Latin America – Latin moves

Should anyone ever write a comprehensive history of international law firms, a good place to start would be Caracas. Over half a century ago, the Chicago-based pharmaceutical company Abbott Laboratories headed to Latin America to establish an operation in the Venezuelan capital. It needed a reliable local law firm on the ground, where the lawyers had a good command of English. Its hometown law firm at the time was a relatively young outfit, just seven years old, called Baker & McKenzie. It was a single-site law firm, but eventually Abbott Laboratories persuaded it to come south and establish an office in Venezuela. Ultimately, both client and law firm would walk away happy. Abbott Laboratories retained a consistent standard of legal advice, while Baker & McKenzie retained a lucrative client, plus a guaranteed workflow in a new and untapped jurisdiction. The year was 1955.

A lot has happened since then, but the business case behind why most firms open international offices remains relatively unchanged. Caracas helped Baker & McKenzie develop a taste for foreign jurisdictions, and in time the Western legal industry as a whole would become increasingly bold in its attempt to enter new and emerging markets. The past two decades in particular have seen a flurry of flags being placed in maps, with almost every global region enjoying its moment in the sun, from Eastern Europe and the former Soviet Union, through to Asia and the Middle East. The last destination of choice was Dubai in the heady, halcyon days before the global financial crisis took hold. Throughout all of this, Latin America was relatively unloved, despite Baker & McKenzie’s pioneering attentions. The firm remained loyal to the continent where it all began, establishing 14 offices across Argentina, Brazil, Chile, Colombia, Mexico and Venezuela, but a combination of volatile politics and economics meant that most other law firms weren’t interested in committing to the region, except for a few small US outposts in Mexico City. The recent move by Argentina to nationalise its New York-listed oil and gas company RPF, at the expense of the Spanish energy company Repsol’s majority shareholding, is a reminder of the inherent risks that are still perceived to exist in certain Latin American countries.

In spite of the very recent Argentinian hiccup, however, most firms’ perceptions of the region have changed dramatically since 2008. Latin America, and Brazil in particular, has been a rare bright spot in an otherwise bleak global economic landscape, and Western law firms have inevitably come flocking to the region.

‘Most firms’ perceptions of the region have changed dramatically since 2008’

Hogan Lovells and Dewey & LeBoeuf are among the latest to have announced new offices in Brazil; in Rio de Janeiro and São Paulo respectively. Their arrivals bring the total number of international law firms operating in the market to nearly 30. Many people close to the market believe that if the local Bar regulations didn’t prohibit foreign firms from practising Brazilian law and possibly from having formal associations with local law firms (see ‘Bar to entry’), then the number of firms on the ground would increase dramatically. ‘There will certainly be more,’ says Fred Dos Santos, senior consultant at the legal recruitment company JLegal. ‘Whether there is a lot more depends on any further changes to Bar practice rules. If they are liberalised then what is now about 30 firms could certainly double.’

Further north, DLA Piper recently moved into Mexico City, after recruiting a local team of lawyers from US firm Thompson & Knight. In 2011 it also established itself in Venezuela by announcing an alliance with the local firm InterJuris Abogados. Meanwhile, Norton Rose, through its January 2012 merger with Canadian firm Macleod Dixon, has also inherited offices in Venezuela and Colombia. Tellingly, the original firm on the ground, Baker & McKenzie, has taken it a step further, and in 2010 its Brazil managing partner Eduardo Leite, took over from John Conroy to become the firm’s first ever Latin American chairman. In addition, the firm’s Mexican managing partner, Raymundo Enríquez, currently sits on the firm’s executive committee. In terms of international law firms at least, Latin America has finally caught up with itself.

Just Brazil

Despite Baker & McKenzie’s commitment to the region, no other firm is likely to take such an extensive multi-office approach. How each firm plans to tackle such a large and economically diverse market varies greatly, although the majority have taken the view that Brazil will serve as their geographical hub, working in combination with offices in other parts of the world. In reality, the one office that matters most is in New York, since it is home to all the investment banks active in Latin America. This relationship can, however, work both ways, and there have been instances where the tail has wagged the dog.

