In spring 2018, Legal Business found the Madrid legal elite still recovering from a jolt that unsettled the local establishment. As one of the best-regarded deal makers in Spain, Juan Picón had at the end of 2017 given up his role as DLA Piper senior partner to join Latham & Watkins as Madrid head and Latin America co-chair.
Off the back of three consecutive years of GDP growth above 3% and mounting interest from international investors, Spain had been moving back onto the radar of leading international firms – the list of those stepping up investment in the country going well beyond the US giant to range as wide as Allen & Overy (A&O) to Fieldfisher. Some believed signs of renewed investment would shake up the staid local talent market and bring fresh challenges to the elite independents – Uría Menéndez, Garrigues and Cuatrecasas.
Coming back to the market one year on, things have indeed been moving at an increased pace. But not always in the expected direction.
First, the economy gave less promising signs. While Spain remains the fastest-growing large economy in Western Europe, its growth rate has slowed, GDP rising by 2.5% in 2018 and by a projected 2.1% this year according to the European Commission. M&A activity remained healthy in 2018 but amid an unpredictable general election at the end of April 2019, some speak of a recent slowdown.
‘Years in which we have a general election tend to be strange,’ notes Freshfields Bruckhaus Deringer’s José Armando Albarrán. ‘Sometimes people postpone decisions.’
All this while Spain is still dealing with the unrest in Catalonia. The background to political upheaval is increasingly familiar across Europe: a two-party system fragmenting as nationalist parties strengthen their hand. The country remains divided after the unconstitutional referendum in October 2017 in which a majority voted for the Catalan region’s independence. And while the separatist leaders face trial in Madrid for breaking constitutional law, the list of businesses relocating keeps growing, challenging the role of Barcelona as one of the country’s key legal centres alongside the capital.
It was also a difficult year for capital markets, with a number of listings postponed or cancelled altogether. The most significant was Spanish energy giant Cepsa in October 2018 pulling an IPO valuing the company at €8bn within a month of announcing its plans.
Indeed, some advisers are feeling the heat. Linklaters’ Madrid arm, which has capital markets as one of its core strengths, was for the first time in many years not expecting to finish the year ahead of budget. Also hit by the loss of well-regarded real estate partner Rafael Molina to Latham, rivals point to a lower profile than usual on the country’s major deals. Linklaters dropped from second to 12th in Mergermarket tables for Spanish deal value in 2018, while also losing seven positions for deal count – from eighth to 15th.
‘One of the reasons we have full endorsement of the management in London is that we are completely self-sufficient in revenue and profits.’
Antonio Vazquez-Guillen, Allen & Overy
But at least for now, such challenges do not threaten its image as the top Magic Circle operator in the country, counting Permira, The Carlyle Group, Centerbridge and Apollo among clients. And the commitment of its London management to the country seems unchanged with the 130-lawyer practice seeing three promoted to partners in the latest round.
Yet even if the caution is more evident than 12 months ago, across more than a dozen interviews, Legal Business is still hearing a lot of enthusiasm for the market’s medium-term outlook.
Clifford Chance (CC)’s Spain head Jaime Velázquez speaks for many when he says: ‘I have the highest expectations. A lot of people are saying the crisis is around the corner but we have had one of the best years and the expectation is again of a very good year.’
The country remains hugely attractive for foreign investors and private equity houses, not least because its Western European neighbours are dealing with more serious challenges – Italy with an even more unstable political landscape, France with more disruptive social unrest, Germany with a slower GDP growth… not to mention what’s happening north of the Channel.
The crucial real estate sector remains active, with tens of billions in assets still to be sold. And there were rich pickings for the local M&A counsel as a consortium of Italy’s Atlantia, Spain’s ACS and Germany’s Hochtief completed the acquisition of Spanish toll operator Abertis for €16.5bn in October 2018 after 18 months of negotiations. The deal kept busy most of the local elite, from CC to Freshfields and Linklaters, from Uría to DLA.
Latham, meanwhile, lived up to its promise of triggering more action on the lateral market. Picón’s former colleagues Ignacio Gómez-Sancha and José Antonio Sánchez-Dafos followed him, alongside DLA former competition head José Maria Jiménez Laiglesia and a ten-strong Linklaters real estate team.
In just over a year, lawyer headcount has more than doubled from 18 to almost 50, with Latham moving to larger premises in Madrid which can host up to around 90 lawyers. Latham was at the time of writing looking to add a litigation partner to complete the current phase of expansion: ‘After that, we will be opportunistic but there is nothing on the cards,’ says Picón. ‘We need to consolidate the team because there are a lot of new people.’
