Having enjoyed steady economic growth following its accession to the European Union (EU) in 2013, Croatia saw an abrupt halt to its development in 2020. With a projected 10% drop in GDP, the depth of the economic trough appears similar to that of the 2008 financial crisis, though optimism remains that this downturn will be shorter as mitigatory factors, particularly Covid vaccines, begin to make themselves felt.
Aside from the global economic impact faced by most countries as a result of the pandemic, Croatia was perhaps most affected by the affect on the tourism sector, which naturally suffered considerably. However, continued progress on vaccinations and the creation of the EU’s Green Pass have bolstered expectations the sector will soon recover (although a similar pre-vaccine reopening of the tourist economy last summer led to a dramatic surge in infections).
While a relatively small jurisdiction, the Croatian legal market is large, with a high concentration of mid-sized firms, many of which are evolutions of family-run firms.
The nature of firm structures, and a desire among younger practitioners for advancement, has led to a growing trend of spin-off firms. Long-term corporate relationships are a key driver of demand for legal services in Croatia with firms generally providing a full-service, encompassing litigation and advisory work to clients.
Notable recent spinoffs include Law Office Žarkovic and Batarelo Dvojkovic Vuchetich Law Firm, which have both performed well in the market and are seen as increasingly viable alternatives to the more well-established, heavyweight full-service firms including Divjak Topić Bahtijarević & Krka, Žurić i Partneri and Šavoric & Partners.
Given the comparatively small size of the legal market and the relative paucity of high-profile, sophisticated deals, lawyers tend to be, broadly speaking, either transactional or litigation lawyers, and do not have the same level of specialisation of those in larger European markets.
‘Despite the lockdown it was the tenth year in a row that we grew both in revenues and in manpower. In difficult times, quality rises to the top.’ Mojmir Ostermann, Ostermann
Despite the downturn, there here has still been plenty of work in the market for firms. Damir Topić, senior partner at Divjak, Topić, Bahtijarević & Krka, notes: ‘The main drivers of activity were M&A deals in the IT sector, which became enormously popular and important during lockdown.’ Mojmir Ostermann of Ostermann & Partners cites employment and disputes as growth areas – ‘employment due to Covid; disputes for unrelated reasons’, and also identifies shareholder issues as a key reason for the growth in disputes. Ostermann also feels confident that well-hedged firms have not suffered unduly, pointing out that: ‘Despite the lockdown it was the tenth year in a row that we grew both in revenues and in manpower. In difficult times, quality rises to the top.’
A spokesperson for domestic firm Šavorić & Partners highlights IT and corporate as key areas of development: ‘We suspect that interest in the IT field has been driven by targets developing software that is internationally recognised and globally scalable. So we expect this to continue to fuel the practice’s pipeline in the near future as well.’
On merger activity, they continue: ‘One major story is the investment by One Equity Partners in Croatia’s Infobip software company. As a result of the deal, Infobip became the country’s first unicorn.’
‘All international firms work closely with local firms,’ Ostermann explains, with regards to the role of international players within the Croatian market. ‘Our market is too small to be bothered by the big firms.’ Topić agrees, suggesting ‘international firms are mostly using local firms. Regional firms (mostly Austrian) are doing well, but still not playing in the big league’. Topić does not see much prospect for international firms to progress, arguing that ‘the market will remain an independent firms’ market for a long time due to its small size’.
While most are optimistic about the legal market’s future, Topić sounds a cautionary note: ‘In the event of another downturn caused by the pandemic, we may see firms cease to exist for the first time, primarily those that focus on domestic clients.’ However, given the smaller, more independent nature of Croatian firms, Topić argues that ‘the majority will remain as they were, perhaps with smaller headcounts’. LB