This historical value of Brazil is perhaps best illustrated by how Clifford Chance (CC) originally structured its network, not just in Latin America, but the Americas as a whole. Colin Potter, who headed CC’s finance practice in New York between 1990 and 1997, recalls how important the Brazilian market was. ‘We were instructed on the first private sector eurobond in Brazil in 1991, and as a result of that I was invited to Brazil to meet banks and corporates looking to participate in that market,’ says Potter, now working as managing partner at the recruitment company Global Legal Search, which has an office in Brazil. ‘At the time New York was a small flag-flying office for Europe, doing mainly banking and restructuring type work. But then it just took off and by the time I left in 1997 the office had around 90 lawyers. Frankly, 100% of my practice was Latin America-focused, and in my case principally Brazil. That was the core offering for people that were there during my time.’

CC soon followed the work and established an office in São Paulo in 1998, which was originally headed up by its New York head, Stephen Hood, who has since joined Davis Polk & Wardwell’s nascent Brazil practice, via a stint at Mayer Brown.

As the world’s sixth largest economy, with a GDP that is more or less equal to the rest of South America combined, it is hardly surprising that Brazil is chosen above the other Spanish-speaking nations, even though its language and culture, not to mention economy, are markedly different from the rest of Latin America. It could be argued that this focus on Brazil is insensitive to Spanish-speaking Latin America, but the reality is that the corporations and the banks are taking the same view, so it would only be surprising if the law firms didn’t take a similar approach.

‘Brazil will always have the lion’s share of the business, and the international law firms are right to focus on the country’

‘Of course you will get business in Argentina, Chile and other countries, but Brazil will always have the lion’s share of the business, and the international law firms are right to focus on the country,’ says Potter. ‘By and large it’s client-led and there are so many opportunities. They can’t get enough flights into Brazil these days. For those firms that have an international flavour it probably makes sense. Clients look more favourably on people who are not fair weather friends. Being down there is an important statement. You can fly people in and out in relation to the other countries, but with Brazil there is so much going on that you have to be on the ground so that you don’t miss out. A firm like Davis Polk being down there, and taking on an English law partner [Stephen Hood], what does that tell you?’

For the major New York firms like Davis Polk, it was the fact that investment banks were doing more of their decision-making in São Paulo that ultimately helped them make their minds up.

‘Traditionally we’ve handled Latin American work all from our New York and other US offices,’ says Kevin Kelley, co-chair of Gibson, Dunn & Crutcher’s capital markets group and head of its Latin America practice. ‘I would say in the last decade São Paulo has presented itself as a new development and that is why we have had an office there for the last three years. The emergence of the Brazilian economy has made it a place we need to be. One of the obvious events that has led to our desire to be in São Paulo is that many of our investment banking clients have moved from what was a New York base to a shared São Paulo base. Also, we have numerous large Brazilian-based clients who appreciate our having a local presence.’

‘We did notice that over the last decade or so the investment banks have increasingly built up their presence in Brazil, so in that sense, in terms of clients it was logical for Skadden and other law firms to consider being close to the investment bankers on the ground in Brazil,’ adds Paul Schnell, who heads Skadden, Arps, Slate, Meagher & Flom’s Latin America practice out of New York. ‘Our global strategy is to be in all the major financial centres around the world and Brazil just became the sixth largest economy in the world and São Paulo has become a major global financial centre.’

As the finance community started to establish itself more prominently in São Paulo, it set off a chain reaction that most firms found impossible to ignore, even though many had been operating perfectly well out of New York for years.

‘In Brazil everyone was opening up,’ says Francesca Odell, a corporate finance partner at Cleary Gottlieb Steen & Hamilton, which represented Petrobras on its landmark $70bn IPO in 2010, prior to opening its São Paulo office last year. ‘We were very active in Brazil while all those firms were opening up. For a couple of reasons we decided to wait for the right time. We were representing many of the big players there, and had a large share of the market, so we originally didn’t see a need. We were talking to our clients directly and we thought we could provide the best level of service out of New York. As that market developed it became more and more important for clients to see that we had a presence on the ground, so that you could run down the street and attend a meeting on short notice.’

Central hub

The expectation is that this local presence in Brazil will ultimately translate into more regional work, not least in the capital markets arena, where Latin America’s leading exchange, the BM&FBovespa, is another major weapon in São Paulo’s armoury.

