Outrageous fortune – how Ireland’s legal elite has stood up to five punishing years of austerity

Bought by the Central Bank in 2012 from lender and toxic loans body the National Asset Management Agency (NAMA) for an estimated €7m (having been valued at €250m in the boom years), plans to use the tower as the now defunct Anglo Irish’s headquarters were abandoned after the company’s collapse. The grey shell of a building standing idle on North Wall Quay is a fitting reminder of the five-year-long turmoil that has battered the Irish economy both in domestic business and international reputation.

It also symbolises what happened to countless properties nationwide, and resonates with the fear felt by many Irish people that the pre-bust Celtic Tiger years will never surface again.

In stark contrast, Matheson managing partner Liam Quirke is convincingly upbeat, not least because his firm and others have managed to keep their heads well above water while others have submerged in difficult market conditions. There is also an obvious resilience on the part of Irish law firms to survive in an economy overwrought with public debt and starved of capital lending.

It is a bleak picture. Ireland has suffered a dramatic explosion in debt over the last five years rising from 25% of GDP in 2008 to 125.1% in the first quarter of 2013 – the fourth highest in the EU, behind Greece, Italy and Portugal (see box, ‘Ireland’s return to austerity’). The foreign direct investment (FDI) dependent nation also faced the glare of the international spotlight after the exposure of the behaviour of Ireland’s financial institutions, which risked the deposits of ordinary people through reckless lending.

A most flamboyant example is Irish tycoon Sean Dunne – referred to as the Ballymun Baron or Baron of Ballsbridge – for his ambitious property development undertakings in Dublin. He shared a close association with current Bank of Ireland chief executive Richie Boucher, who lobbied on behalf of Dunne to Dublin City Council for the contentious €379m development of the Jury’s hotel site in Ballsbridge – intended to be Ireland’s version of Knightsbridge. Now residing in the US, Dunne currently faces bankruptcy proceedings as creditors including NAMA and Ulster Bank seek to make the businessman bankrupt in Ireland.

The most recent embarrassment to emerge is a set of leaked tapes published on 24 June by the Irish Independent containing the mocking voices of former Anglo Irish Bank executives John Bowe and Peter Fitzgerald discussing how Anglo was luring the state into giving the now defunct bank billions of euros.

But despite the faltering economy and the tarnished reputation of some of Ireland’s politicians and financiers, the legal elite has stayed strong. Amid slow recovery and doubts over improvements to the nation’s fiscal health, Irish law firms have demonstrated their resilience in times of adversity, retaining impressive work post-crisis, with some diversifying their practice areas to adapt to the changed economic climate. This robust nature has enabled them to weather the financial storm and generate a raft of international work from UK and US counterparts.

The fragile domestic market has also brought work in. Following the collapse of the Irish banking system, firms saw a range of panel appointments and advisory roles emerge in finance, particularly following the ring-fencing of distressed assets with the establishment of NAMA in late 2009. The most established Dublin firms acquired significant recession-related roles, adding to their already weighty portfolios.

It hasn’t been as rosy for the smaller players, however. Times have been tough for certain mid-tier firms and growth is not predicted in the imminent future. Austerity has been particularly felt by the lower mid-tier, essentially widening the gap between them and Dublin’s ‘Big Five’ – A&L Goodbody, Arthur Cox, McCann FitzGerald, Matheson and William Fry. (There is some dispute as to whether there is a ‘Big Six’ of Irish firms – to include Mason Hayes & Curran, but the majority argue that the market remains dominated by the familiar quintet).

Top-Tier Recommendations in Ireland – The Legal 500

Firm	2008 Recommendations		Firm	2012 Recommendations
A&L Goodbody	19		A&L Goodbody	15
Matheson	17		Matheson	15
McCann FitzGerald	17		McCann FitzGerald	15
Arthur Cox	16		Arthur Cox	14
William Fry	13		William Fry	13
Dillon Eustace	2		ByrneWallace	2
ByrneWallace	1		Dillon Eustace	1
Eugene F. Collins	1		Eversheds LLP	1
LK Shields Solicitors	1		LK Shields Solicitors	1
Simon McAleese Solicitors	1		Maples and Calder	1
			Mason Hayes & Curran	1
			Philip Lee	1

Know your place

Five years post crisis, mergermarket figures illustrate the dominance of the group, with all five managing to stay at the top of the M&A league table for deals dating back to 1 July 2008 to 30 June this year. Arthur Cox leads in terms of both value and volume, with 122 deals worth €54bn during that period.

Drilling down, A&L Goodbody soaks up much of the work in equity capital markets, having advised Credit Suisse, Deutsche Bank, UBS, CitiGroup and Davy on Bank of Ireland’s €3.4bn capital raising in 2010, while Arthur Cox keeps its place as the state’s favoured firm. Overall, McCann FitzGerald maintains a solid reputation in banking and lucrative aviation finance work, while Matheson is noted for its strength in financial litigation and healthcare work – with Quirke describing the increased workload in healthcare as ‘phenomenal’. William Fry is noted for its insolvency and restructuring expertise, having advised state entities, banks and corporates in the past.

