Legal Business’ last deep delve into the Irish legal market revealed a country on the rebound. Since the country’s exit from a bailout package cobbled together by the European Commission, the European Central Bank and the International Monetary Fund, the island of Ireland had proven itself robust.
By 2019 that recovery looked even more assured: GDP grew a strong 5.5%, making it six consecutive years as Europe’s fastest-growing economy. For comparison, Hungary was closest last year to matching its pace with a growth of 4.9%. Sure, the persistent gnaw of uncertainty could be felt as Brexit loomed ever larger, but the feeling was after years of forewarning, Irish business was as prepared as it could be in the face of a tumultuous but manageable 2020.
Of course, no country was truly prepared for what 2020 would bring. The spread of the novel coronavirus Covid-19 saw the Irish government encourage homeworking, place a ban on mass gatherings, and close schools as early as 12 March. By 24 March this turned into a complete national lockdown, grinding the country to a halt.
The resulting economic havoc forced the government to introduce a fiscal stimulus package to offset a surge in unemployment, including the creation of the Temporary Wage Subsidy Scheme. The scheme has since been extended in the form of the new Employment Wage Subsidy (EWS) until 31 March 2021. Meanwhile, concern for Dublin remains widespread, with the city’s prioritisation of middle-income public sector employees and suburban shop-goers over its lower-income residents proving damaging as the former stay clear of the urban centre.
‘It hasn’t been a V-shaped or U-shaped recovery, if anything, to the extent there has yet been a recovery, it’s been a bit of a W.’
Nicholas Butcher, Maples and Calder
But underestimating Ireland always proves to be a mistake. Even now the country is showing its strength, with the country’s 6.1% reduction in the economy between April and June half that of the average 12% contraction across countries in the eurozone (the caveat being it is still larger than the 4.7% reduction the country saw in the wake of the 2008 financial crash). The European Commission is expecting Ireland’s economy to contract around 8.5% in total across the year, still below the eurozone average.
Much like in London – where many managing partners are pinching themselves as their businesses continue to perform better than anticipated – the Irish legal market is replicating the country’s wider defiance. Having weathered the initial storm, the question is for how long can Dublin’s legal sector keep it up?
‘We haven’t seen any of the easy-to-interpret letters you can wrap around the conjectures as to the recovery,’ says Nicholas Butcher, managing partner of Maples and Calder, the Maples Group’s law firm in Ireland. ‘It hasn’t been a V-shaped or U-shaped recovery, if anything, in our experience, to the extent there has yet been a recovery, it’s been a bit of a W.’
Performances in transactional circles in particular have not conformed to any convenient narrative. Some of the firms Legal Business spoke with reported an unusually busy spring which then tailed off in August; others told of a period in April/May which seemed to confirm the worst but deals rebounded in a surprisingly busy August as clients forwent their usual summer holidays.
Meanwhile, a handful of firms suggested things only really starting picking up in the beginning of September. Undoubtedly the Dublin deal machine was temporarily unplugged, with 65 deals amounting to €2bn across H1 marking a 29% and 26% drop in deal volume and value respectively. But here too Ireland remains defiant: globally deal volume and value fell by 49% and 52% respectively in the same period, according to data obtained from Mergermarket.
While different firms have had varying experiences, most feel they have endured. Barry Devereux, managing partner of Irish independent McCann FitzGerald, summarises the mood: ‘In March/April time the consensus forecasts for the world and domestic economies were just terrifyingly awful, the likes of which we were warned the world had never seen before. But here we are mid-September and things aren’t anywhere near as bad as they looked in March/April; there has been a contraction in business all right but we have been surprised at how resilient business levels have been from early summer. If you gave me this position four months ago, I’d have gladly taken it.’
‘Mid-September and things aren’t anywhere near as bad as they looked in March/April. If you gave me this position four months ago, I’d have gladly taken it.’