‘I think there will be more and more opportunities to do regional work from São Paulo. You may see companies in the region outside of Brazil thinking of listing their shares on the Bovespa, because it is such an attractive exchange. We are seeing more regional transactions and if there is a Brazil nexus that will make sense,’ says Schnell.

The trick now will be to maintain the correct balance between lawyers on the ground in Brazil and lawyers working out of New York and elsewhere.

‘We felt we could best serve our clients through the blend of having an office there and sending lawyers with precisely the skill-base required down with clients when they need it,’ Kelley adds. ‘Our approach is not to have all our Brazilian resources based there. That would be inefficient both for us and the client, but it is hugely helpful to have a handful of our lawyers there full time.’

In most instances, the Brazil offices remain small. This is largely due to the restrictive Bar regulations, which mean that international firms can only practise foreign law, and, as a result of recent challenges by the São Paulo Bar, could potentially be stopped from establishing formal co-operation agreements (see ‘Bar to entry’). But the International Relations Committee of the Brazilian Bar Association (OAB) is due to vote on suggested changes to the country’s Bar rules. Drafted by attorney Carlos Roberto Siqueira Castro, partner in Rio de Janeiro-headquartered litigation outfit Siqueira Castro Advogados, the report pushes for a major reinforcement of the existing rules governing international law firms practising in the country. Reforms proposed to combat the perceived abuse of the Bar rules include tightening up of the restrictions applying to foreign associations. For many of the US law firms these regulations haven’t altered their strategy wildly, anyway. Firms like Cleary Gottlieb, which operates on a strict lockstep, sent down two of its own partners, purely to practise US law.

‘Historically we’ve not had offices in Latin America until a couple of years ago,’ says Chantal Kordula, a New York-based partner at Cleary Gottlieb. ‘That was largely driven by the fact that our view was that our value added was providing US legal advice. We never provided local law and still do not despite having offices in the region.’

‘Some firms have practices built around one particular person and if they leave then suddenly those firms don’t have a footprint in the market’

This has had the added advantage that the firm can exercise a degree of control over its local offering, which it might not be able to do if it relied upon lateral hires who aren’t familiar with the firm’s culture and are potentially less likely to stick around. In a relatively short space of time there has already been a merry-go-round of lawyers among the foreign firms in Brazil. In 2010 Milbank, Tweed, Hadley & McCloy recruited Shearman & Sterling’s Brazil head Andrew Jánszky, although Milbank in turn lost its Latin America head Michael Fitzgerald to Dewey & LeBoeuf, plus a São Paulo-based associate. This could be hugely disruptive for a firm that is trying to establish some continuity with its practice in Brazil, particularly when it comes to building up relationships with local clients and law firms.

‘Some firms have practices built around one particular person and if they leave then suddenly those firms don’t have a footprint in the market,’ says Kordula.

The hedge against this risk is to maintain a good proportion of the lawyers in New York and elsewhere. While these lawyers can obviously still move between firms, they are at least leaving behind a deeper talent pool to compensate for their departure. It also leaves a greater deal of flexibility for dealing with other Latin American countries, since the majority of the work is still not directed through Brazil, in spite of the recent market shifts.

‘There is a bit of a division between Brazil and Spanish-speaking Latin America,’ says Alejandro Camacho, a CC partner based in New York. ‘We tend to cover it that way. It is slightly divided. For Brazil we cover it predominantly from New York, Washington and São Paulo. Then we have a bunch of lawyers around the globe. There are a lot of connections between Spain and Latin America, particularly in the banks and electricity.’

While Brazil has had an unprecedented and lengthy period of growth there is perhaps also still a lingering doubt as to how long this will continue. Over-committing to the country could leave a firm overexposed in case of a downturn. Given Brazil’s energy resources and infrastructure needs, as well as the upcoming Football World Cup and Olympics in 2014 and 2016 respectively, this is unlikely to happen in the near term. Nevertheless, a long history of economic volatility in Latin America means that the threat, or fear, can never fully be eradicated from people’s minds. Brazil’s size and scale has made an office worthwhile, but for the rest of Latin America, new openings seem unlikely.

