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Hello, Sao Paulo
Brazil's thriving capital markets lure U.S. law firms
The National Law Journal
July 01, 2008
Sao Paulo
Source: Getty Images
Law firms are hot for Brazil.
In the past four years, half a dozen law firms have either opened their own offices in Brazil or have plans to do so later this year. Others are opening offices with affiliate law firms in Brazil.
The list includes New York's Shearman & Sterling; Proskauer Rose; Skadden, Arps, Slate, Meagher & Flom; Simpson Thacher & Bartlett; Chicago's Mayer Brown; Squire, Sanders & Dempsey; London's Allen & Overy; and Dallas-based Thompson & Knight.
For most firms, Brazil is their first location in Latin America.
A rush of investment capital, coupled with surging commodity prices, oil and gas exploration and a wave of new construction, are prompting law firms to open offices in Brazil.
Many have been swept up in the country's thriving capital markets climate, particularly in Sao Paulo, which has enticed international banks and other foreign investors to finance countless emerging companies. Last year, a record 64 companies issued initial public offerings in Brazil.
"What's driving a lot of the interest is the IPO boom that occurred," said Stephen Hood, partner in charge of the Sao Paulo office of Mayer Brown. "Those just made people sit up and notice the country more than they had done in the past."
THE NEW YORK OF BRAZIL
Until four years ago, only a handful of firms had a major presence in Brazil, such as Clifford Chance, White & Case and London-based Linklaters. U.S. lawyers are barred from practicing Brazilian law, but they can practice U.S. law after being approved. Most of the firms that have opened their own offices in recent months are handling investment deals that are based on U.S. law.
Those law firms, which are moving their own lawyers to Sao Paulo or hiring U.S. lawyers in Brazil, must endure the country's arduous regulatory process of approving them as foreign attorneys.
Such regulatory hurdles have slowed the process for some law firms. Allen & Overy, for example, which does not have an office in Latin America, is in the process of opening a Brazil office. "We hope to open an office in Brazil at some stage in the future, but there is an extensive regulatory process to go through first," said Jamie Bruck, a firm spokeswoman. She declined to comment further.
But Brazil is awash in deal flow, in part due to a growing middle class and a low inflation rate that has increased access to capital. In recent months, Fitch Ratings and Standard & Poor's raised Brazil's sovereign debt rating to investment-grade level due to the country's economic performance.
With those upgrades, more international funds would consider investing in companies in Brazil, said S. Todd Crider, a partner in the New York office of Simpson Thacher, which is planning to open an office in Sao Paulo in coming months. "The borrowing costs for the country itself and Brazilian companies can decline, which makes them more competitive," he said. "They can access cheaper capital."
This year's market for initial public offerings appears to be cooling due to general global economic conditions.
But lawyers are optimistic that strong companies will continue to issue IPOs and that oil and gas exploration, mining, ethanol production, construction and public infrastructure projects, along with private-equity and bank-lending deals, could generate future legal work in Brazil.
When Shearman & Sterling opened its Brazil office in 2004, the firm had six lawyers in Sao Paulo focused on mergers and acquisitions, debt offerings and capital markets, said Andrew Janszky, co-head of the Sao Paulo office. Almost immediately, equity offerings took off. "We were fortunate enough to have gone down there," he said.
Now, he said, the office has doubled in size. He anticipates having up to 30 lawyers in the next five years in Sao Paulo.
Among the firm's recent deals has been the representation of Brazil's principal stock exchange, Bovespa Holding S.A., in its record $3.7 billion initial public offering last year.
Sao Paulo is the "New York of Brazil," said Crider, at Simpson Thacher. "It's where the lion's share of the financing market and activity is taking place."
Crider said he anticipates having up to five lawyers in Simpson Thacher's planned Sao Paulo office by the end of the year. The office is the firm's first in Latin America.
Both acknowledged the recent slowdown in IPOs, but downplayed its impact on future equity deals.