Barry Devereux, McCann FitzGerald
McCann has a financial year ending in March, meaning the firm’s last full set of financials were mostly unaffected by the pandemic apart from a glancing blow to its year-end. Of course, the downside is the firm is currently in the midst of a financial year entirely impacted by Covid-19. But the temporary suspension of economic life has still given rise to different opportunities: in July the firm acted alongside Clifford Chance in advising on a $6bn debt standstill with over 85 lenders for Nordic Aviation Capital.
At William Fry, things unfolded slightly differently. The firm’s last financial year ended in December 2019 after a strong showing that saw disputes and Brexit-related regulatory work provide an uptick, which continued into the following year. ‘For 2020 we started the year very strongly, we were set for our best first half of a financial year,’ says managing partner Bryan Bourke. ‘But obviously things have changed since then. Our April/May was strong due to the work coming through from Q1, it was the summer when things got very quiet, though it is picking up again now.’
Declan Black, managing partner at Mason Hayes & Curran, says of the shape of the business: ‘In light of everything? It’s okay. Comparing with normal? It’s a tougher year. It looked like we were powering ahead but by the first week of March people were getting nervous, we went into lockdown on 12 March and it’s been difficult since.’
Arthur Cox managing partner Geoff Moore echoes: ‘Our financial year, which ends 30 June, was not as strong as we had forecast before the pandemic hit but, under the circumstances, we were reasonably pleased with how the financial performance held up for the last quarter of our financial year.’
Since the start of the crisis Arthur Cox has managed to secure significant mandates, including advising Irish-based drug maker Allergan on its $63bn acquisition by AbbVie. Arthur Cox was joined by Wachtell, Lipton, Rosen & Katz in advising Allergan while Kirkland & Ellis and McCann FitzGerald acted for Abbvie. While the flow of transactions has been lumpy since March, firms with significant technology, life sciences, and pharmaceutical clients have still managed to secure lucrative mandates. The hope in the market is these areas will remain busy throughout the autumn.
A&L Goodbody is another firm that inherited a strong platform from 2019. A record year culminated in a robust last quarter, which spilled over into the first three months of the 2020/21 financial year. Business has since recovered from a slower August to keep lawyers busy in September, with litigation and advisory work in particular seeing a healthy uptick.
‘2019 seems about a decade ago,’ A&L Goodbody managing partner Julian Yarr jests. ‘We had a very strong 2019, the financial performance was strong. We had an incredibly strong last quarter and we were really happy with the first three months of this year. We’ve been surprised how consistent the business levels stayed right to the end of July.’
‘In light of everything? It’s okay. Comparing with normal? It’s a tougher year.’
Declan Black, Mason Hayes & Curran
Walkers is another firm which is well placed off the back of a strong 2019. Says managing partner Garry Ferguson: ‘The most positive outcome of the year can perhaps be easy to overlook: our staff remain healthy and managed to avoid Covid entirely. As a business we are used to exponential growth – last year for example revenue grew 18%. This year revenue has been flat but thankfully has not fallen so it has been a year of consolidation for us.’
However, the long-term picture remains hard to visualise. Says Dillon Eustace managing partner Donnacha O’Connor: ‘With Covid there were no fundamental liquidity issues and banks were still lending, so in that sense it was different to the last financial crisis. Transactions were basically suspended but looking back that was more of a dip between March and June. The flipside was advisory work; investment funds with clients moving asset classes; and big demand for private credit for lending, which all saw upticks. Transactional and litigation work then rallied as things went back to normal. The big question now is whether things will keep returning to normal or if we go back to where we were with another lockdown, then of course it’ll all happen again.’
Fully hedged
While transactional activity has been inconsistent, O’Connor’s sentiments reflect the wider feeling in the market that deals from the first half of 2020 have either been completed or abandoned. The relative stability of equity and credit markets has been a salient factor in getting the completed deals over the line as clients can appropriately price assets.
