As its economy booms Turkey has attracted the attention of the world’s legal market. Will Clifford Chance and DLA Piper’s arrival mark a new chapter for the country’s local firm?
Clifford Chance’s move into Istanbul didn’t exactly take the market by surprise. The announcement that the Magic Circle firm is to open an outpost in the Turkish city followed its 2009 hire of Mete Yegin from local heavyweight Pekin & Pekin. Required by local Bar rules to ally with a local firm, CC will now officially launch in conjunction with Yegin’s firm, Yegin Legal Consultancy.
The arrival of the UK practice came hard on the heels of DLA Piper, which also entered Istanbul last summer when it launched a tie-up with one of Turkey’s largest firms, YükselKarkinKüçük (YKK). The arrival of CC and DLA is futher confirmation of Turkey’s rise as an economic power. The Turkish government’s ambitious plans target annual growth of around 5% and an end goal of becoming one of the world’s ten largest economies by 2040. The omens look good – it is currently the fastest growing nation outside of China. According to the International Monetary Fund, Turkey’s GDP reached $729bn in 2010.
For now, at least, the local firms are publicly welcoming the foreign interest in their market. ‘It’s good to see international firms in Turkey as it’s a positive re-enforcement of streams of foreign direct investment entering the economy,’ insists Fethi Pekin, managing partner of Pekin & Pekin. ‘Their clients see the potential in Turkey, that’s good for us.’
Pekin is one of several well-established lawyers who believe that rather than being hijacked by the larger global outfits the Istanbul market is in line for a spike in legal work. ‘We are quite happy to have more international firms coming into Turkey,’ concurs Cüneyt Yüksel, managing partner of YKK. ‘It means more international business and more competition.’
But tough regulations upheld by the Union of Turkish Bars, which prevents international law firms from setting up independently, along with a highly competitive fee environment and prudent business planning also means there won’t be a sudden rush to Istanbul. Although interest in the market has clearly risen, Turkey’s price sensitive market doesn’t suit everyone.
Moving beyond the past
Turkey is in a state of transformation. The Eurasian country is rapidly realigning its main industries to meet the demands of global investors.
Having weathered the economic crisis well, Turkey is now pacing ahead of its less fortunate neighbours. According to national statistics, in June last year the country’s GDP was already up 11.5% on the previous year. By the end of the third quarter GDP had increased by nearly 9%.
Some of this growth is down to the stability of the political system. Up until 2002, Turkey’s political landscape was a mess, with no single party holding office for more than 18 months. But the election of the Justice and Development Party, or AKP as it’s commonly known, eight years ago is argued by many to have steered the country in the right direction.
‘Turkey has one of the highest growth rates outside of China and the key factor is that we have a stable political environment and a liberal government,’ says Ece Güner, founding partner of Güner Law Office.
Faced with an election in June, Turkey’s political landscape is not expected to change dramatically. This should reassure international investors looking to move into the market as the government pushes ahead with its ambitious economic plans.
A mammoth privatisation programme of the transport and energy sectors, along with an increase in M&A, financing, infrastructure and regulatory work means there should be plenty of legal work over the next 30 years. According to information from mergermarket, six of the ten largest deals in 2010 were privatisations of Turkey’s electricity distribution grids (see tables on page 76). The largest deal saw the Republic of Turkey Prime Ministry Privatisation Administration sell off the Bog˘aziçi Elektrik Dag˘ıtım, which covers Istanbul and surrounding areas, to a joint venture between construction group I˙s¸kaya I˙ns¸aat and machinery manufacturer MMEKA for €2.26bn.
The country’s economic growth has naturally placed Turkey’s smaller independent firms in a strong position. The Istanbul market is for the most part dominated by a handful of family run practices, which include Hergüner Bilgen Özeke Attorney Partnership, Pekin & Pekin, Pekin & Bayar and Paksoy, with a band of smaller practices increasingly benefiting from the country’s boom. As their economy continues to grow and the government pushes ahead with expansion, privatisation and development plans, global clients will need to rely on local firms.
