Earlier this year, Ireland’s prime minister (An Taoiseach) Enda Kenny made an appeal to emigrants who had departed the country in the aftermath of the economic crash to return home. Speaking at the launch of an official government policy paper, ‘Global Irish: Ireland’s Diaspora Policy’, the appeal was aimed at encouraging educated Irish people to return, as the government ramps up efforts to entice international investment and capitalise on the fragile Irish economic recovery.
Identifying around 200,000 people, Kenny said: ‘Emigration has a devastating impact on our economy as we lose the input of people, of talent and energy. We need these people at home. And we will welcome them. I believe that, after seven years of emigration, 2016 will be the year when the number of our people coming home will be greater than the numbers who leave.’
Although an ironic statement given the incumbent government’s less than enthusiastic support for the graduate population just five years before, it nevertheless reflects the slowly reviving notion of Ireland as a prosperous nation once more. Irish law firms can attest to this, particularly the levels of corporate work on offer. Says Mason Hayes & Curran managing partner Declan Black: ‘The transactional side is extremely busy – our revenues were up 25% to €60m across the firm – and the corporate department was ahead of that curve. Generally there has been a resurgence in corporate across the top firms.’
Eighty eight new-name investors entered the Irish market in 2014, according to IDA Ireland, translating into a 13% increase on 2013. Matheson corporate head Tim Scanlon says Dublin’s docklands have become internationally known as ‘Silicon Docks’, thanks to the arrival and expansion of leading technology companies in the area, including Google, Facebook and Ancestry.com.
‘Along with the leading technology and social media companies, nine of the top ten global pharma companies and eight of the top ten medical technology companies now have a presence in Ireland. These factors have driven a significant amount of corporate activity,’ Scanlon says.
Return to form: firms ride Irish economic recovery
Ireland’s law firms enjoyed an uptick in work this past year, not least due to the country’s economic recovery. With the country having suffered an explosion in debt between 2008 and 2013, rising from 25% of GDP in 2008 to 125% in the first quarter of 2013, the last two years have projected a considerably different picture.
An export boom has put Dublin at the top of the growth tables and the first quarter of 2015 saw the country take the crown as the fastest-growing country in the EU, after reaching 5% GDP growth in 2014 ahead of Britain’s 2% and Germany’s 1.5%, according to the European Commission’s winter 2015 forecast. Economic growth is projected to be robust in 2015 and 2016, with business investment continuing to rebound. This translates to increased levels of work for Irish law firms, notably in M&A, commercial property, aviation, litigation and financial regulation work.
A recent salary survey carried out by recruitment agency Laurence Simons found 86% of lawyers in Ireland felt secure in their jobs, while 76% received a bonus. Fox Rodney Search director Portia White says: ‘There’s a noted shift in the mood. It’s going back to the stage where everyone is so busy and closing deals at weekends.’
While mergers and lateral partner hires have been a rarity between Ireland’s major law firms, other wider market activity will see them take a closer look at their business structures. Major reforms include Ireland’s Companies Act in 2014, which has overhauled company law in Ireland. Brought in to ensure Ireland remains an attractive region to do business and competes favourably with other jurisdictions for foreign investment, the new legislation provides for the establishment of a new partnership legal framework. With an 18-month transition period running to November 2016, private limited companies should convert into one of two new forms of private limited company: the company limited by shares or the designated activity company. If nothing else, the move helps underline Ireland’s pro-business status.
Walkers partner Jonathan Sheehan says: ‘Reform of the Companies Act has provided the benefit of codifying company law, creating modernisation, and provided the ability to dispense with what was a traditionally long memorandum. It’s also provided opportunity – it’s good for business. There is the small speed bump of getting clients comfortable with it… the concepts are more familiar to English companies – there hasn’t been as many inquiries to convert as people thought. People want to see what others are going to do. People don’t want to be the first movers.’
While challenges remain – controversial plans to charge for water use this year saw tens of thousands march in protest in Dublin – with Ireland set to have the fastest growth in the EU this year, the hard medicine of austerity appears to be paying off.
Deal machine
The country’s robust economic performance (see box, ‘Return to form’, page 116) has obviously translated into M&A deal flow. According to data compiled in William Fry’s annual M&A report, deal activity increased by 37%, with 115 deals in 2014, up from 84 in 2013. This compares with growth of 9% across Europe. The total value of M&A deals for the first nine months of 2014 comfortably exceeded €100bn.