As a result, firms have been able to resume work on their existing pipeline of matters, but what remains to be seen is the surge of work that is a direct consequence of the Covid-19 pandemic – in particular insolvency, restructuring, examinership, and litigation matters.
While post-Lehman was very much a financial sector crisis, Covid-19 is a deeper economic problem and – while Ireland remains admirably resilient – sectors of its economy are in crisis. The Central Statistics Office reported that between April and June, sectors focused on the domestic market took massive hits: the construction industry shrank by a staggering 38% while the distribution, transport, hotels and restaurants sector contracted 30%.
‘As a business we are used to exponential growth – last year for example revenue grew 18%. This year revenue has been flat but thankfully has not fallen so it has been a year of consolidation for us.’
Garry Ferguson, Walkers
Swathes of restructuring and insolvency work remain inevitable, particularly as state support tapers off, which it inevitably must. Explains Beauchamps managing partner John White: ‘There’s always a time lag in relation to restructuring and insolvency. It gets up a head of steam when the banking support is not available. You would expect that work to increase in the coming months.’
Devereux adds: ‘The big wave of insolvency and restructuring has not yet happened. Most banks are not generally enforcing at the moment, they’re waiting to see how it plays out, especially when the large-scale State support is withdrawn.’
That is not to say some of this work has not already started. Dublin-based airline CityJet had its survival scheme formally approved by the High Court in August, meaning the business could exit its examinership – overseen by KPMG – and continue as a going concern with approximately 400 jobs retained.
‘Law firms are lucky,’ says Black. ‘It’s going to be tough but we’re not retail, we’re not leisure. What is bad for law firms is when nothing happens and there’s stasis, in a period of crisis there is a lot of legal work to be done. I am reasonably confident from a legal services perspective we’ll be alright.’
The experience of 2008 provides Irish firms with something of a playbook on what lies ahead. While the two crises are very different, both demonstrate the need for quality counter-cyclical practices. Ireland is about to be awash with work synonymous with an economic downturn.
‘We have spent a lot of time and money to make sure we’re hedged,’ says William Fry’s Bourke. ‘In the last financial crisis, we had a lot of reliance on transactional practices but we have spent time and money to build out our financial services piece and our regulatory piece. What we found was the work with government bodies continues when everything else was dying, we are very well placed to deal with what comes out of this.’
Who remembers Brexit?
‘It’s almost refreshing to talk about Brexit again,’ declares Black – in perhaps unshared sentiments. ‘When the withdrawal agreement was first published we thought “OK, maybe we can move forward sensibly,” but the British government’s position of “our bargain is not our bargain” is problematic. How do you negotiate with a country that cannot keep its bargain?’
It is a question which has seen Brexit return to the forefront of business conversation at a time when Covid-19 is not allowing much space for other topics. The debate around the Internal Markets Bill and its passage through The House of Commons has proved invidious to say the least – unsurprising as the Bill seemingly places the UK at odds with international law.
‘Covid-19 and Brexit are likely to cause a downturn but in light of Brexit the hope is Ireland will look like an attractive place to do business. Covid is seen like the greater threat in the short term.’
June Hynes, OBH
The Bill is unlikely to be debated in the House of Lords and returned to the Commons until close to the deadline for a potential no-deal Brexit at the end of the year. Should it pass, it would allow the UK government the right to unilaterally interpret rules that stipulate Northern Ireland must follow European customs and subsidy rules after Brexit, in essence altering the existing divorce treaty agree with the EU. European Commission president Ursula von der Leyen confirmed in early October that the EU had given a letter of formal notice to the UK, which could eventually lead to a court case. The UK was given until the end of November to respond to the concerns raised.
Despite pushing Brexit up the agenda once again, firms in Ireland appear to be surprisingly bullish on the topic. ‘We have lived with Brexit for a long time now, no legal practice in Dublin is complacent about it,’ says June Hynes, founding partner of OBH Partners. ‘Covid-19 and Brexit are likely to cause a downturn but in light of Brexit the hope is Ireland will look like an attractive place to do business. Covid is seen like the greater threat in the short term.’