‘Change is in the air,’ says ELI˙G Ortak Avukat Bürosu competition partner Gönenç Gürkaynak with a hint of excitement. ‘Any lawyer in Turkey with a global client list feels that the Turkish landscape is going to change and the legal market is going to expand.’
‘Turkey has been good to us. We have benefited from having great foreign and Turkish-qualified lawyers.’
Asli Basgoz, White & Case
To some that means that the market will inevitably become dominated by overseas practices. ‘If you look at the German market in the ‘90s, there were only a few international law firms. This has changed and I expect similar things for Turkey,’ insists Dr Ismail Esin, founder of Esin Law Firm. That, in turn, gives rise to familiar debates among domestic firms around losing autonomy. ‘We don’t want to be controlled by a third party but we are prepared to go 50/50,’ admits Mehmet Gün of Mehmet Gün & Partners. ‘The strategy would have to be to improve capacity and capabilities by developing relationships but jointly run the firm.’
The Turkish restrictions, while not being as strict as India, do at least mean that the domestic players can’t be completely subsumed into a US or UK firm. And the appeal of a tie-up is clearly growing for some. ‘If you were to ask me two years ago whether we’d be interested in a formal alliance with an international law firm, we’d say no,’ ELI˙G’s Gürkaynak says. ‘Now it’s become more obvious that Istanbul will turn into one of those markets where all of the international firms will directly compete.’
However, some firms aren’t ready to give up their independence, acknowledging that by joining a foreign practice they run the risk of losing valuable sources of referral work.
Rather than ally with an overseas firm several of the leading local players have opted to join looser international affiliations. Pekin & Pekin, for instance, is part of both Lex Mundi and TerraLex. It is also part of a close knit group of firms called South East Europe Legal Group, which includes firms from countries such as Montenegro, Bosnia and Herzegovina, Serbia, Croatia, and Romania. ‘We have found our global and regional networks to be very beneficial,’ explains Fethi Pekin. ‘They fit our strategy of maintaining independence and accessing the best local expertise available.’
Similarly, rival firm Pekin & Bayar is part of the World Services Group, which is a referral network of over 130 law firms from across the globe. ELI˙G doesn’t have a foreign alliance, but it works closely with almost a dozen large global firms, including Freshfields Bruckhaus Deringer, Cleary Gottlieb Steen & Hamilton, and CC.
New players old game
CC’s arrival in Turkey is seen by some as a potential tipping point, marking the start of an influx of international firms into the market. Besides a few trailblazers like White & Case and SNR Denton, the Turkish market is still relatively free of foreign practices. Although it waited to open an office, CC is hardly a stranger to the country having featured regularly on Turkish deals for the past 30 years.
‘Clifford Chance had been doing a lot of banking and finance work in Turkey without having a presence on the ground,’ comments CC’s Yegin. ‘Over the years, the question of whether there was a need to have a strong presence on the ground came up and because the firm was committed to the market, it was time to respond to clients’ needs.’ Those clients include regular CC favourites Citi, Deutsche Bank and UniCredit, as well as local players Akbank and Turkiye Garanti Bankası. Alongside the local ally Yegin Legal Consultancy, the firm has relocated London finance partner Simon Williams to head the office.
CC is not the only international practice to cause a stir. DLA’s arrival in June 2010 has still got the market talking. ‘DLA has made a good catch – YKK is a good firm. They are now potentially very competitive,’ says one partner from a local practice.
The international behemoth’s push into the Istanbul market made local headlines when the firm brought in former US ambassador to Turkey and senior DLA adviser, Marc Grossman, to head a press campaign about the launch. The two firms, although operating as two separate partnerships, collaborate very closely. DLA’s Turkish practice is one of a few that also includes a presence in the country’s capital, Ankara. In total the firm’s headcount in the country is 65 lawyers, ranking it just below the country’s largest player, Hergüner, which has 70 lawyers. ‘It has helped us and is helping us,’ YKK’s Yüksel comments on the tie-up. ‘DLA’s management is in line with our own.’
