Shaking off its failed bid for a full-fledged merger with Germany's Gleiss Lutz, Britain's Herbert Smith Freehills is taking another run at the German legal market.
After lawyers at Gleiss Lutz and would-be Benelux merger partner Stibbe voted down merger plans, Herbert Smith Freehills terminated its exclusive alliances with both firms at the end of 2011. Now that its mandatory yearlong postbreakup hiatus from Germany is over, Herbert Smith has returned to plant its own German flag.
Its first move was hiring senior Gleiss Lutz corporate partner Ralf Thaeter to oversee the opening of two new offices in Frankfurt and Berlin, both of which formally launched in April. "Ralf is a preeminent practitioner in corporate M&A in Germany," says Patrick Mitchell, global cohead of Herbert Smith's corporate group. "We're convinced that his reputation will help us build the practice."
Along with corporate and M&A work, Herbert Smith is looking to build its German platform around finance and alternative dispute resolution, and says that Germany will play a central role in its larger global growth strategy.
Thaeter, who's leading the local recruiting effort, says the firm currently has a few other prospective hires in the pipeline, with more to come. A specialist in energy infrastructure transactions, Thaeter says that he was attracted by Herbert Smith's global network of offices, and the opportunity to do high-caliber cross-border M&A. He believes that will be a big selling point for other potential hires. "It's a great opportunity for hungry lawyers," says Thaeter.
That said, Herbert Smith plans on being patient with the building process. "The time period over which success will be measured is years, not months," says Mitchell. "It's about getting the right mix of people," adds Thaeter. "We want to put quality first." As for whether that mix might include other lawyers from Gleiss Lutz, Thaeter wouldn't comment. Nor would he say whether he's approached any of his former colleagues about joining his new firm.
Gleiss Lutz managing partner Rainer Loges declined to comment on Thaeter's departure or on Herbert Smith's foray into the German legal market. But one senior Gleiss Lutz partner noted that many British and American firms, including Linklaters, Clifford Chance, Sullivan & Cromwell, and Latham & Watkins, are already well established in Germany, and could make it difficult for new entrants to win market share. "It's an extremely crowded market," says the partner, who spoke under the condition of anonymity.
Given the slowdown on the German M&A front in recent months, landing new deal work may be even more challenging—at least in the short term. According to ThomsonReuters, the total value of transactions completed in the first quarter of 2013 was just $12.5 billion, well off its pace in 2012, and down sharply from the previous two quarters. In both Q3 and Q4 of 2012 the value of reported deals exceeded $30 billion.
One casualty of the German slowdown: U.S.–based Shearman & Sterling. In late April the firm announced that it would shutter its 31-lawyer Düsseldorf office and nine-lawyer Munich office, citing softening demand for high-end legal services. The firm's 29-lawyer Frankfurt office will remain open.
Andreas Austmann, a veteran corporate partner at Germany's Hengeler Mueller, says that there's no question that German M&A has been lagging recently. But he's hopeful that buyers will be back in the market in the second half of the year, given that so many companies have excess cash on their books. "Corporate coffers are filled," says Austmann. "That money has to go somewhere."
Despite Shearman's move to scale back in Germany, Austmann says thus far he sees no real signs that other British or American firms are preparing to retreat. "They're hanging in," says Aust­mann, who notes that in recent years the big global firms have gained increasing clout in the market. "Their size gives them a natural advantage."