‘In general, the economic cycles of individual countries have varied from each other and also have tended to be more pronounced than those in Europe or the US; having said that, we have witnessed a very robust period of economic growth across the region during the last few years,’ says Manuel Orillac, a New York-based partner in Shearman & Sterling’s 26-partner Latin America group. ‘As a result, work opportunities move over time from one group of countries to another, whether the work involves corporate, transactional or litigation matters. In my case, over the last six months I have handled matters involving Brazil, Ecuador, Mexico, Panama, Peru, and Venezuela. Except with respect to Brazil, which is a huge economy and where we opened in 2004, we have not opened other offices in the region as we can more effectively cover our clients from central locations.’

While an office in Brazil seems to be the default approach for most firms, several firms with active Latin America practices have resisted the temptation to open offices in the region, be it Brazil or elsewhere. Especially if it involves practising local law.

‘If you look at the market there are very well established, very sophisticated local firms,’ says Dino Barajas, a Los Angeles-based partner at Akin Gump Strauss Hauer & Feld, which doesn’t have any offices in Latin America. ‘The ability of a US or UK law firm to go into that market and attract the top talent is very difficult. They’re already well compensated in their local market. In most cases it started off as a family law firm so it’s very close knit. Firms going into these markets have difficulty attracting the best of the local talent, so it puts you at a disadvantage. In most cases the top talent is going to be the competition. Whereas before, firms would have provided referrals to you to boost their capabilities, but you’ve now become the competition overnight. As referral sources dry out, your ability to work with the top talent in certain jurisdictions becomes
non-existent, and this turns into a disservice to your client.’

Sleeping giants

Among the major New York firms, the only one that has a presence in another South American country is Cleary Gottlieb, which opened its doors in Buenos Aires in 2009. Even then, this was very much down to unique circumstances – brought about when partner Andrés de la Cruz, a native Argentine, decided he wanted to move his family back home – rather than an overriding strategy to be in Argentina. Having de la Cruz there has made it worthwhile, and the firm has gone on to recruit another partner for the office, but the firm is the first to admit that it wouldn’t have opened there for any other reason. Equally, the likelihood of opening in other major jurisdictions, such as Mexico, remains minimal.

‘Buenos Aires does a lot of work in the Southern cone,’ says Kordula at Cleary Gottlieb. ‘Mexico, which is our other large market, developed slightly differently. Because of the proximity to the US you can be on the ground for meetings faster. Also, the legal market in Mexico has evolved differently. The US firms that have opened in Mexico are the ones that have offices in a lot of jurisdictions around the world. They are practising local law in Mexico and competing with the Mexican firms. None of our peer US firms have opened in Mexico.’

‘A lot of it has to do with the very bad press, and in some instances it might not be a true reflection of what is happening in Mexico’

Given that Mexico is Latin America’s second largest economy, that it benefits from the North American Free Trade Agreement (NAFTA) and is the US’s third largest trading partner, it is perhaps surprising that more firms don’t have offices there. But the combination of being just a short flight away from the major US business centres, plus the fact that it isn’t a major banking centre in the same way that São Paulo has become, has reduced its appeal.

‘Mexico’s proximity makes it less of an issue,’ says Schnell at Skadden. ‘It’s not something we’re thinking about on any near term basis. It’s not part of our strategic view of the world to have an office there. In five years from now if Mexico developed into an even larger financial centre it is something we could think about.’

Recent events suggest that more firms are starting to think about it. Up until 2008, Baker & McKenzie and White & Case were the only international firms that had made any significant impression on the Mexican legal market. In 2009, Jones Day opened its doors after taking over the local firm De Ovando & Martinez del Campo. More recently, in 2011, DLA Piper and Greenberg Traurig opened offices. According to Stuart Berkson, who heads DLA Piper’s Latin America practice, the move and recruiting the team from Thompson & Knight, was fairly straightforward.

‘We’d been considering that market for a long time,’ says Berkson. ‘We worked through a lot of different alternatives. I’ve worked in Mexico for years. We know many people so it is pretty easy to survey the landscape. Legal markets in this region are big but they’re small in terms of the population base you might be going after. You have people who are coherent as groups and are interested in moving. You know people and you see the same players over and over again. It’s not like you’re going into a place where you don’t know any of the players.’

Like the other firms operating out of Mexico, the work will be done primarily by Mexican lawyers, rather than foreign partners practising foreign law.