Despite the recent flock of firms to the region, international firms setting up in Istanbul is not a new phenomenon. US firm White & Case has been in the region for 30 years after joining up with Çakmak Avukatlık Bürosu in Ankara and Akol Avukatlık Bürosu in Istanbul.
White & Case has the largest presence of the international firms and has a long track record of acting on major corporate finance mandates. Last year the firm advised Banco Bilbao Vizcaya Argentaria on its purchase of a 24.9% stake in local bank, Turkiye Garanti Bankası for €4.2bn, acted for the underwriters on Koza Gold Operations Company’s $436m initial public offering and for Yüksel I˙ns¸aat on its $200m high-yield offering.
Asli Basgoz, who was the first woman to be appointed to White & Case’s executive committee in 2007, is very optimistic about the country’s prospects. ‘The overarching message here is that Turkey has been good to us for 25 years. We have benefited from having great foreign and Turkish-qualified lawyers working with us, and the experience has been very positive for us.’
Those that have followed White & Case include SNR Denton, which tied up with Güner Law Office, Salans, which joined with Özel & Özel, and France’s Gide Loyrette Nouel, which allied with Danıs¸manlık Hizmetleri Avukatlık Ortaklıg˘ı.
‘Turkey had a rough couple of years but it has bounced back,’ says Jeremy Cohen, who co-heads the corporate finance practice for SNR Denton. ‘The current and projected growth makes it an attractive place for large multinational companies. There is already a lot of activity going on here and our Turkish association is part of our regional play.’
Turkey has also become a significant regional play for the firms that have focused on central and eastern Europe (CEE). Kinstellar launched its Istanbul outpost in June last year after hiring Halide Çetinkaya from Turkish firm Paksoy and Gamze Çig˘demtekin from White & Case. To comply with local laws Kinstellar’s Turkish office is called CCAO and bears the name of both Çetinkaya and Çig˘demtekin. One Turkish partner notes that Paksoy took a hit when Çetinkaya joined Kinstellar.
‘It’s clearly a significant market,’ comments Charles Dunn, a former Linklaters partner who launched the Istanbul office for Kinstellar. ‘Turkey is doing very well at the moment and in the medium to long term, the future is bright.’ Dunn says that during his time at Linklaters he had pushed for an Istanbul office. ‘We always wanted to do work in Turkey. These are interesting times in the country.’
The firm’s three-partner Istanbul office predominantly advises on banking, finance, real estate and M&A work, and is currently advising an offshore fund on several deals inside the country.
Austrian firm Schönherr, which, like Kinstellar, has an extensive network in the CEE, has also moved into Istanbul. Last September it linked up with Türkog˘lu & Celepçi, which counts Turkcell, Renaissance Capital and Hedef-Alliance among its client base. Schönherr partner Markus Piuk relocated to Istanbul to run the practice and is in regular contact with partners Alexander Popp and Nidal Karaman who support the practice from the firm’s headquarters in Vienna.
‘The majority of what we’re doing is corporate and capital markets work, and it’s mostly inbound work,’ says Piuk.
Portuguese firm Raposo Bernardo & Associados also has its sights set on Istanbul and is looking for a local firm to ally with. Not many firms from Portugal may join it but Raposo sees Turkey as a natural extension of its developing CEE practice. ‘We look at Turkey as a bridge that links old Europe with the new Asian economies,’ says senior associate Marcelo Rebanda.
Of those overseas firms without an office in the market, Baker & McKenzie is perhaps the most notable absentee. Even though it has so often been a first mover into new markets, the global firm has opted to work with several firms on the ground. That doesn’t necessarily preclude it from instructions from Turkish clients and in August last year Bakers advised Akbank on its first eurobond. ‘The big debate is do you continue to play the field and work with a variety of firms or do you go in and become a competitor and ruin some of your relationships? Ultimately either approach has its benefits,’ comments Simon Porter, a London finance partner at Baker & McKenzie.
After India and South Korea, where international firms are barred from opening on the ground, Turkey is the largest economy where Bakers doesn’t boast a capability on the ground. As well as the Akbank deal, Bakers’ deal list includes advising the State Oil Company of Azerbaijan Republic on its $520m purchase of a Turkish-based construction company, and acting for Yapı ve Kredi Bankası on its $1.15bn future-flow securitisation programme.