While locals say the firm still has to make an impact when it comes to putting its name on top mandates, no-one doubts the team’s ability to generate business. Latham has significantly (and uncharacteristically) also agreed to allow its Spanish branch to be flexible on rates while it builds its brand locally, with one competitor observing the firm is ‘very aggressive’ on fees.
Latham’s movement has prompted others to react. Contrary to a year ago, partners generally recognise that it is too early to proclaim the end of DLA as a full-blooded local player. The firm retained its role advising the buyers on the Abertis acquisition, and while it kept both lawyer headcount and revenue flat in 2018, at around 80 and €30m respectively, partner headcount rose from 16 to 21. Laterals included the well-regarded head of corporate José María Gil-Robles from Garrigues and litigation partner Borja de Obeso from Gómez-Acebo & Pombo. Madrid head Pilar Menor says the firm managed well what was ‘a very intense crisis management exercise’.
‘Money is still flowing to Spain for the time being.’
Salvador Sánchez-Terán, Uría Menéndez
The other clear growth story alongside Latham is A&O. Traditionally the weakest Magic Circle firm in Spain, it has embarked in an expansion of its Madrid operations – a project conceived around five years ago but one that took some convincing of a sceptical London partnership.
Last year the firm moved premises, increasing its office space by 30%. The team grew from 100 to 110 lawyers in 2018, while revenue increased 15% to around €43m and the firm gained five positions in Mergermarket tables for deal value and volume – to third and eighth place respectively. Well-regarded local co-head Antonio Vazquez-Guillen plans to reach 130 over the next two-three years.
Laterals included Hogan Lovells’ employment partner Silvia Bauzá last year and Ashurst’s local banking head Juan Hormaechea in 2015. But the key addition was former Cuatrecasas’ M&A partner Fernando Torrente in 2016, who by consensus changed the image of A&O’s deal muscle in the country.
While some argue that a practice that size will be forced to act on some lower-value mandates in the domestic mid-market, Vazquez-Guillen says it is a very profitable operation and a net contributor to the A&O network: ‘One of the reasons we have full endorsement of the management in London is that we are completely self-sufficient in revenue and profits.’
With less clamour, CC is growing its team too. The longest-standing and largest Magic Circle firm in the country increased its headcount from 130 to 143 last year across Madrid and Barcelona. Until recently, it would have been regarded as the foreign player to beat in Spain. But it will take some time for CC to regain ground lost with the retirement of several rainmakers over the last few years, including public law head Juan José Lavilla in 2018. The firm remains formidable in finance and IP, and Velázquez says it can afford to grow further: ‘We were able to diversify our business and do some work that international firms are not doing in Spain: for example, derivatives and structured finance.’
Bucking the trend among the Magic Circle is Freshfields, which is keeping its headcount at around 70, a far cry from a pre-crisis peak of over 100. Albarrán insists it is making a success of its lean team and the firm has the same turnover as its peers with far fewer lawyers. It was second for deal value in Mergermarket’s 2018 table, despite remaining out of the top ten for deal count. But the growing pull of Spain travels well beyond London’s big four.
Fieldfisher completed a three-year search to combine with Catalonia-bred JAUSAS in September 2018, the team growing from 60 to around 120 across Madrid and Barcelona in the following six months. Pinsent Masons, meanwhile, launched in Madrid in May 2017 with 15 lawyers and has since hit 40 with a plan to get to 80 within the next three years. (Pinsents settled last summer a nine-month dispute with Ramón y Cajal after the latter accused it of breaking previous agreements by hiring four of its lawyers following unsuccessful merger talks.)
Rises and falls
Expectations that the profession would get more fluid among Spanish independents have not been disappointed either. Several lawyers point to a clearer segmentation among the country’s big three independents, while Peréz Llorca has emerged as a strong local challenger to their dominance.
Slaughter and May’s local ally, the 602-lawyer Uría, remains established as Spain’s elite independent for high-end work. It topped Mergermarket 2018 table for deal value, despite a slower revenue growth of 2% to €240.7m compared to 6% in 2017 amid a more difficult year for some Latin American jurisdictions (it owns a 30% stake in Philippi Prietocarrizosa Ferrero DU & Uría, a firm formed in 2014 through a merger of Colombian and Chilean practices).
The larger Garrigues, whose revenue was also up by 2% to €364.6m and tops Mergermarket table by volume, retains a strong Madrid team including well-regarded managing partner Fernando Vives and corporate co-head Álvaro López-Jorrín Hernández. But rivals point to a low revenue per lawyer (RPL) and varying quality among the 1,462-lawyer firm’s huge network of 18 Spanish offices. While its overall RPL sits at €249,000, Vives points to a much higher figure in the Madrid corporate department, where the average is €470,000.
