Is it boom and bust for the Celtic Tiger or just a slight economic adjustment? That is the question preoccupying those at the helm of Dublin’s top law firms in the face of jitters in the US market. With 1,200 multinational companies operating in Ireland employing 140,000 people, there is understandable concern about the impact of a global slowdown on the Irish economy.
“The US slowdown is beginning to affect us,” says Matheson Ormsby Prentice managing partner Donal Roche. “House prices are falling and the tax take is down. The business environment is in a hold mode. If the global situation deteriorates, we will be affected. If not, we will be unscathed.”
At first glance the runes do not look good. A Business and Finance list last year of 40 technology companies set for IPO has so far only seen Datalex go to market. In the first quarter of this year, no IPOs have taken place.
Ireland’s dependence on the technology sector is witnessed by the fact that eight of the top 10 multinational companies are in the IT sector. Some of these companies that have been hardest hit by the technology malaise.
Intel, Ireland’s second largest multinational company and the world’s largest manufacturer of computer chips, is the latest to put a stop to expansion plans in the face of lower second quarter growth. Dell Computers has seen its share price slide by nearly two thirds while Apple Computers, which employs 1,000 people in Cork, has lost 77% from its shares in the US. Hewlett-Packard has issued a profits warning, while Gateway recently announced a 10% cull of its global workforce.
Firms are also experiencing slowdown in a variety of other areas. The consensus is that inward investment has slowed down, particularly from the US, says Arthur Cox managing partner Eugene McCague.
Insolvency work is on the up, and not just in technology. One of the latest victims was a company selling agricultural materials, and firms say there are more in the pipeline.
Property, another key indicator of the health of the economy, is generally busy at the moment but firms are noticing less new occupiers lining up and demand for office space shrinking. “There is a view that there is
probably more square footage than will be needed,” says William Fry managing partner Owen O’Connell.
The arrival of foot and mouth disease has further aggravated the situation with agrobusiness and tourism taking a hit and some estimating that it could knock as much as 1 per cent off GNP. In the UK, there is one farm animal for every two people, In Ireland there are 10 animals per person.
One side effect is the number of visitations by UK and US firms drumming up business in the city. One partner in a top firm said he was being inundated with requests from visiting London partners who just ‘chanced’ to be in Dublin and wanted to meet up. US firms such as Davis Polk & Wardwell have also been
seen in Dublin as part of a European tour as business slows down on the home front. “It used to be the other way round,” another lawyer says wryly.
However, there is some optimism that the US sneeze may not lead to a bad cold in Ireland. McCann Fitzgerald managing partner Ronan Maloney admits to feeling cautious but not despondent. “There is a bit of consolidation and evidence that plans are being put on hold across the board and not just in IT,” he says.
On the upside, “the US invasion of Ireland and possible retreat has led to a spin-off in local knowledge: people are leaving US companies and setting up their own; they have built around it a vibrant new economy probably disproportionate to the size of Ireland,” he says.
William Fry managing partner Owen O’ Connell says that while his firm has seen three IPOs pulled, some of the Irish companies that IPOed “actually had quite a bit of cash and are using it in the last six months to buy cheap assets in the UK and US, leading to a lot of mergers and acquisitions work”.
Insurance is also hotting up. “Dublin has become a huge insurance centre,” says A & L Goodbody partner James Grennan, adding that this was due to the success of the financial servcies centre that has attracted most of the major insurance operations globally. He says that the US firms had suddenly woken up to the fact that Dublin provided them with a base to sell their products anywhere in Europe.
The captive insurance market is another success story for Dublin, which boasts 170 captives including BMW, Hertz, McDonalds and Volkswagen. Grennan attributed one of the reasons for this to the progressive attitude of the regulators who were more ‘pro-business than anywhere else. “Firms believe that the slowdown would have to be dramatic to actually bring Ireland to recession. “Our slowdown is someone else’s boom,” says Michael Jackson of Matheson Ormsby, pointing out that Ireland is still the fastest growing country in Europe.
The opportunities presented by a slowdown are not lost on firms such as Matheson Ormsby. “We see a slowdown as an opportunity to recruit high quality people in areas where it has been difficult, We will identify areas we want to expand,” Donal Roche says. One indicator of confidence will be the annual salary reviews which firms are carrying out in the next few weeks. Firms are reluctant to say if they will hike up pay.
While caution is the natural reaction, managing partners are only too aware of the competing forces for the best staff in an increasingly mobile market. “People are saying you should take account of the slowdown. But we are going to pay good increases this year. We are not going to bet the retention of our staff on a slowdown,” Owen O’Connell says.
McCann Fitzgerald managing partner Ronan Maloney says his firm will be cautious as there is less confidence in the economy.
Public/private partnerships
Public-private partnerships are the latest buzz word in the Republic of Ireland as firms eye up this potentially lucrative area of work.
With infrastructure projects planned to the tune of £1.8bn, firms are lining up teams to tender for various projects.
A&L Goodbody PPP/Projects head Kevin Feeney says that all of the PPP projects to date are regarded as pilot projects and the future of PPP “will hinge on the success of these projects”. For this reason, he says, it will be important for all stakeholders to ensure that the pilots work and produce value for money.
Feeney points out that there are major lessons to be learned from the UK’s PFI experience. Disputes over funding where the banks pull out or disagreements over who is in the team are two of the more common problems. One of the challenges for any public sector advisor is to ensure that the project is delivered timely and speedily, he adds. One potential danger for foreign investors is construction inflation which is running at a higher level than in the UK, he says, adding that this is a challenge for bidders in terms of how they model corporation tax.
Current PPP projects include the first education PPP school ‘bundle’ in Ireland, valued at £iR20m, the National Roads Authority projects and the Luas, the Dublin Light Railway system.
On the schools, McCann Fitzgerald is advising Jarvis, while A&L Goodbody is advising the Department of Education and Science.
The Luas Light Railway system sees A&L Goodbody advising the successful bidder, an international consortia, as well as one of the operational bidders. McCann Fitzgerald is advising CIE.
McCann Fitzgerald is advising the National Roads Authority with Freshfields Bruckhaus Deringer on road projects, while Goodbodys is also acting for an international consortia which is at the very early stage of bidding. Other firms involved include Eugene F Collins, which is bidding jointly with CMS Cameron McKenna.
All of the top firms are involved in a programme to design, build and operate water projects, ranging from i£1m to i£50m, which will amount to more than 100 projects in the next five years.