Consequently, Ireland’s thriving corporate landscape has served as a major boon for Dublin’s leading commercial law firms in the last two years – Arthur Cox, A&L Goodbody, Mason Hayes & Curran, McCann FitzGerald, Matheson and William Fry.
Notably, a host of takeover deals helped boost three Dublin firms to the top of the European legal adviser rankings in 2014, putting them alongside Wall Street firms and London’s Magic Circle. A&L Goodbody was ranked 18th in Europe, up from 32nd, according to Thomson Reuters, based on the €54bn ($67.77bn) worth of deals the firm advised on last year. Matheson, meanwhile, ranked 20th, leaping 102 places from 122nd, and Arthur Cox moved significantly from 119th place to 22nd, also based on the total value of deals the firms advised on.
Deal lists provided by Mergermarket paint a similar picture, with the usual contenders Arthur Cox and A&L Goodbody respectively featuring on three and four of the top ten Irish deals for the first half of 2015. These included Mylan’s bid for Perrigo, with A&L advising Perrigo alongside Wachtell, Lipton, Rosen & Katz, while Arthur Cox advised Mylan alongside Cravath, Swaine & Moore.
William Fry and McCann FitzGerald, meanwhile, both received instructions on two of the top ten deals this year, with William Fry advising Jurys Inn Group, alongside Ashurst and Ogier, on its $911m sale to Lone Star Funds by Ulster Bank and other lenders. Other prominent deals saw McCann FitzGerald and Arthur Cox advise on the high-profile €1.4bn takeover bid for Irish airline Aer Lingus by IAG, with William Fry advising financial adviser Deutsche Bank.
A&L Goodbody corporate head David Widger argues that it is little surprise that the same band of firms lead the charge for advisory roles on heavyweight corporate mandates, making the playing field for corporate mandates extremely competitive. Widger comments: ‘The international market is very sophisticated in terms of buying legal services, particularly from New York and London. Those firms that get on trend transactions are very well placed to exploit that first mover advantage.’
According to one Dublin corporate partner, one of the first major transactions to influence international investors’ renewed interest in Ireland as an M&A hub was Perrigo’s takeover of Élan Corporation for $8.6bn in 2013. ‘It’s not necessarily down to loyalty towards Ireland’s largest firms,’ says the partner. ‘The investment bank community would have looked at that deal and seen how effective it was – a tax-effective structure. That gave birth to US companies looking at this idea of finding an Irish plc and being subsumed into it. That created more transactions. They wouldn’t necessarily pick up the phone to the law firm they’re most familiar with, but the firm that’s been working on innovative deals. Apart from us being good lawyers, it’s largely the fact that we’ve done these deals – we know our way around the issues. They are that different and innovative.’
In the current transactional environment, the overall consensus from interviewees is that transactional activity will eventually catch up with pre-crisis levels. Matheson’s Scanlon says: ‘While the nature of the deals is different to some degree, overall activity is starting to get back to pre-crisis levels. The inversion deals, loan sale deals and bank recapitalisations have no parallel in the pre-crisis world, and a true comparison will only be possible once market conditions return to the more normal circumstances that existed pre-crisis.’
‘We were always busy, even during the crisis, but the nature of today’s deals is changing,’ argues McCann FitzGerald corporate finance partner Aidan Lawlor. ‘We are in growth mode. We expect that to continue. Deals are more strategically important… pre-crisis levels of work are normalising, but it’s not as fast paced… people are more measured in their approach and it’s not as reactionary.’
Exit wounds: the impact of Brexit or Grexit on Ireland
The UK Conservative Party’s recent electoral victory brought the possibility of a British withdrawal from the European Union (Brexit) one step closer, with prime minister David Cameron pledging an in/out referendum by 2017 in the run-up to the general election.
British eurosceptics argue such a move would restrain immigration and save the UK economy billions. As Ireland’s largest trading partner (Ireland constitutes the UK’s fifth largest) the possibility of a withdrawal would ultimately have a negative impact and Irish law firms fear it would generate major economic uncertainty.
With trade surpassing €1bn worth of goods and services every week, Mason Hayes & Curran managing partner Declan Black says: ‘Instinctively we feel it would be bad for business as it signals a less unified Europe and a return of barriers to trade. Anything that divorces Ireland from the UK is bad for business.’
William Fry managing partner Bryan Bourke adds: ‘The UK is our biggest trading partner and it would be disruptive. You would hope, considering our relationship, that if they left, we would be positive and inventive about how we trade and rebuild. But it’s a threat.’