The country has proven a reliable return on investment for foreign firms for 20 years now. It certainly helped that London lawyers have been able to rub along with Spanish counterparts better than French and German.
But the firm facing the biggest challenges is Barcelona-bred Cuatrecasas. The most exposed to the unrest in Catalonia, several rivals speak of unhappiness among its Barcelona partnership as the firm focuses on growing its Madrid business.
Among its five partner hires in the capital in 2018-19 was Spain’s former deputy prime minister Soraya Sáenz de Santamaría. Described as one of the main champions of the former Spanish government’s hard opposition to Catalonia’s independence, the move has been linked to the need to sell Cuatrecasas’ image as a loyalist.
Managing partner Jorge Badía rejects those suggestions and denies tensions within the partnership, linking Sáenz de Santamaría’s hire to the growth in its Madrid corporate governance and compliance practice. ‘We agreed that we have a strong position in Barcelona and we have more opportunities of growth in Madrid.’ Critical comments should also be put in context of robust growth for the 2018 calendar year: working for clients including carmaker Volkswagen, it hiked turnover by 12% to €277.4m.
Despite Cuatrecasas’ position indicating that the attraction of Barcelona for law firms is in question, the city retains much drawing power for TMT-centric advisers. ‘You have to remember that Catalonia is around 20% of Spain’s GDP,’ says Fieldfisher’s Agustín Bou. ‘Biotech companies are very attractive to investors, and many of them are based in Barcelona.’ Likewise, Osborne Clarke – fielding a 90-lawyer national practice – keeps its Catalan arm as its largest Spanish team at around 75 lawyers and has Barcelona-based pharma company Grifols among its largest client.
If it is clear that there are more challenges ahead than anticipated a year ago, the local community has plenty of reasons to remain bullish. While a smaller economy than France and Germany and one that has seen its share of challenges over the last decade, the country has proven a reliable return on investment for foreign firms for 20 years now. It has certainly helped that London lawyers have been able to constructively rub along with Spanish counterparts better than with French and German equivalents.
‘Ten years ago, if we had a problem with elections it affected the business immediately. Now it’s different,’ concludes Garrigues’ Vives. And Uría head Salvador Sánchez-Terán concludes: ‘Money is still flowing to Spain for the time being.’ Barring a disastrous fallout from the election, that flow is set to continue. LB
marco.cillario@legalease.co.uk
Portugal – Calm in the storm
Ever impacted by developments in its larger Iberian neighbour, Portugal’s profession shares Spain’s hopes and concerns. As with Spain, economic growth slowed – from 2.8% in 2017 to 2.1% in 2018 and to a projected 1.7% in 2019 according to the European Commission. A general election planned for next October is likely to increase uncertainty.
Reliant on Lusophone Africa for a substantial part of their revenues, Portuguese advisers also had to deal with economic and political turmoil in Mozambique and Angola.
One of the country’s top three independents alongside PLMJ and Morais Leitão, Galvão Teles, Soares da Silva & Associados, Vieira de Almeida & Associados (VdA) saw its growth slow last year. After breaking the €50m barrier for the first time in 2017, its turnover was up by 2% to €52m in 2018 as revenue from the international network was broadly flat after five consecutive years of double-digit growth.
Yet the locals profess themselves upbeat. ‘Portugal is in fashion,’ says Raposo Bernardo’s Iberia corporate and M&A head Joana Andrade Correia, whose firm regards itself as a challenger to the top three. ‘Foreign investment is growing every year. Banks are more prepared to finance investors. We follow our clients that go abroad and they also had great operations.’
‘Last year was one of the best years we have had,’ adds Miranda partner Alberto Galhardo Simões. ‘We had very interesting transactions and big company privatisations.’
A sign of both the growing interest from foreign investors in the country and the challenges still facing them, China Three Gorges Corporation launched last year a €9bn bid for a majority stake in energy company EDP Energias de Portugal – before the deal got stuck in regulatory hurdles amid increased scrutiny over Chinese investment.
Another validation of the optimism of Lisbon lawyers might come soon. Portugal has long been ignored by the international legal elite, the only relevant exceptions being the Spanish firms, and local outposts of Linklaters, DLA Piper and CMS. But there are signs that Dentons might be soon to join them, with the firm believed to be in talks with a number of local players to add a Portuguese verein member to its huge network. VdA’s João Vieira de Almeida concludes: ‘2018 was a very good year, but I expect 2019 to be much better economically and much more interesting.