Survey results: Stormy weather
Last year, the responses to Legal Week's Independent Law Firms in Europe survey radiated optimism, with firms outlining ambitious individual growth plans, while predicting that their collective market share would continue to increase at the expense of the European offices of UK and US firms. The recent economic turmoil - which reached its chaotic height around the time this year's questionnaires were being completed - has, unsurprisingly, changed the mood somewhat. While firms are still, on the whole, upbeat about the year ahead, consolidation has usurped expansion as the buzzword among managing partners at the 122 firms in 26 countries that completed this year's survey.
Europe’s law firms are pretty upbeat about their prospects for 2009, despite the dark clouds looming over the economy. Alex Aldridge analyses the results of this year’s Independent Law Firms in Europe survey
Last year, the responses to Legal Week‘s Independent Law Firms in Europe survey radiated optimism, with firms outlining ambitious individual growth plans, while predicting that their collective market share would continue to increase at the expense of the European offices of UK and US firms.
The recent economic turmoil – which reached its chaotic height around the time this year’s questionnaires were being completed – has, unsurprisingly, changed the mood somewhat. While firms are still, on the whole, upbeat about the year ahead, consolidation has usurped expansion as the buzzword among managing partners at the 122 firms in 26 countries that completed this year’s survey.
Firms remain keen to promote themselves as “full service”, with 95% of those surveyed claiming to be able to offer assistance in all areas of commercial law. Clearly, though, there is a difference between the sort of “full service” a large outfit such as Gide Loyrette Nouel or Hengeler Mueller can provide with what one of the substantial number of respondent firms made up of less than 20 partners can offer. Perhaps what this statistic illustrates better than anything is that there is kudos associated with the idea of being multi-disciplinary.
The firms that described themselves as non-full service were keen to highlight their status as experts in a particular area. In several cases that was intellectual property (for example, Germany’s Bardehle Pagenberg and France’s Veron & Associes), but among the respondents there were also firms specialising in appellate litigation, restructuring and employment.
As times get tougher, and transactional workflows drop, it will be interesting to see if some of the smaller full service firms change tack and re-brand themselves as specialist players in their most successful practice areas.
New practice areas
There has been a marked decrease in the numbers of firms planning to launch new practice areas. In 2007, 38% of those surveyed stated that they were planning to open up a new department in the coming year. This year, however, that figure has fallen to 16% – a clear illustration that the downturn is having an effect on independent firms’ strategic planning.
In line with recent market developments, the most common planned new practice area is insolvency/ bankruptcy, with firms from Eastern Europe – a region expected to be particularly hard hit by the global downturn – leading the way. Sayenko Kharenko and Asters in the Ukraine, Alrud in Russia, and Tuca Zbarcea & Asociatii in Romania are all betting on there being plenty of such work around in 2009. How much their new departments will involve external hires, rather than simply redeploying existing corporate lawyers, is not clear.
Another popular practice area is green energy. Responding to companies’ enthusiasm to be seen as more environmentally friendly, Sweden’s Mannheimer Swartling is assembling a climate change team, while Krogerus of Finland will be opening up an environmental law department. Meanwhile, in Spain, Ecija are setting up a renewable energy practice.
Other new practice areas set to be launched during the coming months by independent firms include life sciences (Graf & Pitkowitz Rechtsanwalte, Austria), media and sports law (Havel & Holasek, Czech Republic), immigration (Colucci & Associati, Italy), white collar crime (Perez-Llorca), capital markets (Egorov Puginsky Afanasiev & Partners) and institutional corporate real estate (Pestalozzi Lachenal Patry).
Despite the gloomy economic outlook, 78% of firms say that they plan to increase lawyer numbers during the next 12 months – a picture that contrasts favourably with the UK and US legal markets, where many firms are expressing a reluctance to take on new recruits and several have made substantial job cuts. Still, set alongside last year’s results – 98% of firms expressed an intention to bolster numbers in 2007 – it illustrates a significant fall in levels of ambition. Moreover, most of the firms that intend to bring in more lawyers say they are planning to do so on a smaller scale than last year, with the majority (57%) projecting a rise of 5-10%. Only 2% of firms say that they plan to grow by more than 25% – down from 23% last year.
There is, however, some doubt about the reliability of firms’ answers to this question. While many firms met the growth targets stated in their responses to the 2007 survey – for example, Sayenko Kharenko of the Ukraine and Romania’s Voicu & Filipescu both succeeded in upping lawyer numbers by 26-50% – a substantial number did not. Several firms got nowhere near their (often extremely ambitious) projections.
This makes it difficult to know exactly what to make of this year’s figures, particularly given that various respondents appended statements to their completed surveys explaining that they were waiting for the economy to settle down before they could commit to any targets. What looks most likely is a slight increase in lawyer numbers across most firms, although at a slightly lower rate than many predicted in their survey responses.
Geographically, the pattern was that the most optimistic markets tended to be in the East, with several Russian, Ukrainian and Czech firms posting growth predictions above 20% – despite gloomy economic forecasts for the region. French and Irish firms were the least likely to predict growth – a result that may have more to do with a cultural aversion to hyperbolic marketing techniques than anything else. Indeed, there is nothing to suggest that the legal sectors of these countries are more vulnerable than elsewhere.
Market share of independent firms
In 2007, the general consensus was that the market share of independent law firms in Europe would grow in the coming 18 months. This year, however, the survey results show that most firms (54%) anticipate there will be no change. This is rather out of step with firms’ strong individual growth predictions. However, given the more objective nature of this question, the responses seem likely to represent a more accurate gauge of firms’ true feelings.