Economic disaster also continues to bring Ireland’s legal elite headline deals. The legal aspects of the restructuring of Irish incumbent state-owned telecoms company eircom in 2012 was undertaken by Arthur Cox, A&L Goodbody, McCann FitzGerald and William Fry – a task which wrote off €1.4bn worth of debt from eircom’s balance sheet. A&L Goodbody advised the state on its 2011 Troika agreement, which will see Ireland sell off €3bn of its assets to potential bidders and has provided work to Arthur Cox, McCann FitzGerald and A&L Goodbody. Add to the mix the restructuring of big banks and all five have retained positions on the panels of Ireland’s financial institutions.

The aforementioned legal elite remain ahead of the pack in The Legal 500 rankings too. In the Ireland chapter of the 2012/13 Europe, Middle East & Africa edition, A&L Goodbody, Matheson, McCann FitzGerald and Arthur Cox each achieved 19 recommendations, while William Fry scored 18.

Admittedly, smaller firms including Mason Hayes, LK Shields, ByrneWallace, Eversheds, Eugene F. Collins, Beauchamps and Dillon Eustace received similar numbers of recommendations. However, a breakdown of those figures into top-tier rankings illustrates a sizeable gap between them and the Big Five. For instance, although Mason Hayes attained 19 recommendations, only one is top-tier.

The Big Five’s sustained status is certainly an unusual structure for such a small market, as is maintaining that order in turbulent times. This is particularly notable in a more competitive global legal services market, where many blue-chip companies have sought to become more cost effective through the strengthening of their in-house functions and reducing their instructions to external law firms, as well as utilising the growing legal process outsourcing service that takes on the client workload at competitive prices.

‘The first reason [the hierarchy has been maintained] is that Irish law firms are extremely competitive and have been the subject of heavy competition since well before the crash came,’ argues McCann FitzGerald managing partner John Cronin. ’In other words, the Irish firms were quite match fit before the recession started. We didn’t quite know by how much because we weren’t stress tested.’

He adds: ‘Our culture has been a real differentiator for us in the last couple of years. We see that not just in the client side but in the recruitment side. We have been very clear about what work we want to do, what we’re focused on, and what we’ve tendered for. There’s a real emphasis on helping clients manage the difficulty they’re in, particularly Irish recession clients.’

‘My sense is that the largest firms have significantly outperformed the rest of the legal services market in Ireland,’ reflects Matheson’s Quirke. ‘I attribute this outperformance to the nature of the market segments these firms are serving. This is not to say that there is a singularity of market focus by the top firms. In my view, there is not.’

‘We get the choice mandates that we go after – whether it’s on the litigation side or the corporate side. There remains a gap between tier one and two service providers,’ says William Fry corporate and inward investment partner David Carthy.

‘There are only so many people who have the experience of doing the big complex deals over the years in this market. When sophisticated buyers are researching the market – seeing who has dealt with who – it narrows down very quickly.’

One reason the Big Five have maintained their position is because those firms had enough foresight to diversify their service lines into corporate restructuring, insolvency, and professional indemnity, essentially positioning themselves to put up a strong fight in this fiercely competitive region.

‘It would be fair to say that the larger firms have coped better than the smaller firms with the economic downturn in Ireland,’ says Sean Twomey, managing partner at Eugene F. Collins.

‘This is due to the fact that they have a good spread of legal expertise that can be adapted to the needs of their clients wherever they are in the economic cycle. The bigger firms are also well managed and took difficult decisions quickly.

‘The larger firms have also maintained their grip on the government and semi-state work [while] there is also an element of the IBM factor in people’s decisions when they are looking for lawyers and so will tend to only instruct the top five firms.’

Prime contenders

However, there has also been an uplift in mid-tier firm activity. A standout example is the rise of Mason Hayes, which has done well to position itself as a credible contender for big ticket work.

Ranked first tier for media and telecoms work in The Legal 500 EMEA, the 67-partner firm works for social media giants Facebook, LinkedIn and Twitter, and is currently acting for the Department of Communications, Energy and Natural Resources on setting up Ireland’s first national postcode system.

The firm has also performed well in M&A activity in the energy sector, according to The Legal 500. Led by partners Rory Kirrane and William Carmody, the team acted for Scottish and Southern Energy (SSE) on its €488m buyout of Endesa Ireland in 2012, and is also currently advising Bord Gáis and subsidiary Gaslink on EU energy liberalisation.

