Europe’s independent law firms fared much better in 2018 than most of the EU economies in which their clients operate. Set against the background of a US-China trade war, sluggish output and the prospect of an imminent Brexit, GDP growth in the eurozone limped to a disappointing 1.1% last year. Overall deal volume and value also pointed downwards, particularly in the second half of the year according to Mergermarket, but thanks to increased regulation and compliance, investigations and dispute resolution, there was plenty for lawyers to do.
This has led to multiple firms in our fourth annual Euro Elite report – which identifies 100 leading firms in around 40 European jurisdictions using a methodology that blends size, reach and quality across key product lines – reporting annual revenue growth of between 5% and 10%. In meeting the sustained challenge of international players, Euro Elite firms are more than holding their own.
Holding steady
Across the four largest continental European economies, the message is consistent. ‘We are very active: we have more litigation, more international arbitration,’ says Didier Martin, managing partner at leading French firm Bredin Prat. As an indicator of prudent financial management, Stéphane Puel, managing partner of rival Gide Loyrette Nouel, notes that while his firm’s revenue increased by just 2% last year, profitability went up by 15% – partly thanks to a decline in partner headcount – in what he describes as ‘a very good year’ for the firm globally.
‘We had our best financial results ever and we are growing a lot in finance and litigation,’ says Francesco Tedeschini, managing partner at Italian firm Chiomenti, which saw a 6% uplift in revenues. ‘Despite the political environment – and against all odds – the Italian economy is holding up well while the M&A market is more active than we expected, so 2018 was a very good year for the firm,’ adds Rosario Zaccà, co-managing partner of Gianni, Origoni, Grippo, Cappelli & Partners, where revenues rose 10%.
‘I’m surprised by the level of the market: last year went very well, we had a lot of mandates in different areas.’
Fernando Vives, Garrigues
‘I’m quite surprised by the level of the market: last year went very well, we had a lot of mandates in different areas,’ says Fernando Vives, managing partner at Garrigues – Europe’s largest independent saw revenues grow by 2%. Its closest Iberian rivals, Cuatrecasas and Uría Menéndez, reported turnover increases of 12% and 2% respectively.
German independents also forged ahead (see ‘Market overview: Germany’). ‘Last year was very successful with 12% revenue growth,’ says Noerr’s co-managing partner, Alexander Ritvay, pointing to litigation and energy as standout practice areas. At Hengeler Mueller, co-managing partner Rainer Krause identifies M&A, energy, antitrust litigation and investigations as the key revenue drivers. Gleiss Lutz also moved ahead by nearly 3% to reach the €200m mark for the first time.
A similar picture emerges in smaller jurisdictions. ‘2018 was another very good year,’ says Luís Miguel Pais Antunes, managing partner of Portugal’s PLMJ. ‘We increased our turnover by around 11%, the fifth year in a row of double-digit growth.’ At leading central and eastern Europe (CEE) player Wolf Theiss, managing partner Eric Steiger reports aggregate growth of 13% across its 13 offices in the region, where local economies have experienced the most robust growth in the EU, having rebounded from protracted weakness.
There was also double-digit growth at leading Dutch player NautaDutilh, which saw a 10% increase. ‘It was our best result in years,’ says Jaap Jan Trommel, the firm’s managing partner. Meanwhile, Michael Jackson, managing partner of Ireland’s Matheson, reports growth above 10%, fuelled by increased demand across every practice area. Likewise, Scandinavian firms had a good 2018 (See ‘Market overview: Nordics’). ‘Litigation and international arbitration have been busy,’ says Fredrik Rydin, managing partner of Roschier. Paula Röttorp, managing partner of Hannes Snellman, adds that Helsinki and Stockholm are ‘very strong markets, although a downturn is expected in Sweden’.
Conflict issues
Regulation and compliance work does not receive the same prominent headlines as multibillion-euro, cross-border deals, but these types of instructions have increasingly become breadwinners for many independents. GDPR, introduced across all EU member states last May, exemplifies the level of increased demand for complex compliance advice from corporate clients. Alongside other new regulations, it has provided local players with a consistent flow of regulatory work ranging from last year’s financial instruments directive (MiFID II) to renewable energy. Equally, investigations from national and international agencies, both civil and criminal, have increased conspicuously.
To showcase their talent, dispute resolution and regulatory services are now more readily promoted by independents, especially since they have more than made up for the slack in cross-border deals. ‘If you have regular activity in litigation for national players, you are less dependent on foreign investment – Italy is a very dynamic market,’ suggests Alberto Maggi, Legance’s managing partner. ‘The combination of antitrust and litigation has been extremely strong: follow-on claims for private enforcement on the defence side for various German DAX companies,’ says Alexander Schwarz, Gleiss’ managing partner.