The impact of Britain’s possible exit from the EU on Ireland was highlighted in June by a committee report issued by Dáil Éireann, the Irish parliament. In a paper titled ‘UK-EU Future Relationship: Implications for Ireland’, it argued that Ireland has a legitimate reason for getting involved in the debate because it matters ‘more to us than any other country in Europe’. Statistics support this: during Ireland’s financial crisis in 2009, the UK government extended a bilateral loan to Ireland worth £7bn, while Ireland’s International Financial Services Centre has many links with the UK financial services industries. Additionally, Irish citizens are deemed ‘non-foreign aliens’ under UK law, a status afforded to no other nation of the EU and there are an estimated 400,000 Irish citizens living in the UK.
Subsequently, the committee said the Irish government should be brought into the debate: ‘Ireland must be involved from the outset in these negotiations, based on the special status of the Irish/UK relationship and that the UK/EU relationship is a vital national interest to Ireland.’
A&L Goodbody corporate head David Widger agrees. ‘In the unlikely event Brexit were to occur, It would be very important to us that whatever withdrawal agreement is made, it would be one that would allow access to the single market from Ireland’s perspective and for them to remain as integrated as possible,’ he says. ‘Ultimately, we don’t believe Brexit will occur. This is about the UK setting an agenda to renegotiate with the EU.’
On the other side of the coin, the short-term effect could at least have some benefits for Ireland as the only remaining native English-speaking state in the EU, creating investment opportunities and engaging the interest of banks, in particular, wanting to move their European headquarters to Dublin. Tim Scanlon, head of corporate at Matheson, says: ‘It may be that international financial institutions could move some or all of their existing UK businesses to Ireland to ensure unrestricted access to the EU.’
Meanwhile, the threat of a potential Greek exit from the eurozone (Grexit) has somewhat diminished since a July bailout deal was hammered out – an emergency €7.6bn in funding to enable the government to pay its arrears with the International Monetary Fund (IMF) and the European Central Bank, though the crisis looks far from resolved. Ireland has taken a particular interest in developments in Greece as it also went through a period of intense austerity after being forced to go to the Troika for a bailout. Unlike Greece, Ireland successfully met its obligations under the terms of loan, but not without considerable hardship. Its own package in 2010 saw it agree to an €85bn safety net, a move which saw the yield on Irish loans rise to 9% and Ireland essentially locked out of the bond market.
‘There is little comparison,’ says Edward Miller, global head of corporate based in the Dublin office of offshore firm Maples and Calder. ‘From the onset of its bailout programme, Ireland took the measures necessary to halt its financial decline and to foster investment. Those measures sowed the seeds for the recovery we are now seeing.’
While the Greek deal has been widely criticised, with calls for the country to leave the eurozone, the debate in Ireland has been whether Dublin should support Athens as a fellow bailout recipient or argue that the Greeks shouldn’t receive easier terms. Greece will feature heavily in the upcoming Irish general election next year, with the current government Fine Gael stating Ireland was right not to be confrontational with EU-IMF creditors during its own crisis.
Eugene F Collins managing partner David Hackett says: ‘The government has done a good job over the last few years steering us through the crisis. It’s shown a prudent hand on steering fiscal policy and making sure we pay off our debts. As a result we were able to successfully re-enter the bond market. While the recent Greek crisis saw the government threaten to default on its debt, it ultimately had to accept a further bailout and its initial strategy hasn’t worked for it.’
In any event, a Grexit would be highly precarious for Ireland. A June report from ratings agency Moody’s said peripheral countries are in particular vulnerable to a Greek exit, while the biggest impact for Ireland would come in the unquantifiable risk to European economic confidence and growth. Consequently Ireland would be exposed to any increase in borrowing rates by investors.
The other point to note is that, should Greece default on its obligations and threaten to withdraw again, confidence will be rocked in fellow peripheral countries’ ability to honour their own agreements. ‘The suggestion that membership of the eurozone is not irrevocable to my mind creates uncertainty for other countries in the EU,’ says Lavelle Solicitors managing partner Michael Lavelle.
‘You wouldn’t like to see it, but the eurozone has to show it has rules and there’s only so far you can go,’ adds Bourke. ‘Having been through some austerity here, Greece should offer to do more than it is… the eurozone can’t just roll over. There are uncomfortable questions there.’
