices globally, its 100-strong Paris branch secured a spot in most of the main deals of 2018, thanks to rainmakers including Pierre-Yves Chabert.

Weil, Gotshal & Manges’ 75-lawyer French arm remains one of the strongest players in private equity, topping Mergermarket’s 2018 league table for deal value in France and fielding another of the leading individuals of the Paris legal scene, David Aknin. ‘The office is quite focused,’ says Aknin. ‘PE, M&A, restructuring, banking and litigation are the five key areas.’ The firm added Clifford Chance (CC) PE infrastructure partner Benjamin de Blegiers in April this year.

Among the independents, Bredin Prat and Darrois Villey Maillot Brochier remain secure in their spots operating at the top end of the M&A market. While the latter maintains a tight, 80-strong team and still owes part of its success to the enduring reputation of its founder Jean-Michel Darrois, Slaughter and May’s ally Bredin has grown steadily over the years to hit 180 lawyers, billing more than €120m in 2018. ‘Their M&A partners are all good – you can pick any name,’ says a partner at a rival when asked about Bredin’s top individuals.

But beyond these standout firms, the situation is much more fluid. One of the few non-Anglo-Saxon firms to field a market-leading finance team, 520-lawyer Gide (the only French firm to feature in Legal Business’ Euro Elite top 25) still has some way to go in M&A, although Puel is adamant that its reputation in the transactional space is on the rise after last year’s hire of former Linklaters and Darrois Villey partner Olivier Diaz from Skadden, Arps, Slate, Meagher & Flom.

The recent fortunes of London’s big four Magic Circle firms in Paris have been mixed. The largest of the pack, CC, has scaled down considerably in the last five years, from around 220 lawyers to 180. ‘That’s quite a significant reduction, but it’s consistent with our strategy to focus on the right work for the right clients,’ says Paris head Yves Wehrli. ‘We have a “grow or go” policy: we expect our senior lawyers to continue to grow as they become more senior. If they don’t, especially in our transactional business, they know there is no future for them at the firm.’ Still, the office had a good year, growing revenue 9% to €129m and finishing second in Mergermarket’s table for deal value.

Traditionally the best-regarded English firm in Paris alongside CC, 170-lawyer Linklaters had a more difficult year. The losses to Kirkland stung and revenue was around the same level as the previous year, somewhere above €110m. However, office head Arnaud de La Cotardière says Paris is profitable and plays an important role feeding work into the firm’s headquarters: ‘The relationship with London by definition is very good because we are regularly interacting and referring matters on both sides.’

Freshfields Bruckhaus Deringer has seen a number of departures in recent years, including a four-partner team to Orrick Rambaud Martel in 2016 and former Paris head Elie Kleiman to Jones Day last year. But it notably hired a 17-strong PE and acquisition finance team, including five partners, from Ashurst in 2017. Says office head Hervé Pisani: ‘Now we have a group of 22 partners with significant cohesion and a clear, shared vision of what we want in Paris, which is to develop the business because there is still market share to be taken.’

The 130-lawyer office grew revenue 11% to around €92m, with a profit margin higher than the firm as a whole. It is by consensus one of the leading players in French M&A and Pisani says the firm is still willing to invest, with plans to add up to half a dozen partners in the next three years.

Allen & Overy’s 140-lawyer Paris branch also enjoyed solid 12% revenue growth in 2018/19, despite remaining below €100m. While well regarded for banking and finance work, its M&A team has a lower profile, but the firm can claim much better partner retention than its peers.

While the Magic Circle deals with its ups and downs, Paris is proving a fertile ground for a number of players operating in the mid-market. DLA Piper topped Mergermarket’s league table by deal count last year. Hogan Lovells jumped from 18th to third place and scooped a major hire in Weil’s restructuring star Philippe Druon in April.

‘The M&A market for large deals is clearly slower, but if you put those aside we have a good number of deals.’
Didier Martin, Bredin Prat

No time like the present

But the strongest evidence of how flexible hierarchies still are in France is the rapid success of two recent entrants.

Goodwin Procter launched in 2016 with just over two dozen M&A lawyers from the ailing European arm of King & Wood Mallesons (KWM). In quick succession it hired a tax team from local player De Pardieu Brocas Maffei, an acquisition finance team from Shearman & Sterling and a fund formation team, again from KWM. In March this year it added a real estate industry group, hiring Sarah Fleury from Orrick, its headcount hitting 55 lawyers. Office revenue grew by 60% to around $30m in the year to September 2018. ‘We are very present in the mid-market segment,’ says office chair Maxence Bloch. ‘That’s the bulk of the [M&A] market in France.’

Even more impressive is the history of a relatively new domestic player. BDGS Associés was formed in 2013 by three corporate partners who quit Gide after more than two decades – Antoine Bonnasse, Youssef Djehane and Jean-Emmanuel Skovron – alongside their former colleague Antoine Gosset-Grainville. Additions in the following years included Linklaters M&A partner Marc Loy and Freshfields competition partner Maria Trabucchi.

The firm was born of the belief that a small, transactions-focused player had more chance of success than a large firm. Although not large enough to qualify for the Euro Elite, the 35-lawyer practice has quickly established itself as the strongest domestic challenger to Bredin and Darrois, and competes with the international elite for high-end M&A. It aims to grow to 50, including an acquisition finance team.

Djehane describes the firm’s foundations as follows: ‘Positioning on high-end transactions, low leverage, a pure lockstep, the appropriate size for the market, benefiting from our relationships with independent firms in the US and UK.’ He points to a healthy mix in its client base between public M&A, private transactions and state-owned groups, as well as referrals from Simpson Thacher & Bartlett and Slaughters.

BDGS owes a big part of its success to Gosset-Grainville’s reputation and the ability of Gide’s transfers to move their clients from a century-old firm to a non-existing brand – the clearest demonstration that lawyers’ individual reputations still have huge power along the river Seine.

While the outlook remains cautiously rather than convincingly positive, the unpredictability of the Paris legal market gives international and domestic firms an opportunity with few comparisons elsewhere in Europe. Whatever the final outcome of its bid to shake up the country’s buyout scene, Kirkland’s recent arrival in Paris shows there has never been a better time to invest in France. LB

marco.cillario@legalease.co.uk

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