US firm Chadbourne & Parke, a well-known player in the CEE, is also now looking at Turkey. ‘Since the recession there has been an increase in M&A, private equity and capital markets work,’ explains Ays¸e Yüksel, who heads Chadbourne’s Turkey corporate practice from Dubai. ‘And on the energy side, there is a lot of privatisation and renewable work. We have a lot of Turkish clients that we are representing as targets but also as investors.’
The US firm already has an impressive track record in the region. For instance, early last year Chadbourne’s London managing partner Claude Seriflippi, along with energy partner Agnieszka Klich and a team of lawyers from the US firm’s London and Kiev offices, advised Turkish mining company Koza Gold on its $436m initial public offering. The firm also took a lead role acting for Koç Holding, as part of a consortium with the Carlyle Group, in the privatisation of Türk Telekom. Although the firm is yet to announce an official move into Istanbul, Chadbourne maintains that it is very serious about extending its international network of 12 offices to Turkey.
Partners in Istanbul note the increasing presence of the Magic Circle, including Allen & Overy, Linklaters and Freshfields Bruckhaus Deringer, on deals. According to data provided by mergermarket, A&O scored roles on three Turkish M&A deals worth $221m during 2010. Last month A&O also landed a role advising the joint lead managers on Türkiye I˙s Bankası’s $500m debut bond issue – the first of 2011. Similarly, Freshfields advised on the same number of deals worth $463m, while Linklaters advised on only one deal worth $270m.
Of the Turkish independents, Hergüner advised on six M&A deals worth $380m during that time, while Paksoy advised on five deals worth $4.55bn and Esin also advised on five deals worth $564m.
Despite seeing a dearth of pure M&A deals during 2010, Turkey’s services sector remained robust. It accounts for 65.5% of Turkey’s economy and thanks to financial reforms imposed by the government prior to the global financial crisis, the banking sector is in tact and ready to lend.
Esin expects that financing from the banks will be easier to get hold of in the future. ‘Finance is already easier to come by and it’s cheaper. The level of leveraged buyouts will increase,’ he says.
Despite the growing band of new entrants, Hergüner’s corporate chief, Itır Sevim-Çiftç strikes a note of optimism. ‘Going forward, we can expect more competition within the legal services market in Turkey but at the same time, the market will grow and so will the number of deals,’ she says. ‘Firms may see their market shares decrease but their volume work should remain the same.’
Taking a bath
Although Turkish firms have always been relatively small, in part due to the traditional family model, Istanbul is a heavily over-lawyered city, with roughly 25,000 registered lawyers. Competition for legal work is so high that there is growing pressure on fees.
‘The Turkish market is very fragmented at the moment,’ comments Yes¸im Bezen, partner of Bezen & Partners. ‘It’s a very young market and not all of it is sophisticated, which means that some firms are pitching very low fees to clients.’
‘There isn’t much competition on quality so pricing is competitive,’ comments one partner. ‘You have to come up with alternative fee structures, like caps and success fees, and now that there are so many law firms, the prices are getting lower.’
‘In the ‘90s, the German market only had a few international players. This changed and I expect similar things for Turkey.’
Dr Ismail Esin, Esin Law Firm
Like in many of Asia’s emerging markets, brand recognition may count for little with a Turkish firm, and so foreign firms are forced to depend on personal relationships or price to win work. It’s a dynamic that may keep some of the leading US and UK players out of the market.
CC’s move could be the catalyst for an influx of firms into the market, but those that do establish themselves in the country are likely to keep a strong focus on a diet of largely inbound work.
‘Am I expecting the global top ten to come to Turkey? I’m not sure the returns are here,’ Kinstellar’s Dunn maintains. ‘It’s quite a competitive market and the Turkish are very good at negotiating fees.’
Mickaël Laurans, who is the Law Society’s international policy manager for Europe and the CIS, says that he’s received a growing number of inquiries from large UK firms about the region. ‘Since the beginning of last year, we’ve seen an increase in firms requesting information on Turkey. There is definitely an interest there.’