‘2018 was another very good year. We increased our turnover by around 11%, the fifth year in a row of double-digit growth.’
Luís Miguel Pais Antunes, PLMJ
‘Our success rate in recent years has been bigger in cross-border litigation and arbitration than in the transactional space, although what we might have lost in cross-border M&A we have more than made up in domestic regulatory, investigation and M&A work,’ suggests Daniel Daeniker, managing partner of Homburger. Other big Swiss independents all report solid revenue increases, with Walder Wyss recording 15% growth last year in its sustained drive to increase market share.
Although domestic competition remains fierce in every jurisdiction, there has generally been enough work to go round with fee rates holding up well: none of the top 25 Euro Elite firms reported a revenue decrease. The scale of the international challenge varies significantly, dependent upon the jurisdiction. In response to the sometimes ferocious competition from international firms, Bram Linnartz, managing partner of Benelux leader Loyens & Loeff, says: ‘We hired a whole team in Brussels from Liedekerke Wolters Waelbroeck Kirkpatrick to join our litigation and international arbitration practice.’
Historically, the largest legal markets have felt the competition most acutely. This continues unabated, even if the names of the competitors are changing. Just as Freshfields Bruckhaus Deringer continues to downsize its German operation, so Latham & Watkins has been incrementally hiring in Düsseldorf, Frankfurt and Munich. Latham’s London operation, together with that of global rival Kirkland & Ellis, are highlighted by several independents in other jurisdictions as increasing referrers of work. Overall, UK Magic Circle firms are no longer cited as often by Europe’s indies, although their offering on big-ticket mandates throughout Europe remains as strong.
More recently, some international firms have begun to make an impact in smaller markets. Linnartz notes that ‘bigger UK and US firms are targeting Luxembourg and Sweden for new offices, which will make the market more competitive.’ Rydin adds: ‘We’re still seeing pressure from international firms – the competition is here to stay.’ Meanwhile, according to Steiger, the legal arms of the Big Four accountancy firms have been particularly active in hiring across CEE. Meanwhile, a glut of UK firms, including Clyde & Co and DLA Piper, opened Dublin offices last year with Fieldfisher becoming the first English firm to merge with a top-20 Irish player, McDowell Purcell (see ‘Market overview: Ireland’).
Domestic mergers between independents have become scarce compared to a decade ago. One notable exception has been BonelliErede, which in July will complete a merger with Lombardi e Associati, adding around 70 lawyers. Like its independent counterparts in Spain and Portugal, which have fruitfully continued their respective expansions into Latin America and Lusophone Africa, Bonelli has been consolidating its development in Cairo, Addis Ababa and Beirut. In a further twist, Gianni announced in May that a team of 15 lawyers, including seven partners, had left Lombardi to join the firm. Lead partners Antonio Segni and Andrea Mazziotti had themselves originally left Gianni (where they were also partners) in 2006 to form Labruna Mazziotti Segni. In the complex world of Italian law firms, they have therefore been reunited with their original firm.
The dreaded B-word
An unknown term five years ago, Brexit now provokes sharp responses: ‘We’re a bit tired of Brexit – the whole Brexit circus is damaging for everybody,’ says Rydin. ‘Brexit? We don’t know and we don’t care,’ says Michael Lagler, managing partner at Schoenherr. ‘The uncertainty is having an impact – it’s the worst thing for clients,’ notes Linnartz.
Others see positives. Trommel says that: ‘One of the main revenue drivers last year was Brexit – a lot of UK-based businesses, particularly in the financial sector, relocated to Europe. That gave us a tremendous amount of extra work in the financial regulatory area.’
‘Brexit? We don’t know and we don’t care.’
Michael Lagler, Schoenherr
Tedeschini adds: ‘Brexit-related uncertainty produces opportunities because many banks are moving their Italian desk to Italy. English law is not as central as it used to be. We managed to impose the use of Italian law on deals where it would have once been impossible.’ Steiger concurs: ‘We see a reluctance by investors to choose English law as the governing law of transactions. This will possibly return to normal after Brexit. But we do not think that Brexit will have any long-term effect on the independent legal market.’
At a practical level, Krause speaks for managing partners throughout Europe: ‘What’s really difficult is the degree of uncertainty over Brexit that has been dragging on. We have a number of clients who make all kinds of scenario preparations on a matrix that deals with different timings and effects. I would have liked it if there had been a solution in March.’
