Resistance is agile – Euro Elite firms adapt to survive amid global turbulence

Last year, our annual Euro Elite survey of 100 leading independent firms across more than 40 jurisdictions found partners in a positive mindset but nervous about the potentially bleak outlook for 2023. Those fears had some foundation.

Key market players – both new and old – said that the continent’s law firms would be remiss to forget that geopolitical conflict, the energy market crisis, the tightening of monetary policy and economic contraction loomed around the corner. The subsequent belt-tightening and inertia in the European deals market over the past 12 months has shown this has come to pass. Firms generally are quieter in terms of major corporate mandates and have a larger headcount than the boom year of 2021. This has inevitably taken its toll.

According to Refinitiv, worldwide M&A activity for the first three quarters of 2023 was down 27% compared to the same period last year, to a ten-year low of $2trn. Q3 2023 saw activity dip 16% on Q2, but four of Refinitiv’s top ten highest-value global deals were announced between June and September, and the months since then have seen further high-value activity, such as BlackRock’s market-moving $12.5bn acquisition of Global Infrastructure Partners, announced at the start of this calendar year. Still, these points notwithstanding, Q3 2023 was the slowest Q3 since 2012.

‘2023 was quite challenging for the legal market in general, because it came after two years, both 2021 and 2022, which were very successful and, especially for M&A, extremely busy,’ says BonelliErede managing partner Eliana Catalano. ‘Lawyers easily get used to good things, and therefore, 2023 was so-so.’

‘2023 was quite challenging for the legal market in general.’
Eliana Catalano, BonelliErede

In the ‘Global M&A report’ in our last issue, Richard Youle, head of Skadden’s London office, said: ‘Whether that’s in relation to the current geopolitical landscape, higher interest rates, inflation, or navigating tougher stances by regulators – we’re seeing people take longer to think about transactions and execute them. There’s also a mismatch of expectations – sellers are looking for 2022 prices, while buyers are looking for a reduction.’

Adds Mikko Manner, managing partner of Roschier: ‘The big problem over the past 12-18 months has been that the financial models used in decision making related to transactions have not been able to sufficiently cope with or predict the changes that the inflation and the rate hikes have brought. And that has made it difficult for financial sponsors to act, because they can’t model out their yield and they can’t model out the returns they can gain for their funds. And that has caused uncertainty in the market.’

This has reverberated around Europe. Germany, Europe’s biggest player, saw its economy shrink last year for the first time since the onset of the Covid-19 pandemic. Gross domestic product was 0.3% lower in 2023 than in the previous year, according to Germany’s Federal Statistical Office, Destatis. A survey published in January by the World Economic Forum to coincide with its annual meeting in Davos showed that more than three-quarters of economists expect ‘weak or very weak growth’ in Europe in 2024. And more than half of all economists, surveyed between November and December, expect the global economy to weaken this year.

And then when those running law firms have just about got their heads around dealing with these constant tribulations, fresh and more sinister difficulties appear – notably Israel declaring war on Hamas in response to the invasion of Israel from the Gaza Strip in early October. Although the human and financial cost of this conflict on global businesses will take some time to play out, this just goes to show the fragility of an already damaged geopolitical environment, and the impossibility of truly being able to look around corners, however astute your forecasting may be.

But however unpredictable the markets are, Euro Elite firms continue to thrive thanks to their adaptability. This comes from being able to be agile as times change, following clients into more lucrative areas, unencumbered by the sprawling partnerships that create the oil tanker-esque turning circle of multinational behemoths. Most Euro Elite firms occupy the top tiers of The Legal 500 EMEA across the full spectrum of practice areas, from M&A to commercial litigation. Regardless of which jurisdiction you choose, there is a proliferation of Euro Elite firms at the highest level. Even in European markets where there is a large presence from multinational firms, such as France, independents continue to dominate their markets.

Safety in numbers

The Euro Elite firm continues to grow. The average number of lawyers has inched up to 281 from 275, while the size of partnership has grown to 69 partners, four more than last year. However, while the average number of partner hires by Euro Elite firms is unchanged from two per firm, partnership promotions have dropped from five to four across the board, showing that there has been some correction in promoting talent, after the average number of new partners at firms swelled from three to five in last year’s report.

However, no firm can afford to dishearten its associate ranks amid what is still described as a ‘brutal’ tussle for talent in some jurisdictions. In our Benelux chapter, Stibbe managing partner Hans Witteveen observes that ‘the acquisition of talent remains very competitive, despite the stuttering of the market’, while Antoine De Raeve, who moved from Baker McKenzie to AKD, points out that ‘nowadays there is less commitment to a particular firm or brand, even at partner level, with practitioners regularly moving firms’.