Newcomers haven’t been dissuaded by the dominance of top Irish firms either – offshore specialist Maples and Calder opened in Dublin before the beginning of the crisis years in 2006, while competitor Walkers launched in Dublin four years later. Top 50 US giant Dechert, meanwhile, established a successful Irish funds practice in Dublin in June 2010 to be led by former William Fry partner Declan O’Sullivan, having spotted the island’s attractiveness as a region with favourable tax and regulatory structures.

Walkers managing partner in Ireland Garry Ferguson, who joined from Matheson Ormsby Prentice in 2010 and whose funds-orientated practice operates in Dublin, London and Jersey, agrees in part with the current market positioning of firms but says things are not quite so clear cut.

‘It’s hard to brush over the negative impact the domestic banking and property crises have had on so many Irish law firms,’ he says.

‘That said, the larger firms, particularly those which had an international focus throughout the good times, have proven fairly resilient. Some may say it’s a story of the haves and the have nots. However, the picture is a bit more nuanced than that – we regularly win mandates that would have previously gone to the traditional large domestic firms and we see other niche firms and dynamic mid-tier firms doing the same.’

‘The same players are involved today so there hasn’t been any major realignment,’ agrees Beauchamps managing partner John White. ‘Changes in the Irish market tend to be more incremental than radical.’

‘But,’ he counters, ‘the marketplace is more dynamic now than it was a number of years ago and mid-tier firms are winning new mandates from clients that would previously have been the preserve of the larger firms. There are a number of reasons for this and there is no doubt that cost is a significant one.

‘We have scaled up across the firm to meet demand – particularly our corporate team which has doubled in size in the last two years – [and] believe that we measure up very well in the areas where we are well known, such as renewable energy, procurement, banking and commercial property. So we don’t believe that any real hierarchy exists in these areas.’

Total Recommendations in Ireland – The Legal 500

Firm	2008 Recommendations		Firm	2012 Recommendations
A&L Goodbody	23		A&L Goodbody	19
Arthur Cox	23		Arthur Cox	19
Matheson	23		Mason Hayes & Curran	19
McCann FitzGerald	23		Matheson	19
LK Shields Solicitors	22		McCann FitzGerald	19
Mason Hayes & Curran	22		William Fry	18
William Fry	22		LK Shields Solicitors	17
Ronan Daly Jermyn	17		ByrneWallace	16
Beauchamps Solicitors	16		Eversheds LLP	16
Dillon Eustace	16		Eugene F. Collins	15
Eugene F. Collins	16		Beauchamps Solicitors	14
ByrneWallace	15		Dillon Eustace	12
WhitneyMoore	15		Holmes O’Malley Sexton	10
PricewaterhouseCoopers Legal LLP	10		Ronan Daly Jermyn	10
DFMG Solicitors	8		Philip Lee	9
Kilroys	8		WhitneyMoore	9
Maples and Calder	8		Hayes Solicitors	8
Comyn Kelleher Tobin	6		Maples and Calder	8
Ivor Fitzpatrick & Company	5		Lavelle Coleman	7
Simon McAleese Solicitors	5		McDowell Purcell	7

Pluck of the Irish

The resilience of Irish firms in times of austerity is unusual, especially compared to similar jurisdictions that are seeing bigger firms under severe pressure. Take Scotland, for example, where the fortunes of the nation’s most prestigious firms have contrasted sharply with the Dublin elite. As a result of the credit crunch and the diminished status of Edinburgh as a financial centre, Scotland has seen the financial downturn of longstanding respectable firms, particularly 254-year-old Dundas & Wilson that endured multiple partner exits in the last year and recently posted successive years of double-digit drops in revenue, alongside rival Maclay Murray & Spens, which posted even larger drops in turnover and profits this year. Further evidence of the harsh reality for Scotland’s legal elite was McGrigors’ takeover by Pinsent Masons last summer, a deal that wouldn’t have been countenanced ten years ago.

Firms in England have suffered too, as our LB100 report demonstrates. Financial performance aside, major City law firms are announcing a series of job cuts, with the likes of Berwin Leighton Paisner, Eversheds, Clyde & Co and Olswang entering into redundancy consultations as the UK only narrowly avoided slipping back into a triple dip recession in 2013. All of this has led to the emergence of panic merger talks between many slipping down the ranks. There has been a swathe of merger talks and consolidation in the sector, particularly in England and Scotland, the likes of which are simply yet to touch Dublin.

Irish firm mergers have been a relatively rare phenomenon in the legal market. Notable recent unions include Mason Hayes & Curran, which merged with Dublin-based Arthur O’Hagan in 2008, and City insurance firm Kennedys, which merged with Dublin associate firm O’Hare O’Connor Walshe in June 2011. Even now, bigger does not necessarily mean better for the typical Irish firm.

The secret to Irish law firm sustainability is three-fold. Firstly, the market has experienced a good run of debt and crisis-related work.

