At the beginning of the Covid pandemic, German law firms found themselves wary of what the future might hold and prepared for the worst. Two years on, most say their fears were unwarranted – several firms have reported the last financial year to be their strongest to date. ‘The pandemic has shown the enormous resilience of the independent law firm model,’ says Alexander Ritvay, co-managing partner at Noerr. ‘The legal market in Germany recorded a 6% revenue increase in 2020 [to €253m]. We outperformed the market, as we increased our top line by 10%. The ongoing year is also looking quite strong.’
This optimism can, in part, be attributed to the fact that the predicted big slump in commercial and corporate mandates never arrived. M&A, private equity and restructuring are identified as current key drivers of activity in the legal market. ‘With the low interest rates and the liquidity that’s in the market, we believe that transactional activity – both domestic and foreign – will continue and probably increase in the forthcoming 12 months,’ says Ritvay. ‘This is likely because there is also significant reorganisation as well as restructuring going on in many industries.’
This activity can be seen from some of the major mandates handled by German independents in the past year, such as Noerr advising on global disposals for the insolvent DAX30 group Wirecard; Hengeler Mueller acting for Lufthansa on its €2.16bn capital increase; and Gleiss Lutz representing Deutsche Post DHL Group on its agreement to acquire J.F. Hillebrand Group and its subsidiaries for around €1.5bn.
Germany’s economy is also on the road to recovery. GDP was expected to grow by 2.6% in 2021 after it took a 5% dip the previous year. While private consumption is mostly responsible for this rebound, manufacturers are struggling in light of global supply shortages, with producers unable to adapt to increased demands after 2020 saw a halt in consumer spending. However, this has not yet stopped the upwards trajectory of economic growth.
‘Clients will continue to be cost sensitive, depending on how they fared during the pandemic.’
Michael Arnold and Alexander Schwarz (L-R), Gleiss Lutz
It also comes as no surprise that firms have acknowledged an increase in clients’ readiness to take matters to court instead of settling out of court. The insurance sector was especially affected by this trend, as insolvencies and shutdowns caused a wave of disputes to find their way onto the desks of litigators. The high demand not only kept firms busy in terms of workload, but also helped expand their reach.
The pandemic has proved that the German legal market is characterised by resilience and adaptability. As many of the leading independents have reported a record year, their model seems to be well-equipped for providing specific solutions in a fast-changing environment. Gleiss Lutz and GSK Stockmann, for example, saw their revenues grow 5% and 6% to €227.5m and €89.4m respectively.
Luther recorded a 6% dip in revenues to €176m, but such movement was anticipated. Says co-managing partners Elisabeth Lepique and Markus Sengpiel: ‘This is due to a managed process: the slight reduction in revenue is cushioned by the planned adjustments to personnel levels. The headcount of professionals was reduced by 80. At the same time, revenue per professional increased significantly.’
Luther also entered uncharted waters by joining forces with French counterpart Fidal, forming the international organisation unyer, which promises to have ‘a global reach, one exclusive member per country, and [providing] much more than legal services’. The announcement came in May 2021 and while it may be too early to judge the result, the move demonstrates one of the ways in which the German players are keen on expanding their reach on a global level.
Cost efficiency might also be an advantage for the leading independents. Crises cause people to be more circumspect in how they spend their money, and companies are no different. Clients are reportedly more cautious with the amount they are spending on legal services. Michael Arnold and Alexander Schwarz, co-managing partners at Gleiss Lutz, say they expect ‘clients will continue to be cost sensitive, depending on how they fared during the pandemic’. Locally-sensitive, competitive pricing is another example of how independent firms gain an edge over their multinational competitors.
While the competition that independent German firms face from international firms gaining footing in the domestic German market is not a new challenge, Arnold and Schwarz identify the expanding legal branches of large auditing and consulting firms as potentially threatening for a host of national players. The impact of this, however, remains to be seen and there has been no indication so far that the pandemic has sped up such processes.
As it stands, German independents have largely profited from the past year and a half. Firms generally expect a stable market for 2022, but the pandemic has shown that economic upheavals can be abrupt and unpredictable. LB
| Rank (by L500 ranking) | Firm | Region | Total lawyers | Total partners | Promotions | Offices | Partner hires |
|---|---|---|---|---|---|---|---|
| 1 | Hengeler Mueller | Germany | 330 | 88 | 6 | 6 | 0 |
| 6 | Noerr | Germany | 461 | 99 | 7 | 16 | 4 |
| 17 | Gleiss Lutz | Germany | 327 | 81 | 2 | 7 | 0 |
| 54 | SZA Schilling, Zutt & Anschütz | Germany | 120 | 32 | 3 | 4 | 1 |
| 62 | GSK Stockmann | Germany | 238 | 70 | 3 | 6 | 5 |
| 76 | Luther | Germany | 420 | 81 | 7 | 20 | 8 |
| 79 | Kapellmann | Germany | 137 | 57 | 0 | 7 | 0 |