So what is the outlook for the year ahead? Predictions can be unwise, as Lagler confirms: ‘If I knew, I’d play the lotto.’ But others dare to stick their heads above the parapet. ‘2019 will be very similar to 2018,’ suggests Antunes. ‘We hear some cautious voices saying that the second half of the year will be slower,’ adds Steiger. ‘Brexit, US trade sanctions, etc, will have a dampening effect, and we will see whether the European elections and changes in the EU Commission will affect the economy.’
Lukás Sevcík, managing partner at Kinstellar in the Czech Republic, is sanguine: ‘Our budget for this year shows an upward trend and we’re looking to new markets.’ Martin concludes: ‘Even if we don’t have large deals, we will have more litigation, more international arbitration, so we can expect to have a better year.’
Steiger takes a longer view. ‘We see that the peak for lawyers has passed. There are less law students at universities. Technology will take over some of the lawyers’ tasks, which will create other challenges.’
Challenges ahead for Europe’s leading independent firms are therefore not confined to domestic economics and international competition. Managing partners everywhere recognise that in the 2020s, technology might be a greater threat. To what degree that will eventually affect their operations is something none of them can predict with any certainty. But for now, it’s business as usual. LB
The Euro Elite average lawyers/partners per region
The Euro Elite average number of offices per region
The Euro Elite totals
Number of offices: 564 |
Number of lawyers: 25,235 |
The Euro Elite Top 25 totals
Revenue: €4.4bn |
Number of offices: 255 |
Number of lawyers: 11,364 Number of partners: 2,508 |
The Euro Elite top 25 averages
Revenue: €176m |
RPL: €387k |
Number of offices: 10 |
Number of lawyers: 455 Number of partners: 100 |
Pitch perfect? The law firm network PR campaign targets in-house
‘Every major law firm will have global clients and firms should appreciate their clients will be targets for law firm networks.’
Tim Brown, RPC
Although law firm networks are prevalent in the European legal market and competition is intense, many networks are now upping the ante in their efforts to pitch to general counsel (GCs) about the benefits of firms being signed up.
Tim Brown, RPC partner and chair of law firm network Terralex, says there is a greater appetite among in-house lawyers for local expertise and that networks of independent firms are becoming a preferred option, rather than a mere alternative to global corporate firms. ‘The fact is that every major law firm will have global clients and some firms certainly should appreciate that their clients will be targets for those networks and that those clients are at risk, which is why people are looking at networks very seriously now.’
Lex Mundi remains the largest formal network, with over 160 members. Thomas Schulz, head of the London office of Euro Elite heavy hitter Noerr and co-chair of Lex Mundi’s cross-border transactions practice group, says: ‘I don’t know if network membership is a trend as such, but Lex Mundi is the most well known and in a league of its own.’ He adds independent firms are promoting networks more to GCs in efforts to get a good amount of the international work that would historically have gone to international firms.
Rainer Krause, a partner at Hengeler Mueller, Germany’s representative of Slaughter and May’s best friends group, says supposed one-stop-shop firms should co-operate more with networks in jurisdictions where they do not have offices or do not have a strong enough coverage. ‘In 2018, there were over 200 deals with an aggregate value above $360bn advised by our best friends network. In terms of deal volume, it is far beyond any other one-stop firm in Europe.’
But despite the traction new alternative network models have gained in the market – such as Dentons’ membership fee-free Nextlaw Referral Network, which launched in 2016 – the original network players seem unmoved. Brown stands by his statement in last year’s Euro Elite that NextLaw resembles more a directory of firms than a collaborative network.
Responding to criticism of NextLaw, chief executive Jeff Modisett comments: ‘It’s a curious statement when I hear it because we’re the opposite of a directory. We’re a cross-functional network of 700 law firms.’
Glenn Cunningham, chair of law firm network Interlaw, is more accepting of alternative models as competitors, but still questions their viability. ‘We’ve heard firms say about alternative networks that “I have to use the firms within that network and sometimes I know the lawyer I’m dealing with isn’t the best’’, and that’s what we’re hearing from GCs. They’re being forced into relations with a firm in another jurisdiction and they don’t like it.’
However, regardless of shape or stature in the market, law firm networks in their entirety have their critics among leading independent firms in Europe. Jaap Jan Trommel, managing partner at Benelux heavyweight NautaDutilh, says: ‘The network model doesn’t make sense for us because we don’t want to create the perception that we’re exclusively engaging with one foreign firm. We have relationships with a number of firms. No single firm would ever make up for the work we would lose by being exclusive.’