Looking out of the window of his office overlooking the picturesque Piazza del Duomo on a rainy April afternoon, one veteran Milan partner is feeling sentimental: ‘I remember the firms that used to dominate the market back when I started – Graziadei, Carnelutti, Pavia Ansaldo. No-one hears of them anymore.’ What on the surface seems nostalgic reflection poses a pressing question for Italy’s current legal elite: what will become of today’s top independents in the near future?
‘It is as if the market gets tired of dominating firms every ten years or so and replaces them with others,’ agrees a partner in another office in the northern Italian city.
The question is prescient for the top three independents – BonelliErede, Chiomenti and Gianni, Origoni, Grippo, Cappelli & Partners (GOP). With the rainmakers that have defined the Italian legal market over the last 20 years approaching retirement, will there be space now for new players to dominate? And could international firms be among them, after being relegated to the margins of the most peculiar western European economy?
The last of London’s Big Four to enter the market, Linklaters, seems to think so. In March it made the most unexpected move, voting through a waiver to its partnership terms to allow one of Italy’s top M&A rainmakers, 69-year-old Roberto Casati, to join from Cleary Gottlieb Steen & Hamilton’s Milan arm at the top of the lockstep – a deal worth more than €2m annually.
Almost 15 years after the collapse of its merger talks with GOP, Linklaters is seriously trying to make inroads in mainstream corporate work in Italy, the one area global firms have largely failed to crack so far. Could it work?
Grey hair factor
The individualism of the Italian legal market is well and justifiably documented.
‘It is as if the market gets tired of dominating firms every ten years or so and replaces them with others.’
The local legal industry has been dominated for years by a small bunch of grey-haired veterans more inclined to pull the strings of their own independent firms than take orders from London. Legal brands have been weak, firms made and broken by a small cadre of top people, and loyalty a largely disregarded value. Schisms have been far more in vogue than mergers and partner moves high in number.
This individualism at the top end has persisted in a country that has too many lawyers – more than three times as many as France, as the locals often say with a mixture of irony and resignation.
Meanwhile, with SMEs making up the vast majority of the country’s business community and the in-house legal function still largely underdeveloped, for many clients getting the lowest possible fees matters more than the quality of legal advice.
These factors largely accounted for the failure of the assault of the international firms in the 1990s and their retrenchment since the turn of the Millennium – hence the image of Italy as an impenetrable market. But they also call into question the business model of the top three nationals, exposed to the risk of being too reliant on a handful of rainmakers.
Chiomenti is a case in point. Soon-to-be-70 Michele Carpinelli, the veteran behind its success over the last two decades, retired from the partnership this year – despite remaining at the firm in the newly-drafted role of special independent counsel. Meanwhile, a five-year slimming plan has seen Chiomenti scale down by around 100 fee-earners to 300. ‘This is the right size for Italy,’ says Carlo Croff, who as senior partner oversaw the process. ‘There will always be a space for independents in this country, but only those that focus on quality will survive.’
‘Roberto Casati is a force of nature. He is 70 but looks the same as when he was 50 – he had grey hair back then too.’
Croff himself stepped down as senior partner in May after nine years, replaced by corporate heavyweight Francesco Tedeschini. This will be the ultimate test of the firm’s ability to weather change. The general consensus is that it is well equipped to do so.
‘We regard ourselves as the only really institutional firm,’ says Croff. By far the longest-standing elite player in Italy, the firm founded in 1948 already saw the role of point man passed from the founder Pasquale Chiomenti to his son Carlo and then on to Carpinelli. ‘Chiomenti’s depersonalisation is well ahead,’ agrees a peer.
The firm retains a strong reputation in M&A and private equity (less so in litigation). This year it was part of a group of elite nationals acting on the €1.94bn acquisition of railway operator Italo – Nuovo Trasporto Viaggiatori (Italo-NTV) by private equity house Global Infrastructure Partners (GIP). Tedeschini himself acted for shareholder Allegro on the deal.