Moreover, the relative resistance Ireland has shown throughout the Covid-19 pandemic has given some reasons to be optimistic about the long-term future after Brexit. Exports in particular have remained strong, and played a significant part in offsetting the pandemic’s impact on the Irish economy. Between April and June, overall industrial output grew by 1.5% in volume terms, helped by exports from the globalised sector of the economy.
A&L’s Yarr suggests most of the important Brexit-related work is done: ‘A lot of the heavy lifting, from an Irish law firm perspective, was advising financial institutions on their structures and licences, and the vast majority of that is done. The second piece is what impact would a no-deal Brexit have on trade from Ireland into the UK, and there is a lot of advisory work there, but most of the work has been done.’
Meanwhile, for some the mood is more like belligerence. Says Devereux: ‘We’re surviving the big economic damage wreaked by Covid, and while a no-trade deal Brexit looks increasingly likely at this point we’re saying: “OK, if we have to face that kind of Brexit, so be it. And you have to ask yourself. how much worse than Covid could it be? It’s not now looking like the big beast it was back at the beginning of the year.’
Another reason for a degree of optimism is the sectors that have continued to provide activity throughout Covid-19 are the ones many bank on remaining strong in a no-deal Brexit scenario. Financial services, technology, and pharma have all continued to provide mandates and are all capable of driving the Irish economy post-Brexit.
However, the legal industry in Ireland is under no illusions. Positives include an uptick in regulatory work and Ireland being the only English-speaking jurisdiction left in the EU, but the overwhelming consensus is a no-deal Brexit will be damaging for Ireland. In particular there are fears around food and agriculture – industries deeply tied with the UK economy.
‘We have spent a lot of time and money to make sure we’re hedged. What we found was the work with government bodies continues when everything else was dying, we are very well placed to deal with what comes out of this.’
Bryan Bourke, William Fry
Meanwhile, in September of last year the Organisation for Economic Co-operation and Development (OECD) warned that, outside of the UK, Ireland would be the worst-hit country in a no-deal scenario. The warning is stark enough, but worse still when contextualised: the OECD’s assessment was based on a ‘smooth adjustment’ and was made before Covid-19.
As for Dublin’s ambitions as a disputes hub following the UK’s departure from the EU, firms anticipate a modest increase in cases, but nothing that could resemble a serious threat to London’s position. It does, however, remain high on the agenda for the Irish legal profession, as well as the government and the Industrial Development Authority.
‘We recognise London is the prime disputes hub in this part of the world, and Dublin is not going to change that,’ says William Fry’s incoming managing partner Owen O’Sullivan. ‘Absolutely Ireland has pushed itself as a disputes and arbitration hub and we have seen some growth there but we don’t see it replacing London or making a major dent there. There is a government-backed initiative to see that more legal work makes its way to Dublin in light of Brexit, including disputes work but also non contentious work.’
One of Brexit’s more immediate impacts was a slew of international firms entering Dublin as a means to retain access to the EU market. Fieldfisher, DLA Piper, Clyde & Co, Shepherd and Wedderburn, Lewis Silkin, and Simmons & Simmons are among the firms to launch in the city since the 2016 referendum, with the degree of their impact still a topic of debate.
Currently the feeling among Irish independents is one of relative indifference towards their international counterparts who, for the time being, are not treading on their toes. Maples’ Butcher addresses the dichotomy: ‘While other Irish firms have really good people and do really good work for great clients, the majority of their work usually has a domestic focus only. The Maples Group is part of a much wider global network and we advise both domestic and international clients. International firms operating here are catering to different markets and absolutely, there is space for both. I would never say we are better than other Irish firms, but we are absolutely different from them.’