Outward bound
One of the major features of Ireland’s robust transactional market has been the continuation of inversion deals that have kept the leading corporate firms busy. The trend gathered pace in 2012 and 2013, before accelerating last year, and was driven by corporations seeking lower tax bills than those currently levied at 35% of profits in the US. With a competitive corporation tax of 12.5%, Ireland has presented itself as a hotspot destination to remedy the problem with leading domestic law firms providing counsel on company law, tax and takeover regulation issues.
An example includes the $18bn merger of equals between Willis (which has an Irish-incorporated holding company listed on the New York Stock Exchange) and Towers Watson in June. With Matheson acting for Willis on the transaction, the combined entity will have an Irish-incorporated, US-listed parent. Last year, Matheson also advised Perella Weinberg Partners on its role as financial adviser to US medical device maker Medtronic in the $42.9bn acquisition of Dublin-based Covidien, with Arthur Cox and A&L Goodbody advising the seller and bidder respectively in a deal cited as 2014’s largest in Europe.
Scanlon says: ‘The outcome of M&A activity in recent years has meant that there is a significant cohort of US-listed companies with an Irish parent. Such entities are periodically engaged in significant M&A activity, either because they are making acquisitions or because they in turn become targets for other acquirers.’ The pace of inversion deals is, however, expected to slow, as recent action taken by the US Treasury in September 2014 limiting the ability to undertake tax-driven transactions is set to reduce activity.
Indeed, all interviewees agreed the major source of investment into the country stems heavily from abroad, in particular US and European funds. Research commissioned by the American Chamber of Commerce Ireland, entitled ‘The Irish-US Economic Relationship 2015’, concluded that US firms have invested more than $277bn since 1990, while the output from US companies resident in Ireland exceeds $80bn annually. Moreover, according to a venture capital overview report published by the European Private Equity and Venture Capital Association in 2014, Ireland equalled the EU average for private equity investments seen as a percentage of GDP, at 0.274% compared with a European average of 0.277%.
‘There’s a lot of investment from private equity funds. Many came in over the last four or five years and are based in different parts of the world,’ says David Phelan, managing partner of Hayes Solicitors.
McCann FitzGerald corporate partner Alan Fuller now believes the landscape of investment is changing and says: ‘Twelve months ago it was international buyers looking to buy up cheap Irish assets and make a quick return. There are more trade deals and not just pure funds-type investors or private equity, which is a great sign.’
Such is the confidence in Ireland’s ability to compete for investment on an international stage, the government has implemented unusual manoeuvres to help stimulate future outlays, with a €7.2bn sovereign wealth fund. Dubbed the Ireland Strategic Investment Fund (ISIF), it serves as a discretionary portfolio targeted at both debt and equity investment, with the aim of generating growth in Ireland. Advised by McCann FitzGerald, its first venture was a €50m cornerstone investment as part of the €330m initial public offering of life sciences company Malin Corporation in March. Lawlor says: ‘The ISIF has a mandate to invest both debt and equity as borrowers, lenders and shareholders across all industries. It’s now looking at the infrastructure space… it has money to invest over the next four years. The idea is to invest money as long as it demonstrates the creation of employment. It’s a great development.’
Service hub: the ongoing appeal of Belfast
One of the most striking developments in the legal market post-recession has been law firm experimentation with creating separate divisions to generate cost efficiencies, particularly offshore support facilities. One of the most popular destinations to benefit from this trend has been Belfast, which saw both Herbert Smith and Allen & Overy (A&O) launch respective operations in 2011.
A&O’s Belfast operation now houses 400 staff and has generated multimillion-pound savings for the firm, while, following Herbert Smith’s merger with Freehills, its Northern Ireland base is used to support work coming from jurisdictions including Europe and Hong Kong and its initial headcount target of 20 fee-earners has grown to 120 permanent employees three years after opening.
Other major UK firms have taken a different approach and sought to provide a local service rather than support other offices. TLT opened in Belfast in 2012 and last year took on 6,500 sq ft of office space in Montgomery House after having grown its employee number to 54 from five, while Pinsent Masons entered the market in 2014 and has since picked up substantive advisory work advising on €500m worth of deals involving Aventas Group, owned by former billionaire Seán Quinn.
Those to follow suit include Baker & McKenzie, which plans to house between 200 and 250 legal professionals by 2017; and Eversheds, with the launch of a Belfast outpost covering general commercial and public sector legal work in June. Alternative legal providers also see the benefits, such as Axiom Law, which after launching in 2012, now aims to double its Belfast workforce with a recent £9m investment, creating 97 jobs over the next five years.
