The German legal market has again proven its ability to thrive in the face of challenge, as law firms continued their trajectory of growth in 2022. With the largest firms reporting a 7% increase in profit after a tumultuous year, German independents are demonstrating renewed confidence in their own resilience.
After the uncertainty of Covid-19 brought major moves to a halt, the legal market is finding itself back in motion, with spin-offs and mergers becoming a more regular occurrence, though major consolidations have failed to materialise in 2022. However, many firms report difficulties in finding junior lawyers to join their ranks across practice areas. Paired with shifting client expectations that demand a more holistic approach and, as Gleiss Lutz co-managing partners Michael Arnold and Alexander Schwarz put it, ‘a demand for more integrated services rendered by law firms to clients’, firms face an increased need to demonstrate adaptability. ‘This need will also change the search profile for law firm staff in the future. In addition to traditional lawyers, the need for new professional fields is growing strongly. Summarised in one expression: “the future-ready lawyer”,’ says Elisabeth Lepique, one of the managing partners at Luther.
2022 challenged firm’s abilities to react quickly and efficiently, as fast-evolving crises dominated the legal landscape, from the Ukraine war to energy woes and persistent supply-chain issues. According to Lepique: ‘Securing supply chains, safeguarding energy supplies, and accelerating the transformation of companies to ESG-compliant supply structures were key areas of demand.’
With supply chains being strained and a constant source of mandates from the previous years, law firms also found themselves tasked with preparing clients for new legislation. Notably one of the biggest sources of interest was the Supply Chain Due Diligence Act, which came into force in January 2023 for companies with at least 3,000 employees and aims at enforcing social and environmental standards along the whole supply chain. With its scope being extended to companies with at least 1,000 employees at the beginning of 2024, trade and distribution law will no doubt remain busy.
The new law forms part of an overarching trend that continued to accelerate in 2022. Penetrating virtually every practice area, ESG expertise has become a requirement rather than an add-on for full-service firms. Hengeler Mueller, one of the leading German independents, has found itself embroiled in one of the first high-profile ESG compliance matters in the market, advising Deutsche Bank subsidiary DWS in its ‘greenwashing’ scandal.
‘Increasingly, distressed M&A is becoming more relevant; in contrast to 2021, real estate M&A was rather moderate.’ Elisabeth Lepique, Luther
In light of the Ukraine war, foreign trade law became the centre of attention at the beginning of the year. Practice groups faced a massive need for advice, including the winding-up of many companies’ businesses in Russia and an ever-changing sanctions landscape. In July 2022, for example, the seventh package of sanctions by the EU was passed within the space of five months. Schwarz and Arnold expect that ‘this demand for foreign trade law expertise will continue for the time being’.
Gleiss Lutz’s transactional practice experienced a particularly strong year, with highlights including advising Deutsche Telekom on the sale of the majority stake in its tower business to a consortium consisting of Brookfield and DigitalBridge for €17.5bn. The firm was also the first German independent to open an office in the metaverse, a move that aids in its objective to provide ‘practical advice on the numerous interdisciplinary issues that arise through digitalisation in general, and through the advent of technologies such as the metaverse in particular’, according to Arnold and Schwarz. Lepique corroborates this need for firms to adapt to the demands of an increasingly digital market: ‘Law firms investing in the digitalisation of their own workflows have a significant advantage in making their work easier and faster for the benefit of their clients.’
Despite volatile markets, fuelled by supply chain distress, higher interest rates and inflation rates at a 40-year high, the deal market demonstrated surprising resilience. After a slump in activity at the beginning of the Ukraine war, the overall number of deals in the M&A market remained at a similar level to the previous year, although deal values remained significantly lower. ‘Increasingly, distressed M&A is becoming more relevant; in contrast to 2021, real estate M&A was rather moderate,’ says Lepique. In the private equity sphere, investments continued to soar, particularly within the IT, technology, and healthcare sectors.
Characterised by a heavy reliance on Russian oil and gas, Germany’s energy crisis has kept practice groups working to capacity to secure the future of the country’s energy supply, which culminated in the government’s move to place Gazprom Germania into long-term administration in summer 2022 alongside a €10bn loan. Luther remains an active player in this field, having advised energy supplier EnBW on its plans for a LNG terminal aimed at diversifying the country’s energy portfolio.
As the German economy moves from crisis to crisis, predictions for the future of the legal market prove difficult. The general mood of independent law firms appears to be cautious, but positive. Arnold and Schwarz conclude: ‘Overall, the world seems to have become even more fast-paced, with higher demands on the immediate availability of our lawyers to solve increasingly complex client problems, fast.’ No matter how the next year will pan out, 2022 has shown that the German market is likely to continue thriving in the face of challenges. LB
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| Rank (by Legal 500 ranking) | Firm name | Region | Total lawyers | Total partners | Promotions | Offices | Partner hires |
|---|---|---|---|---|---|---|---|
| 1 | Hengeler Mueller | Germany | 330 | 90 | 3 | 6 | 2 |
| 3 | Noerr | Germany | 463 | 106 | 3 | 15 | 2 |
| 14 | Gleiss Lutz | Germany | 315 | 79 | 4 | 9 | 1 |
| 59 | SZA Schilling, Zutt & Anschütz | Germany | 121 | 31 | 3 | 4 | 2 |
| 60 | Poellath | Germany | 170 | 37 | 2 | 3 | 1 |
| 71 | GSK Stockmann | Germany | 237 | 70 | 8 | 7 | 5 |
| 80 | Kapellmann | Germany | 136 | 56 | 5 | 7 | |
| 88 | Luther | Germany | 420 | 150 | 6 | 21 | 4 |