Given the interest, the Turkish firms can afford to be picky. ‘We wouldn’t agree to join just anyone,’ sniffs Mehmet Gün. ‘They’d have to be the crème de la crème.’ That might mean a few surprises. LB
Turkish regulations
Turkey’s legal landscape is complex. With 74 local Bars representing more than 70,000 lawyers, the regulations, which make it tricky for international practices looking to establish a presence, also creates difficulties for even the local firms to operate more than one office in the jurisdiction.
Foreign practices have to form an association agreement with a local firm if they want to practise on the ground. Regulations allow them to register as firms with the local Bar, but stipulations in the rules uphold that they can only practise international law. Turkish lawyers looking to practise foreign law have to relinquish their membership of the Bar.
‘Turkey has one of the highest growth rates outside of China due to a stable political environment and a liberal government.’
Ece Güner, Güner Law Office
The burning question, however, is whether Turkish authorities will seek to lift the ‘red tape’ approach to managing its legal sector. The hopeful rumours in the market are that Mehmet S¸ims¸ek, the Turkish Minister of Finance wants to review the Turkish Advocacy Act.
‘There is a debate on the issue and the government could start looking to review the Advocacy Act, and look at integrating Turkish and foreign firms,’ says one person familiar with the matter.
However, Ümit Kocasakal, who was elected as chairman of the Istanbul Bar in November, hasn’t signalled any intentions to open the debate and with the upcoming governmental election in June, liberalising Turkey’s legal sector could be put on the back burner.
Some lawyers certainly aren’t holding their breath. ‘I suspect the Bar Association will maintain the status quo,’ according to Baker & McKenzie’s Simon Porter. ‘There is no burning desire to make any radical changes and things can be done the way they are now.’ Dr Ismail Esin, who heads his own firm Esin Law Firm, agrees with Porter. ‘The questions of the rules being lifted are too political.’
Meanwhile, the regulator has also vowed to become more vigilant as the increasing number of international alliances leads to suspicions that the foreign practices are side stepping the regulations.
Operating under ‘one roof’ is the most common breach international firms make. Under the rules, they must operate as two separate partnerships, businesses and legal practices.
‘It’s just a general understanding that this sort of thing is going on because, for one thing, it’s next to impossible for the foreign law firms to avoid,’ says one lawyer on the ground. ‘How do you avoid “practising Turkish law” when you’re a lawyer here in Turkey?’
Allowing foreign firms to operate in Turkey is a recent development for the market. Up until May 2001, overseas lawyers were forbidden to practise in Turkey at all. Now under the Lawyers’ Code 2001 foreign firms can register with the Bar as a ‘consultancy service’ within the framework of promoting foreign investment.
The upcoming elections may herald a change of approach but until then foreign firms looking for a slice of the work will have to hunt down local partners.
A guide to Turkey’s leading local firms
According to The Legal 500: Europe Middle East and Africa, Cerrahog˘lu Avukatlık Bürosu is known in the Turkish market for its corporate and M&A practice. The six-partner firm, with offices in Istanbul and Ankara, acts for high-profile global corporates, including McDonald’s, BP, Hilton and Coca-Cola. The corporate practice is jointly led by Aysegül Yalçinmani and Selen Güres.
Part of the younger generation of Istanbul firms, ELI˙G Ortak Avukat Bürosu has one of the pre-eminent competition, telecoms and media practices. Established in 2002, the firm has four partners, one senior consultant and 23 lawyers, and counts Google, ExxonMobil, 3M and YouTube among its largest clients.
After the break-up of EsinIsmen Hukuk Bürosunun in 2009, Dr Ismail Esin launched Esin Law Firm, which now has six partners and 27 lawyers. The firm carved a name for itself in the M&A market and acts for private equity funds, buyers, sellers, and domestic and foreign joint venture partners. The firm advises on energy-related deals and, in April 2010, it advised electricity group Turkon-Mng on its sale of five hydroelectric plants to Czech Republic-based C˘KD Nové Energo.