Yet Chomenti, whose reputation has rebounded in recent years after a troubled period, is the exception rather than the rule. The generational change will be more testing for the other top two.
The country’s highest-grossing firm, 300-lawyer BonelliErede, has handled well the loss of founder Franco Bonelli, who passed away in 2015, but some still speak of its reliance on its other big hitter, 77-year-old Sergio Erede. However, the firm also counts on other strong corporate hands such as Umberto Nicodano and a respected younger co-managing partner, Stefano Simontacchi, who is leading its expansion into Africa and Asia. In general, the overall quality of its lawyers is considered to be the highest in the market and the firm can point to a 12% revenue growth to an estimated €158m last year.
The position of GOP is trickier. The 440-lawyer firm is widely described as the most reliant on its own founder and senior partner, Francesco Gianni, although at 67 his retirement might well be another decade down the line by Italian standards.
‘Italian firms compete with international firms on inbound M&A, but they cannot do outbound. The future for successful Italian companies is to go abroad to sell their world-class product.’
Michael Immordino, White & Case
‘The goal of our founding partners was to create something which would survive them. That’s why they have formed an ever-growing, cohesive team that is increasingly involved in the firm’s management,’ says co-managing partner Rosario Zaccà, who points to a 6% revenue growth to €132m in 2017. But the departure of the 80 lawyers who launched Legance in 2007 following a clash with Gianni over the management of the firm is still described as depriving it of the best next-generation talent, although GOP went on to hire the well-regarded Roberto Cappelli from Grimaldi three years later.
While the top three nationals have been dealing with generational flux a group of foreign players, traditionally considered irrelevant, are gaining momentum.
The invaders
When a Magic Circle firm with a reputation for managing out old partners hires a near-septuagenarian at the top of its lockstep in a market traditionally considered secondary, you know that something significant is going on.
It took just two months for Linklaters Italy managing partner Andrea Arosio to convince the global partnership that Casati was worth the deal.
‘For me it was a no-brainer,’ says Arosio. ‘The Italian partnership agreed immediately that we should take him. But he was welcomed with great favour at an international level too. He brings clients, experience and profile to the firm.’
Legal Business struggled to find a lawyer in the streets of Milan who did not point to 100-lawyer Linklaters as the top Magic Circle firm in the country by a mile.
The most senior move in the market in recent years splits peer opinion like few other topics. While at Linklaters there is confidence the rainmaker can bring in around €8m a year, some observers question whether Casati is worth his remuneration and others point to the potential frustration of younger corporate hands in a firm that rarely promotes Italians to the partnership.
But the majority regard it as a strong move. ‘Casati is a force of nature,’ says a former colleague. ‘He is 70 but looks the same as when he was 50 – he had grey hair back then too. You will find him at his computer checking documents for typos till late at night. He is different from [the typical Italian rainmaker]. Not one for political relationships. A hard negotiator.’
Legal Business struggled to find a lawyer in the streets of Milan who did not point to 100-lawyer Linklaters as the top Magic Circle firm in the country by a mile. Launching later than peers in 2007, the firm had the agility needed to refocus on restructuring when the crisis hit, it was the only one of London’s Big Four that did not scale back post-Lehman and established itself as a robust competitor in banking and capital markets over the last few years.
Meanwhile, another group of international firms have bucked the trend by launching in Italy post-crisis and speak of ambitious plans.
Under the energetic leadership of former DLA Piper Italy head Federico Sutti, Dentons has since its 2015 launch grown to over 100 lawyers spread across Milan and Rome, while revenue rose 92% to €22m in 2017. The target is to create a 120-lawyer, full-service firm by the end of the year.
‘We offer similar fees to Italian firms and compete on the Italian market, while also offering an international platform,’ says Sutti. ‘That’s why we are growing.’ While conceding its M&A firepower still has to improve, he points to corporate head Stefano Speroni, who has worked with big groups such as Enel and Finmeccanica.