‘All big business is done by Irish firms in Ireland, including corporate, banking and government work,’ explains one Dublin partner. ‘I imagine that isn’t universally the case in the UK.’

Second, Ireland’s law firms are also heavily reliant on FDI, which has weathered the financial crisis and the country remains a very attractive place to do business. There are currently over 1,000 overseas companies in the region according to the Industrial Development Agency in Ireland. Nine out of ten global pharmaceutical corporations are located there, while Google, PayPal, Facebook, Twitter, Ericsson, Lilly and Takeda have all made Ireland their home in Europe.

For Irish firms, cross selling internationally has traditionally been a core activity, generating sustained investment now and in the future.

‘It’s one of the areas that was constantly busy right through the downturn and even more so now,’ says William Fry’s Carthy, who leads its FDI group. ‘Ireland is still very attractive for overseas investors, particularly in technology and financial services.’

He adds: ‘It’s not just greenfield FDI operations – there’s also people looking to invest because they like the prospects for the Irish economy and the prices available. Any successful FDI practice needs to focus on the long term – we’ve been in the FDI market for over 20 years – and advisers need to have that experience and track record. After that, it’s making sure you continue to provide your clients with excellent service. Ireland is more plugged into the worldwide economy than most other jurisdictions.’

Strengthening that FDI bond means widening your geographical reach too. A&L Goodbody announced in July that it would be opening its third US office in San Francisco in the autumn, to be headed by partner John Whelan. The firm emphasised it would service a range of US multinationals who have established, or are seeking to establish themselves in Ireland.

Arthur Cox has hit both the east and west coast, with a New York branch manned by resident tax and corporate partners Ailish Finnerty and Gary McSharry overseeing the Manhattan base while technology and life sciences partner John Menton heads the Silicon Valley arm in Mountain View. Matheson set its sights early on overseas having established an office in Silicon Valley in 1996, followed by the launch of a base in New York in 2003 with corporate tax partner John Ryan heading both outposts.

More recently, William Fry launched an office in Bishopsgate in London last summer. Headed up by senior corporate partner Stephen Keogh, the objective is to strengthen existing relationships between the UK and Ireland for UK advisers who have clients with Irish projects.

What further drives FDI is Ireland’s tax system. Far from facing adverse consequences of renewed tax scrutiny on multinationals such as Google, Amazon and Starbucks – as has been the case in England – Ireland’s offering of low corporate tax at 12.5% has partly contributed to its global competitiveness, attested to by the IMD World Competitiveness Yearbook 2013.

The final factor aiding the resilience of Ireland’s law firms is that there hasn’t been a weighty influx of US or UK law firms entering Irish soil that’s significant enough to detract business away from the top players.

A Dublin partner says: ‘The Irish market is seen as small which is why none of the London firms really ever came over to try and set up a big presence because they’re part of the same overall jurisdiction in the UK. It’s a much more natural thing for them to take over big projects in Scotland than in Ireland. And there probably just hasn’t been enough competition here.’

Maintaining reputation

Irish lawyers hope the domestic legal landscape will continue to evolve despite a volatile economy. Plans for changes to the system’s structure should also promote the region as a place to practise. Minister for Justice Alan Shatter’s Legal Services Regulation Bill, introduced in 2011, will require greater transparency in legal costs if passed, as well as a reformed independent legal costs adjudication structure. Fundamentally, it will abolish ‘antiquated, restrictive practices to encourage greater competition’, according to Shatter in a 2012 statement.

However, according to an annual survey carried out by financial services firm Smith & Williamson, 72% of solicitors’ firms did not expect the Bill to have a significant impact on their services. Nevertheless¸ with the unprecedented level of change to hit the Irish market, there is an increasing level of recognition that firms need to adapt.

But, overall, it is inward investment that is crucial to law firm development moving forward. Preserving the region as an attractive place to invest means protecting Ireland’s brand and ensuring unethical behaviour undertaken by powerful institutions will stay firmly in the past (see box ‘Ireland’s return to austerity’).

Mason Hayes managing partner Emer Gilvarry reflects: ‘Ireland has moved on dramatically since the IMF [bailout] and is now recognised as the comeback kid of Europe. We have a good international reputation. At the IBA conference last year we saw significant interest from international lawyers regarding investment in Ireland.’

Brian O’Gorman, managing partner at Arthur Cox, adds: ‘Internationally, we are perceived to have faced up to our problems and dealt with them. Investors will never invest in a country otherwise. You know what you get when you invest here as the political, legal and tax regimes are so stable.’

Gilvarry concludes: ‘We are inclined domestically to beat ourselves up. But in my travels to the UK and the US, we’re certainly not damaged in terms of business – all of the continuing FDI would suggest that’s still the case. The fact that the Irish took the measures was good for our reputation. But there comes a time when we’ll have to look for growth.’ LB

sarah.downey@legalease.co.uk