Hergüner Bilgen Özeke Attorney Partnership is the largest Turkish firm by headcount. The 12-partner Istanbul office has a highly rated banking, corporate and telecoms practice. Much of its business has been driven by the government’s privatisation programme and recently GDF Suez turned to the firm on the $410m privatisation of I˙zgaz, a local natural gas company.
‘With international firms coming into Turkey, it means more international business and more competition.’
Cüneyt Yüksel, YükselKarkinKüçük
Ismen was spun out of the other half of EsinIsmen and was established by Tolga Ismen. The firm has done well out of the developing initial public offering market in Istanbul and looks set to benefit from the increase in clients to capital markets. Ismen’s 18-lawyer firm also advises on competition, telecoms and dispute resolution work.
Established in 1997, Paksoy is part of the old-guard of firms in the Turkish market. The highly ranked practice, which has four partners and 30 lawyers overall, is the firm to turn to for banking and finance work. Recent instructions include advising J.P. Morgan on its $140m loan to Turkey’s Dog˘us¸ Holding and acting for Turkiye Garanti Bankası on the sale of 24.9% of its business to Banco Bilbao Vizcaya Argentaria for €4.2bn.
Pekin & Bayar is at the top of the Istanbul market for its stellar banking and corporate work. The firm’s finance practice, which is led by Selin Bayar, acts for both lenders and borrowers and counts the National Bank of Greece and Alternativ Bank Schweiz as some of its clients. S¸efika Pekin heads the corporate practice, which advised on the largest Turkish M&A deal in 2009, when the firm’s major client Akfen Holding sold its entire stake in AIH Companies to Bridgepoint Capital.
Pekin & Pekin excels across the board. The firm’s 40 highly skilled lawyers rule the roost in banking, corporate, privatisation, tax and media work. Established in 1971 by Ahmed Pekin, the firm boasts an impressive client roster and an enviable book of business. It has landed large roles on the privatisation of two of Turkey’s electrical distribution companies and advised a consortium on its tender to privatise Turkish lottery and betting group, IDDAA.
Turkey: legal adviser league table Y/E 2010
| Y/E 2009 | Y/E 2010 | House | Value (US$m) | No of deals |
|---|---|---|---|---|
| 5 | 1 | White & Case | 6,206 | 4 |
| — | 2 | Garrigues | 5,894 | 1 |
| 28 | 3 | Paksoy | 4,545 | 5 |
| — | 4 | Slaughter and May | 4,403 | 1 |
| — | 5 | Verdi & Yazici | 1,803 | 2 |
| — | 6 | Cerha Hempel Spiegelfeld Hlawati | 1,393 | 1 |
| 9 | 7 | Esin Law Firm | 564 | 5 |
| 25 | 8 | Freshfields Bruckhaus Deringer | 463 | 3 |
| 26 | 9 | Hergüner Bilgen Özeke | 380 | 6 |
| — | 10= | Kinstellar | 270 | 1 |
| 12 | 10= | Linklaters | 270 | 1 |
| — | 10= | Wolf Theiss | 270 | 1 |
Ranked by deal value
Source:mergermarket
Turkey legal adviser league tables Y/E 2010
| Y/E 2009 | Y/E 2010 | House | Value (US$m) | No of deals |
|---|---|---|---|---|
| 26 | 1 | Hergüner Bilgen Özeke | 380 | 6 |
| 28 | 2 | Paksoy | 4,545 | 5 |
| 11 | 3 | Esin Law Firm | 564 | 5 |
| 9 | 4 | White & Case | 6,206 | 4 |
| 25 | 5 | Freshfields Bruckhaus Deringer | 463 | 3 |
| 16 | 6 | Ismen | 226 | 3 |
| 17 | 7 | Allen & Overy | 221 | 3 |
| 3 | 8 | Pekin & Bayar Law Firm | 147 | 3 |
| — | 9 | Verdi & Yazici | 1,803 | 2 |
| — | 10 | Herbert Smith/Gleiss Lutz/Stibbe | 134 | 2 |
Ranked by number of deals
Source: mergermarket