Speroni himself is bullish: ‘I understand that Italian firms like to describe international firms as second tier. But that’s not true anymore.’
‘Prices are still slightly below other markets and a lot of SMEs have a big potential for growth because they still have to go abroad.’
Bruno Gattai, Gattai, Minoli, Agostinelli & Partners
Latham launched in 2008 with a group of former BonelliErede partners. Led by securities lawyer Antonio Coletti, it fields well-regarded Stefano Sciolla in M&A and Andrea Novarese in banking, who advised on two of the country’s top mandates last year – GIP in the acquisition of Italo-NTV and the banks financing Atlantia’s €16.3bn bid for Abertis.
Detractors point to a high turnover among partners, while Latham’s well known lack of flexibility on fees is certainly an issue in a country where the brand does not carry the same clout as in the Square Mile. But Novarese insists: ‘The Italian legal market is in a transitional phase. The quality of legal services will continue to grow and fees will have to rise accordingly. Clients will have to acknowledge this if they want first-class legal advice.’
Among those to leave Latham following its launch was Michael Immordino. The well-respected Italo-American transactional hand joined White & Case in 2011 alongside former Chiomenti M&A rising star Ferigo Foscari to relaunch its Milan operations after the 2008 closure. And the office mantra is internationalisation.
‘Today Italian firms compete with both national and international firms on inbound M&A, but they cannot really do outbound,’ says Immordino. ‘And the future for successful Italian companies is to go abroad to sell their world-class product. There are more and more like that.’
Fresh blood
But serious competition to Italy’s top three is not only coming from a group of international firms. A few recent entries seem also equipped to claim a bigger slice of the pie.
GOP’s spin-off Legance launched in 2007 with the goal of creating ‘an institutional firm that survives its founders’, says managing partner Alberto Maggi.
The initial group of 80 lawyers has grown to 227, generating €78m in revenues last year. ‘The real firm of the future’, ‘the best young people from GOP’, ‘a success story’ are some of the comments Legal Business has heard on the firm. In M&A it focuses on mid to high-end mandates with well-regarded Filippo Troisi and Alberto Giampieri, while being one of the very few Italian independents with a strong banking practice, led by Andrea Giannelli.
But perhaps the most interesting new entrant is Gattai, Minoli, Agostinelli & Partners. The 100-lawyer firm launched in 2012 focusing on private equity.
A character even by Italian standards, its 59-year-old founder Bruno Gattai has had quite a journey. A skiing champion who had to quit at 19 after breaking his back, during his time as a young lawyer he doubled up as a sports commentator during weekends (a more remunerative job for him than law back then) and became a national TV star for his commentary of Italian skiing star Alberto Tomba’s successes in the 1990s.
In his third life, he led Simmons & Simmons’ and then Dewey & LeBoeuf’s Italy operations until the collapse of the US firm.
Bain Capital, CVC, Apax, Clessidra and Investcorp are some of the impressive client roster of his new firm, which in 2014 recruited Riccardo Agostinelli from Latham to expand its finance capabilities and last year grew revenues 25% to €29m.
‘The Italian market is in a transitional phase. The quality of legal services will continue to grow and fees will have to rise accordingly.’
Andrea Novarese, Latham & Watkins
While Gattai makes a point of having a light management structure, the firm cannot escape the usual questions on its potential to survive its founders. On the whole though, Gattai Minoli shows that private equity can be a highly successful business in Italy.
‘Italy is seen as a good market for private equity houses,’ says Gattai. ‘Prices are still slightly below other markets and a lot of SMEs in many sectors have a big potential for growth because they still have to go abroad.’
Moving on
Contrary to received knowledge, there is plenty of room for growth for firms that know how to tackle the Italian market.
Significantly, today’s most dynamic players launched around the time of the financial crisis, were agile enough to adapt to changing market conditions and could present the image of a growing rather than retrenching operation.