‘We’re not big on sending lots of expatriates,’ says Berkson. ‘There may be someone from our Spanish office that may go in there because there is a huge amount of investment from Spain into Mexico. I would expect to build it up gradually with Mexican lawyers.’

With regard to the actual work itself, the stable and regular trading links with the US are especially important for firms like DLA Piper when it comes to justifying its investment into the country. Although in recent years, Mexico’s strong links to its northern neighbour have been as much a disadvantage as an asset.

‘Mexico had a number of years of difficulty, because it was so closely tied to the US,’ says Berkson. ‘Their recession in some ways was much worse, but it has been a consistent investment destination for our multinational clients. We’ve seen a significant spike of companies going into Mexico. It is also a very stable trading nation with the US. We were referring a lot of work down there, so it made sense. You read a lot of what is going on in Mexico in terms of the negatives but there are a lot of positives as well.’

If the rhetoric used by candidates in the upcoming July presidential election is anything to go by, it also looks like things might open up on a grand scale, particularly in terms of one of Mexico’s largest assets, its nationalised oil and gas industry. The current opposition candidate and frontrunner, Enrique Peña Nieto, has already earmarked Pemex, the state-owned oil company, to be opened up to private investors. When Brazil did the same with Petrobras in 2010, its $70bn share issue proved a major boon to its domestic capital markets. This would be coupled with further reforms to the Mexican energy sector and labour markets.

‘I truly hope that that is a proposition that is being taken seriously by the presidential candidates,’ says Baker & McKenzie’s Enríquez. ‘At least two of the three main candidates have been open about that. It is something that Mexico demands: to capture more investment in the telecoms and oil and gas industries. Definitely that will open a new range of opportunities for a number of international companies and I hope that that is a reality soon.’

Even without such major structural reforms, Mexico is moving in the right direction, with GDP growth averaging at about 4% since 2010. Combined with an improving US economy, it is hoped that the recovery will continue. Unfortunately this is a story that is often overshadowed by the brutal violence being waged between drug cartels and the government in northern Mexico.

‘Mexico continues to be on the right path,’ adds Enríquez. ‘If you look at the economic indicators they are very sound in terms of attracting foreign investment. We continue to be the second largest economy in the region for where foreign investment is sending its capital. We have very low unemployment. A lot of it has to do with the very bad press, and in some instances it might not be a true reflection of what is happening in Mexico.’

Latin links

The changing nature of the work is also reflective of a general trend towards increased regional trade between Latin American markets, as well as investment from Asia and elsewhere.

‘Mainly our business was with American and European investors,’ says Enríquez. ‘They were setting up their distribution networks. That has evolved dramatically. Now you have other emerging markets trying to invest in the region, such as from China and other non-traditional markets. You are now also looking at huge inter-regional trade and investment. A lot of what we call the Multi-Latina companies.’

This has been a big feature for both the international and domestic firms in Brazil, and it is also generating work for law firms elsewhere, with Colombia, Peru and Chile being among the most active jurisdictions. Firms from Spain, such as Uría Menéndez, Cuatrecasas, Gonçalves Pereira and Garrigues have also capitalised on this, because a lot of the transactions that take place in the region are done through Spanish holding companies. This is down to the fact that Spain has bilateral investment treaties with most countries within Latin America, whereas there are very few between the various Latin American countries themselves. This at least provides some protection if a deal or joint venture goes wrong.

While this increase in regional work clearly does benefit the international firms, the likelihood of them opening new offices to meet that demand is slim.

‘What we are seeing now is that a lot of the activity, both on the financing and M&A side, is regional,’ says Conrado Tenaglia, Linklaters’ New York-based US co-managing partner. ‘You have Brazilian companies buying assets in the region. You see a lot of the capital markets financing done at a regional level. It is a trend that is continuing.’ It is telling, however, that the trend isn’t affecting Linklaters’ strategy for the region. ‘We went into Brazil in 1997. We upgraded that with a co-operation agreement. In terms of the rest of Latin America the focus has been mainly in New York.’

‘You have to evaluate how big the market is,’ adds CC’s Camacho. ‘What types of work are we going to see? Is Colombia going to be mostly local market transactions or are they going to be international? How big is the legal spend, and how much more are we going to get by opening in those markets?’