And according to Invest Northern Ireland, it is the primary UK region for attracting inward investment, with the exception of London, in particular for financial services technologies investments. This has led to over 800 international companies employing in excess of 75,000 people, and expenditure on research and development and levels of entrepreneurship are on the rise.
The continuation of foreign investment will hugely benefit the beleaguered domestic economy. It continues to enjoy modest recovery and employment growth, driven primarily by domestic consumption, although the region is still lacking in wage recovery, productivity improvement and living standards. And while the Republic is expected to continue its strong recovery, posting growth of 3.3% in 2015, forecasted growth by PwC estimates overall UK growth of 2.5% in 2015, down from 2.8% in 2014, with any gains from cheaper oil offset by the impact of prolonged difficulties in the eurozone. It further warned that the inability to agree on the full implementation of the Stormont House Agreement is not conducive to business confidence and investment, and may jeopardise the devolution of corporation tax.
For Irish law firms, nearshoring in Belfast is less attractive as a back-office destination due to the relative gap in economic stability alongside the difference in currency. Hayes Solicitors founder David Phelan says: ‘I see international firms using it for a lot of back-office operations. I can see the attraction in that. For us, it doesn’t make sense for economies of scale. Few domestic Irish firms will move to have offices and presences there.’
Nonetheless, one managing partner at a leading Irish law firm says there is much to be learned from the efficiency drive of international law firms setting up shop in Belfast: ‘We’ve been to visit A&O and Herbert Smith up north to see what they do and how they create efficiencies for their clients. On big-loan sales and significant M&A, they want to know how to project-manage this. They sheen that process with project management solicitors or lawyers. The Belfast market isn’t closed to us anymore and what they’re doing is something we’re doing too.’
The lost generation
Given the level of deal activity, competition for quality corporate lawyers is intense. And all the more intense as the post-2008 slump saw Dublin firms slash back on junior intake, resulting now in a lack of corporate associates at the key mid-level experience range. With a recovering economy, there has been reasonable salary inflation and Ireland’s lawyer headcount is on the rise, with the number on the roll of solicitors standing at over 15,000 this year. Employment has been further boosted by the trend for lawyers moving in-house to corporations and public service continues, now representing 19% of the practising profession and constituting a 79% leap in eight years, according to Ireland’s Law Society.
‘It’s tight at the moment for recruitment,’ agrees Arthur Cox managing partner Brian O’Gorman. ‘Firms back in 2008, including us, reduced their annual graduate intake. It’s a bit of a perfect storm at the moment. We have now an active and developed in-house market – years ago it was tiny. That is a source of competition.’
As such, the growing popularity of in-house opportunities and ongoing emigration means there is a shortage of qualified deal lawyers with the most desired experience of four-to-seven years.
‘Everyone is looking for corporate lawyers,’ says Fox Rodney Search director Portia White. ‘There’s more demand than supply. If lawyers are looking to move at associate level, they don’t want to move to another law firm – they’re looking to move in-house. It’s hard for the top firms to find the talent. You would think with the market picking up, those lawyers who moved to London might want to come back, but there’s not a huge amount of lawyers available on the corporate side looking to come back.’
She adds: ‘The sweet spot is two to four years’ experience. The biggest challenge is that these associates want to move in-house. It’s not like in London where you can move from a London firm to a US firm – a lot would see moving from one big firm to another as the same, except sitting at another desk.’
Undoubtedly the Irish economy remains in a fragile position for the foreseeable future, with its debt burden in particular proving a major obstacle to recovery. But what is also clear is the country’s cemented status as an attractive jurisdiction for deal-making in the global transactional market. And with increased confidence in the economy and better access to finance to help facilitate deal volume, the scene is set for Irish firms to ably position themselves to take advantage of corporate opportunity. Ensuring the next generation of lawyers develop the relevant skillsets and appetite will be part of its success.
Scanlon concludes: ‘The last couple of years have also proved how important international capital, international companies and financial institutions have been to the remarkable turnaround of the Irish economy. It is also clear that this focus will continue to be the cornerstone of the Irish economy over the medium-to-long term. We must ensure that all appropriate measures are taken to keep Ireland in sharp focus in the eyes and minds of the international investor, including, most importantly, Ireland’s existing international investor client base.’ LB
sarah.downey@legalease.co.uk