GDP growth is still slow (although last year’s 1.5% is an improvement), the pressure on fees is still intense and the political landscape unstable to say the least. But top law firms have regularly outperformed the local economy in the last three years. And the process of internationalisation, involving both Italian companies going abroad and foreign companies investing in Italy, provides foreign players with a window of opportunity, while pushing the nationals to reinvent themselves.
Italy’s top three independents will not be deposed any time soon, although to different degrees they will have to grapple with the process of institutionalisation for years to come. But as the importance of international platforms grows, a growing number of rainmakers are finding a selected group of global firms more attractive.
‘And yet it moves,’ Italian philosopher Galileo Galilei famously said 400 years ago – his view that it is the Earth that revolves around the Sun and not vice versa reverted a received wisdom that was seen as eternal and immutable. The image of the Italian legal market as a closed shop has started to sound like that received wisdom today. LB
marco.cillario@legalease.co.uk
Law firm networks: viable or vital?
Networks remain a salient feature in the European legal market, with over a third of The Euro Elite belonging to a formal network. But with many leading independents choosing not to be part of a network, and the rise of disruptors to the traditional model from practice-specific networks and alternatives such Dentons’ Nextlaw, some are considering the model merely viable rather than essential.
Many Euro Elite firms do not recognise a binary choice between independence and interdependence, instead seeing networks as a way of bridging the gap between the two approaches. However, many firms still prefer to work with their foreign counterparts on a case-by-case basis rather than through formal alliances.
‘We have contacts and relations with the best firms in the key jurisdictions. It’s very useful when you have to put together a pitch to 20-30 countries,’ says Alexander Ritvay, M&A partner at Noerr, which remains part of the world’s largest established network in Lex Mundi.
Hengeler Mueller is another German law firm that rates its network highly – unsurprisingly – as the German representative of Slaughter and May’s best friends grouping: ‘Our network is extremely important. We know those guys as well as if we were in a merged firm, but we get to keep our independence,’ says partner Christof Jäckle.
However, mergers remain a threat to membership of networks, with Lex Mundi most recently adding Scottish leader Burness Paull to its list after local rival Maclay Murray & Spens was absorbed into Dentons. Carl Anduri, president at Lex Mundi, believes the network remains highly desirable for independents and is dismissive of threats to the established model from alternatives. ‘We don’t see a threat from that [Nextlaw]. It’s a directory of law firms. It’s basically The Legal 500, but I prefer The Legal 500.’
Tim Brown, incoming chair at Terralex, echoes Anduri’s sentiment, albeit without the quip: ‘There are more loose-form networks such as Dentons’ Nextlaw, but I don’t class them as a competitor, they seem more like a directory of firms. With a formed longstanding network, the client knows the firms are committed to each other.’
A spokesperson for Nextlaw responded: ‘We are the champion of the high-quality, small-to-medium-sized law firm. Traditional networks are structured in a way that excludes such firms from joining due to the fact that they must “pay to play” to cover one geography. This provides large firms with an unfair advantage they can buy their way into. Our principle is to always do what is best for clients, and that requires making a diverse selection of talent and expertise available in as many geographies, practices and sectors as possible.’
But Arne Møllin Ottosen, managing partner at Kromann Reumert, shows how even some network members are careful not to overstate the importance of the programmes: ‘Does it help? We analyse that all the time. It’s important to be able to give services around the world and we make use of that all the time. I don’t think it’s the main driver of our international activity and success.’
Others, however, see little need for membership of a formal network. Derk Lemstra, managing partner at Stibbe, remains sceptical of the network model: ‘If you are a truly independent law firm you need to work matter to matter. Membership of a network is a lot of effort that could be invested in relationships with relevant independent firms.’
Brown, however, suggests the upcoming challenges to networks are less orientated around external threats and more concerned with expanding to newer, relevant areas: ‘There will be an emphasis on greater marketing to GCs on the benefits of the network model. GCs are feeling better served by going to established regional firms rather than big internationals. The network option is being considered preferable.’
Stronger together, then, but just how together remains open to debate.