In most instances, the answer to the last question is: not enough. As such, it is only Baker & McKenzie that has tried to make it work.

‘We have attempted to be in the largest economies in the region,’ says Enríquez. ‘Our model has been distinct in the sense that we operate mainly through our local attorneys, because we believe we need to know the legal system and the culture. We need to have our roots cemented in the region we operate. We don’t operate a colonialist approach like some of the other firms do. We operate only with local attorneys.’

Baker & McKenzie at least has the advantage that it has been operating in the region for over half a century, so it can leverage off relationships that will in some cases go back generations. Others don’t have that history and they certainly don’t want the expense that a local office will entail. Nevertheless, this local understanding is critical for establishing strong business relationships with clients. Most firms entering the region understand this, but obviously it isn’t something that can be achieved overnight. The simplest option is to piggyback off local firms that have been operating in the market for generations; firms that might have relationships with the major institutions that go beyond the usual law firm/client dynamic.

‘We feel it is a very sophisticated market and hence the way we operate in the market is by partnering with local law firms with whom we have built strong links over the years. The local firms have the local knowledge and connections needed to operate in these markets,’ says Sonia Velasco, a partner at Cuatrecasas.

Ways of doing this include establishing formal networks, or more informal and loose best friends relationships. Spanish firm Garrigues has taken the former route by establishing a formal alliance called Affinitas, which is spread through Latin America, including firms in Argentina, Chile, Colombia, Mexico and Peru.

‘Latin America is a big group of countries with very different economic and political relationships,’ says Antonio Bulnes, Garrigues’ São Paulo-based partner. ‘A Latin America presence can be built if you have a very strong local presence in each of the countries, but you have to act locally. In relation to Affinitas, they continue to be our desired strategy.’

For some, even this approach can be too limiting, since a formal relationship will potentially restrict your ability to get the best advice in the market. ‘When I work in Mexico I may work with six or seven different law firms depending on what their skills are,’ says Barajas at Akin Gump. ‘Depending on what is the right tool for the right project. It ends up being more efficient and more cost-effective and you end up getting a higher standard of work for your client.’

Branching out

The Latin American firms are themselves considering whether it’s worth expanding on a regional basis. Some pioneers have already taken that route, albeit on a fairly small scale. In Central America, Arias & Muñoz has a network of offices in Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama. In South America, the Uruguayan firm Ferrere Abogados has expanded into Paraguay and Bolivia. Given the increasingly regional nature of the work, most in the market agree that it is only a matter of time before a firm attempts to expand on an even larger scale.

‘If I compare it to 25 years ago when I started with the profession we are no doubt much more integrated than we were, and of course Brazil has a very important role in this,’ says Valdo Cestari de Rizzo, one of the founding partners at the Brazilian firm Lobo & de Rizzo Advogados. ‘Once trading issues are resolved or stabilised I see the lawyers getting together as well. The accounting firms are all united in South America. They are already integrated in spite of regulation. It will happen to lawyers and you just need to see a business reason for that.’

Given the fact that Brazil remains the focal point for much of this regional work, however, it will realistically be down to a Brazilian firm to take the plunge. Yet in this instance, the same Bar rules prohibiting foreign firms from working with Brazilian firms on local matters, would apply to Brazilian firms who advise on local matters elsewhere. Even if the Bar rules weren’t an issue, not everyone feels it would be the right direction to take, regardless of who the merger partner was.

‘If we ever thought it made sense to merge, the regulatory issue would apply in Brazil if we merged with a Colombian firm,’ says Daniel Calhman de Miranda, a partner in the New York office of the Brazilian firm Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados.

‘It is generally not a great proposition. Say you’re senior partner at a Colombian firm – the clients love you, you get to decide where to focus your time, you’re financially comfortable. So what is the point of joining some other firm where you are now going to have to be accountable to some guy in São Paulo, New York or London, essentially to do the same work in the same market where the profitability within the market hasn’t changed? You’re not going to turn around to a local client and say the rates are now doubled because we’ve joined a UK firm.’

In a recent partner retreat, the Brazilian law firm Pinheiro Neto Advogados actually had an open discussion over whether to pursue this strategy.