However, the increasing number of firms in Dublin is not matched by an increasing amount of work; eventually these two groups of firms will be forced to be more sharp-elbowed. ‘We have lived with new entrants for a long time in Ireland and we are not fearful, mind you we are not complacent either,’ says Hynes. ‘With firms like ours, it sounds like a cliché, but you really do get lots of partner access. There isn’t a new face on every transaction and there is a continuity, which clients like. There are lots of new entrants in Ireland but the pool of work is not growing, in the short term at least.’
And some international firms have made deeper inroads than others. DLA Piper is the oft-mentioned pacesetter, with the firm securing significant talent at the expense of independents since the firm’s arrival in Dublin. Last year it hired four partners in the city: Conor Houlihan joined from Dillon Eustace to lead DLA’s finance and projects practice; Éanna Mellett joined as a corporate partner from Matheson; while former A&L Goodbody partners Mark Rasdale and Ciara McLoughlin joined the intellectual property and technology and employment practices respectively.
One managing partner of an Irish independent notes: ‘I don’t really see the impact from international firms, what they say and the confident noises they make is not matched by what they do. DLA has made a good fist of it, whether that is reflected in making money here or not is another matter, but they’ve hired good people.’
But not all international firms are branded ‘new entrants’. Eversheds Sutherland has a longer history in Dublin, having had a presence in Ireland for over 15 years. According to its managing partner in Ireland, Alan Murphy, the presence of newer international firms only strengthens its position: ‘We are in a fairly unique position now, in that it’s been a dynamic few years in the Irish legal market. In those years, a number of international firms have entered the market. We are the largest global firm in the island of Ireland, and those entrants have actually been good for us as it solidifies the concept of a global firm in Ireland to our clients.’
Trust the process
Brexit may be why many international firms are in Ireland, but Covid-19 represents a new variable in their development in the jurisdiction. The consensus as things stand is the abundance of resource behind big international players means they can weather any future economic disruption, while independent firms feel their years as trusted advisers means they will prove equally resilient.
‘The strategy of international firms tends to be a long-term one so I don’t see the Irish entrants of recent years suffering too much from the economic contraction of the last six months in Ireland, says Devereux. ‘They’re here because they see increasingly large amounts of global players doing business through Ireland and they want to follow them here to where the action is. For those with HQ struggles of their own brought on by Covid, they may retrench here if they hadn’t envisaged the Irish office as central to their global ambitions but I expect for most if not all those here right now I doubt their Irish strategy has changed because of Covid.’
‘The strategy has not changed’ is the refrain from the Irish legal market. While many firms have introduced temporary measures – such as pausing discretionary partner withdrawals and new hires – all the firms Legal Business spoke with remain committed to their pre-Covid strategies, just with some additional tweaks.
‘You cannot deflect from the strategy,’ says White defiantly. ‘The plans stay in place unless you think the landscape will shift utterly, which I don’t think it will. At the moment there has been a pause in hires without deflecting from the strategy. It was not a decision as such, more a natural reaction, it is not a definitive pause, it’s just unlikely there will be hires between now and Christmas.’
Given the recent performances of many independents – and the resilience of the Irish economy compared to many of its eurozone neighbours – it is easy to understand why they are confident with their existing strategies. Their internationalist counterparts, meanwhile, have enough material resource behind them to ensure their presence continues uninterrupted.
Neither accident nor fortune is responsible for Ireland’s continued resilience. The country – like its legal market – has shown sophistication and ambition, which is why both are well placed to endure what lies ahead. But the mood is far from complacent.
‘This recession is unfortunately going to be felt in the next financial year, it’s about 2021 as well,’ warns Butcher. ‘I saw a cartoon earlier in the year, around March time, saying “can’t we just unplug and plug 2020 back in again?” We’re all in the habit of thinking 2020 has been difficult, which of course it has, but that we can just weather the storm and come out the other side as normal. In my opinion though, it will still be a challenging environment going into next year.’ LB