Antonio Piccirillo, head of the Sao Paulo office at Proskauer Rose, said he anticipates next year would involve more private equity and bank lending, particularly since Brazil has received two investment-grade credit ratings. He also expects to handle more public infrastructure deals, port financings, energy projects and financing of facilities that produce ethanol from the country's sugar cane.
Proskauer, like most of the firms coming to Brazil, opted to open its own office in Sao Paulo last year rather than affiliate with a local law firm.
The reason, Piccirillo said, is that Brazilian law firms often give referrals to U.S. firms. "If we were to just link up with one, it would automatically cut off a lot of our contacts, who then wouldn't be able to refer business to us," he said.
THE '800-POUND GORILLA'
Allen Miller, co-head of the Latin American practice at New York's Chadbourne & Parke, agreed. He declined to confirm for certain whether the firm would open an office in Brazil, but said an office in that country is a "serious consideration" and, if opened, would not be affiliated with a local firm.
Chadbourne & Parke opened a Mexico City office earlier this year after acquiring two dozen lawyers from New York's Thacher Proffitt & Woods. Oliver Armas, one of those lawyers, said he switched firms in part because he wanted to open an office in Brazil.
"Brazil is economically, in the region, the 800-pound gorilla," Armas said. "The nature of our business is such that everyone is turning their attention to Brazil."
Unlike other Latin American countries, Brazil offers a large enough amount of legal work to justify the investment of opening an office, said Hood, at Mayer Brown. In December, Mayer Brown, which has an affiliate office with another law firm in Mexico City, opened its own Sao Paulo office, which now has nine lawyers. Hood said he plans to increase the Mayer Brown office to about a dozen lawyers.
"The thing about Brazil is: It's big enough to provide enough work," he said.
Several lawyers also noted the tiresome travel to and from Brazil and New York.
Jonathan Bisgaier, a New York partner at Skadden who plans to move to Brazil in a few weeks with five associates to open the firm's office in Sao Paulo, said he has traveled to Brazil 50 times in the past two years. Sao Paulo would be Skadden's first office in Latin America.
"We have had, for a number of years, an incredibly thriving Brazil practice," Bisgaier said.
"There was a feeling we could much better service our clients and expand our business if there was a physical presence there," Bisgaier added.
Some firms, however, have affiliated with local lawyers to practice Brazilian law. In most cases, these firms are not as immersed in the flourishing capital markets arena.
Squire Sanders opened a Sao Paulo office earlier this year in response to client demand for deals in construction, aviation, biotech, biofuels and mining. Much of the firm's work also targets energy clients, for whom the firm originally opened a Brazilian office in Rio de Janeiro seven years ago in association with a Brazilian law firm, Derraik Advogados.
Now, both offices have 14 lawyers, said Timothy Smith, managing partner of the Rio de Janeiro office.
"We got to the point, over the last few years, where more of our work was in Sao Paulo," he said.
He said he anticipates doubling the size of both offices within two years.
In 2003, Thompson & Knight opened a Rio de Janeiro office primarily to handle the acquisition of worldwide refineries for Petrobras, Brazil's state-run oil company, said Pete Riley, managing partner and chairman of the firm. The Rio de Janeiro office, which opened in association with Brazilian law firm Tauil, Chequer & Mello, has grown from three to 35 lawyers.
The firm intends to open a second office, in Sao Paulo, in coming weeks, he said. Many of Thompson & Knight's clients now include pension funds and industrial firms based in Sao Paulo. About half the work involves capital markets, he said.
He said he expects the Sao Paulo office to grow to 35 lawyers in three years.
One immigration law firm also is banking on Brazil.
Cordero & Associates, a Miami-based law firm that works with individuals and corporations on immigration matters, is in talks with a Brazilian law firm to open an office in Belo Horizonte, a metropolitan region near Rio de Janeiro, in the coming months.
"Obviously, the reason for Brazil is the thriving economy right now," said Luis Cordero, founder of Cordero & Associates. He said the firm he is negotiating with specializes in real estate and construction.