‘We were thinking whether or not we wanted to expand to other Latin American countries,’ says Marcelo Viveiros de Moura, a corporate finance partner at the firm. ‘At the end of the meeting we decided we want to remain the way we are. We like the models of Slaughter and May and Wachtell, Lipton, Rosen & Katz, rather than the model of a firm that has lots of different franchises in lots of different countries.’

Even within Brazil it seems that the multi-office approach has caused problems for some firms. ‘There are firms that try and open in different states of the country and that hasn’t so far been such a successful experience,’ adds de Moura. ‘Many have closed down.’

Since most of the work is being directed through Brazil anyway, for the time being at least, Brazilian firms can afford to take a fairly conservative approach. It is a fact not lost on the largest firms, who see themselves as clear beneficiaries of the way corporations and banks structure their Latin American operations. This is illustrated by their M&A activity over the past year, where they are ever present features on the tables, both in terms of deal size and volume.

‘We do have an advantage in the sense that we are working for a Brazilian bank that wants to start having larger operations in other South American countries,’ says de Moura. ‘We co-ordinate the work and have local firms together with us on the local law. The local transactions will be made under local law, but perhaps the client would like someone they know to co-ordinate the work.’

‘The size of the Brazilian operations of large international corporations naturally makes them become the hub for the continent,’ adds de Rizzo.

The only instance where it has paid to have a satellite office abroad is in major centres such as New York. In the case of Mattos Filho, it has considerably boosted the firm’s ability to build relationships with investors in the US.

‘The goal here is rather modest. It is to more actively engage our peers in New York, as well as our clients,’ says Calhman de Miranda, who is in the fifth year of a six-year rotation in New York. ‘It helps to meet halfway. We’re representing Blackstone, which wasn’t a client before we got here. We’re doing work for other private equity and venture capital funds that are going to Brazil for the first time. This was all through the New York office.’

The returns, according to Calhman de Miranda, have made the costs worthwhile. ‘It is a matter of scale,’ he adds. ‘Setting aside partner compensation, the operating costs are less than half a per cent of our total firm-wide operating costs. Here I’m at 75% of the billing level that I would be in Brazil.’

Conversely, this is precisely why most firms are in a major centre like São Paulo. If there is going to be a hub for Latin America, São Paulo is realistically the only geographically worthwhile place it can be. Even with such a Latin American office, most will still service the local law matters out to domestic firms, rather than establish a hub staffed with local lawyers.

‘It’s tough to pin a flag in one jurisdiction and hope for the long term that it is the jurisdiction to be in,’ says Barajas. ‘If you try and staff your deals in Central America from the Mexican office, it isn’t going to work. If you’re a client in Honduras, to have a Mexican lawyer show up and the only common factor is that they speak Spanish, it doesn’t match up.’

‘It’s tough to pin a flag in one jurisdiction and hope for the long term that it is the jurisdiction to be in’

In the meantime, the hope is that the current growth can continue for some time. Most market veterans know that there have been similarly bullish moments in the past, only for it to come crashing down around their feet.

‘One thing you can always count on in Latin America is ups and downs,’ says Camacho at CC. ‘In the early 1990s it was going crazy. It really seemed like these economies were going well, and then the Mexican peso crashed. I don’t remember there ever being a ten-year period of consistency, my sense is that it is usually a three-to five-year period of consistency. There is now a lot of optimism.’

If the good times continue for a while, most firms should be able to make the investment worth their while, especially since their physical commitments haven’t been that large. In this respect, it could be argued that the restrictive Brazilian Bar regulations could be a good thing in the long term, forcing them to stay their hand rather than being overly exuberant and paying for it further down the line when things turn sour.

‘I’ve seen it in jurisdictions where the market looks attractive to firms because they are trying to hedge their bets against what is going on in their own markets,’ says Barajas. ‘The issue for some firms is that it ends up being a knee-jerk reaction. They try and get to the party while the party is still there. Unless you’ve really thought through the strategy, instead of getting the quick hit, you are doomed to fail.’

When it comes to picking the correct strategy, it doesn’t even have to be that complicated. Baker & McKenzie followed Abbott Laboratories down to Venezuela, and 57 years on it is still advising the pharmaceutical giant on its local issues. As a template for how to approach new and potentially volatile markets, it is one that most firms would do well to follow.

anthony.notaras@legalease.co.uk