‘The other area where law firms must adapt is in relation to retention and attraction of talent,’ says Schoenherr managing partner Alexander Popp. ‘Law firms will only be able to utilise opportunities if they have motivated and skilled people who can and want to do the work.’

In our individual market reports, written by a team of researchers from The Legal 500 EMEA with direct access to the key firms in each region, some senior figures are far more positive than anticipated a year ago: ‘Like most lawyers, we were surprised at how good 2023 was,’ says Jan Dernestam, managing partner at Mannheimer Swartling.

However, far fewer firms have felt able to demonstrate how this has translated into financial success. Just 18 European firms made public their turnover for their most recent financial year, compared to 36 last year (see ‘Euro Elite by revenue’, below). Average revenue is up to €180m from €122.9m – largely the result of a diminished data set. Just three firms (Pérez-Llorca, Gómez-Acebo & Pombo and Gatti Pavesi Bianchi Ludovici) posted double-digit revenue growth, compared with 16 firms reporting growth of 10% or greater in last year’s coverage. The widespread radio silence among firms suggests that average performance is far weaker than the results here show. With this in mind, credit must go to German powerhouse Gleiss Lutz and Norwegian firm Thommessen, which disclosed their revenue figures, despite reverses in turnover.

The standout performer is again Spain’s Pérez-Llorca, which saw turnover jump 24% to €112.8m from €91m (although this figure is for the 2022 calendar year), following a 33% revenue increase the year before. Top-tier rankings in dispute resolution and real estate and construction, as well as tier two rankings in corporate, banking and capital markets in The Legal 500 EMEA underline the firm’s strong showing. Highlight matters in 2023 include advising Statkraft on the €1.8bn acquisition of Enerfín, Elecnor’s renewable energy subsidiary, and Antin Infrastructure Partners on the voluntary tender offer launched for 100% of the share capital of Opdenergy Holding.

Gómez-Acebo & Pombo, which together with Pérez-Llorca are the serious challengers to the traditional leaders of the Spanish market (Cuatrecasas, Garrigues and Uría Menéndez) posted a 10% revenue increase from €76.2m to €83.9m. With a top-tier ranking in debt capital markets and tier two rankings for banking and finance, equity capital markets and disputes, recent highlights for the firm include advising Santander on the €866m PTO for Opdenergy and Zegona on the €5.1bn acquisition of Vodafone España.

Elsewhere in Spain, the Legal Business International Firm of the Year, Garrigues, had another banner year with tier one rankings in capital markets, corporate, disputes and real estate. Revenue was up 7% to €443.1m, while standout matters include advising Vodafone on the sale of its Spanish business to Zegona.

‘Nowadays there is less commitment to a particular firm or brand, even at partner level, with practitioners regularly moving firms.’
Antoine De Raeve, AKD

However, Garrigues’ main rivals performed strongly in both Spain and Portugal. Cuatrecasas saw revenue increase 3% to €359.2m and advised Exus Management Partners on a capital investment from Partners Group of €1bn. Uría, meanwhile, increased turnover by 5% to €278.2m and handled a range of high-profile matters, including advising AXA Investment Managers in the acquisition of 25% of Igneo’s renewable energy platform in Spain and Portugal, Finerge, for €3bn.

Schoenherr and Wolf Theiss lead the Euro Elite, largely because these two Austrian giants are not only top-ranked for corporate, finance disputes and real estate in their home market, but are prolific throughout the CEE region as well as Southern Europe, from Bulgaria to Slovakia. Schoenherr added 23 new lawyers, including seven partners, to its Warsaw office this month (February 2024) and posted revenue of €102.4m for 2022, up 7% on the previous year. Work highlights include representing Emirates Telecommunications Group on its acquisition of a controlling stake in PPF Telecom Group’s assets in various CEE jurisdictions and S Immo’s acquisition of the mixed-use building Vienna Twin Towers from Immofinanz.

The firm said: ‘Schoenherr again achieved strong revenue growth in the past business year and exceeded the €100m revenue mark. Our teams across all Schoenherr offices were further expanded and competences in highly demanded future areas were strengthened. All this makes Schoenherr sustainably successful, and it underlines our ambition of becoming the natural firm of choice for Central and Eastern Europe.’

Wolf Theiss, for its part, turned over close to its rival in 2022, €100m. It has reported around 40% growth in revenue over the past four years and says: ‘Wolf Theiss members have grown by more than 20% over the past four years and now count – across all offices – to approximately 700.’ It advised AFI on obtaining a €450m credit facility for the purposes of refinancing its three shopping centres in Romania. The syndicate of lenders, which granted the largest real estate credit facility ever issued in Romania, was led by prominent Austrian and Romanian banks.

The remainder of the top ten of our Euro Elite table comprises – unsurprisingly – independent firms in the major European jurisdictions – France, Germany, Italy and the Netherlands.

In Germany, a market that has struggled of late, some of the traditional leaders have been ominously silent when it comes to participation in the Euro Elite, perhaps a reflection of a less than stellar performance by their high standards over the past 12 months. The exception is Noerr – a past winner and a perennial contender for International Firm of the Year at the Legal Business Awards – which recorded a 6% rise in revenue to €315.2m. With tier-one rankings in Germany for shareholder disputes and project development, and a multitude of tier two rankings across corporate, finance, disputes and real estate, standout work in the past year includes advising Mercedes-Benz on the divestiture of its Russian business and Fresenius Medical Care on its conversion into a German stock corporation and its deconsolidation from Fresenius.

Meanwhile Gleiss Lutz, which saw its turnover dip by 1% to €236.2m, is ranked in tier one for commercial litigation and corporate and shareholder disputes. In the past year the firm has advised Infineon, Bosch and NXP Semiconductors on a billion-euro investment in a semiconductor manufacturing joint venture in Dresden. Luther, for its part, had a strong year – boosting revenues 4% to €195m and winning a pitch against Gleiss Lutz, Heuking and Hogan Lovells, among others, to advise the Saarland steel industry on its €3.5bn investment in the transformation towards the production of green steel. Luther is advising the project on environmental and planning law, subsidy and public procurement law, energy law and equity financing.

In France, the leading independent remains Gide Loyrette Nouel, which has achieved top-tier rankings in finance, capital markets, disputes, private equity and real estate. Highlights from 2023 include representing Primonial REIM on its acquisition of the entirety of the asset and property management activities of Icade Santé, for a total valuation of €2.6bn.

‘We expect interest rates to fall, the economy to grow and the geopolitical situation to improve at some point. Nevertheless, progress in the CEE region will probably be slower, so we will have to be patient for the time being.’
Martin Brodey, DORDA

In Italy, where the hot topic of conversation has been the launch of €120m merged firm PedersoliGattai, Chiomenti leads the way thanks to tier-one rankings in crucial practice areas such as corporate, finance and real estate, while the firm also bolstered its revenue by 12%. It recently advised Enel on the issue of non-convertible hybrid subordinated perpetual bonds for a total amount of €1.75bn. Gatti Pavesi Bianchi Ludovici has also performed well, increasing turnover 10% to €70m, securing tier-one rankings in areas such as equity capital markets and investment funds and advising on deals that include representing Gruppo TIM on the sale of its network to KKR for around €22bn.

Elsewhere, 17 firms in the Euro Elite 100 hail from the Nordic region with Roschier leading the way, thanks to a strong ranking performance across the board in both Finland and Sweden. An impressive revenue increase of 6% to just shy of €150m was accompanied by some leading mandates, such as acting for Bain Capital in the acquisition of the Eleda Group from Alto, the largest PE deal in Sweden this past year.

On their toes

The volatile nature of global markets and how 2023 panned out has justified the need for caution and reminded Euro Elite leaders of three key principles – keep investing in talent and AI, be alert to the need to be nimble and – above all – do not try to predict the future too much.

In many of the individual market reports in the following pages, the words flexibility or adaptability crop up time and again, whether that is in direct response to geopolitical and economic headwinds, or the opportunities presented by the progression of legal technology and AI.

As for 2024? Says Martin Brodey, managing partner of DORDA: ‘We expect interest rates to fall, the economy to grow and the geopolitical situation to improve at some point. This will certainly increase the number of M&A transactions and client activity. Nevertheless, progress in the CEE region will probably be slower, so we will have to be patient for the time being.’

Alberto Maggi, the managing partner of Legance, agrees: The current scenario is fraught with uncertainty due to the escalating number and significance of conflicts. Despite this, I anticipate that the demand for legal work, driven by the ongoing energy transition and changes in supply chains, will remain robust. I foresee this having a particular impact on the corporate, energy, and restructuring practices, as well as on employment and IP.’

Peering around corners may be as difficult over the next 12 months as the last, but the agility of the Euro Elite as whole means they are in a strong position to adapt to whatever is thrown their way. As Bredin Prat’s Didier Martin, a highly respected veteran of the Paris corporate elite, says: ‘It’s impossible to know exactly what the future is, it is uncertain, but we can assume that next year will be roughly similar to last.’ LB

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mark.mcateer@legalease.co.uk