Some 25% of firms predict a slight growth in independents’ market share, and 14% forecast that it will increase significantly – suggesting that there is still a fair bit of optimism around and/or that respondents believe some US and UK firms are likely to reduce their presence in mainland European markets during 2009. This theory is supported by the fact that several international firms have downsized their European operations this year. Linklaters, for example, recently dropped four offices in Romania, Hungary, Czech Republic and Slovakia – with lawyers from these offices since forming a spin-off independent firm known as Kinstellar. Meanwhile, Linklaters’ Stockholm office will be down to just 13 partners by the end of the year; quite a fall from the 36 it numbered at the time of its entry into the Swedish market in 2001. White & Case is another international firm to be scaling back in Europe, closing its Milan and Dresden offices last month, having struggled to build its presence in Italy and seen Dresden managing partner Axel Bauer retire earlier this year.
The sense of underlying optimism about the future is underlined by the fact that only three firms (out of the 122 surveyed) predicted independents’ collective market share would contract. They were based in France (De Pardieu Brocas Maffei), Poland (Wiercinski, Kwiecinski, Baehr) and Ukraine (Asters). Other firms in those jurisdictions predicted growth or no change in market share, illustrating the lack of identifiable geographical pattern in independents’ forecasts for the next 18 months.
The results show a slight increase in the percentage of firms willing to consider a merger. Twenty-three percent of firms said they would either consider or, at least ‘possibly’ consider, a merger with another independent firm, while 17% responded in the same way when asked to consider a merger with a UK/US firm. The respective figures for 2007 were 18% and 13%. While the 2008 increase is pretty moderate, some will see it as an indication of a heightened sense of vulnerability among European independents.
Of the firms that were willing to consider at least the possibility of a merger, most were relatively small – the majority under 20 partners. However, there were some notable exceptions. Ireland’s William Fry, which has 64 partners, said it would consider a merger with another independent or a UK/US firm, as did Mason Hayes+Curran (42 partners). NCTM (Italy, 37 partners) and Vogt & Wiig (Norway, 35 partners) both expressed openness to the possibility of mergers with another independent firm, while Plesner (Denmark, 43 partners) and Haavind (Norway, 40 partners) said they would consider merging with a UK/US firm.
In most cases, firms that expressed an interest in mergers were willing to consider opportunities with European independent and UK/US firms, however there was a notable preference for the former, with nine firms stating that they would only countenance mergers with independent European firms. Just four firms – Boteva & Kantutis from Bulgaria, Glatzova & Co and Prochazka Randl Kubr from the Czech Republic, and Haavind from Norway – would only consider the possibility of a merger with a UK/US firm.
Part of the general reluctance to go down the merger route may relate to the fact that almost half (48%) of those surveyed are members of international alliances. The most popular networks were Lex Mundi, World Services Group, World Law Group and Terralex.
Given that many leading economists are currently shying away from making predictions about what is around the corner, it seems a little unfair to expect law firms to gaze accurately into the future. Nevertheless, it will be interesting to see how the plans they have outlined in this year’s surveys stand up to events in 2009.
New business: ECIJA – energy
“In this moment of economic uncertainty, when most of the traditional business sectors have been affected by the current situation, it is time to look for new sectors that may allow law firms to improve their corporate results,” says Emilio Prieto, a partner at Madrid-based firm Ecija Abogados.
Prieto believes that energy – in particular, energy derived from ‘green’ sources – could be one such sector: “Undertakings made by European Union member states over the production of renewable energy makes this an attractive sector for law firms.”
Accordingly, Ecija has decided to launch an energy team with a distinct focus on renewable sources of energy, such as wind, solar and nuclear power.
Prieto emphasises that there will be some overlap between the new energy team and existing departments, describing the changes as a “slight reshaping” of the firm rather than a “serious modification.”
New business: Tuca Zbarcea & Asociatii – insolvency
“We believe that the economic and legal consequences of the international financial crisis will require comprehensive legal advice over the next few years. We also anticipate a surge in lawsuits, actions on debt, insolvencies, forced sale of secured assets, as well as restructurings in the financial sector,” says Stefan Damian, a deputy managing partner of Tuca Zbarcea & Asociatii.
As a result, the firm plans to launch a specialist insolvency and bankruptcy team. To date, it has recruited two certified insolvency practitioners, while also establishing links with with several liquidation and assets recovery firms.
“Our experience indicates that it takes more than just knowledge of the documents and regulations to successfully implement a liquidation strategy,” adds Stefan Damian. “By utilising specialist resources, including in-house and outside experts, we shall be able to operate more efficiently and help our clients deal with legal and business challenges resulting from the ongoing turbulence in worldwide financial markets.” The firm is also looking to expand its client portfolio by targeting financial organisations, investment funds and local companies.
New business: Alrud – insolvency
“Already we have a high level of professional expertise in bankruptcy and bankruptcy-related matters,” says Alrud senior partner Maxim Alekseyev. “Our specialists participated in bankruptcy procedures relating to leading enterprises from various regions of Russia.”
Accordingly, Alrud’s new bankruptcy team represents more a re-ordering of existing structures than the creation of a brand new department.
“Bankruptcy practice is closely connected with other key practices such as corporate, M&A, banking and finance and dispute resolution, so there is a real cross over of skills, adds Alekseyev. “Being a full-service firm we have comprehensive expertise and market knowledge that allows us to operate effectively in this area.”
With the world financial crisis hitting Russia hard, and the ensuing flow of insolvency work likely to be greater than other European countries, Alekseyev believes that setting up a distinct bankruptcy team is a “logical” move which he hopes will give Alrud an edge over its local rivals.
New business: Asters – restructuring
“The world recession has already affected law firms in various jurisdictions, including Ukraine. Traditional banking, finance, securities, and capital markets work, as well as that in real estate, has declined significantly over the last two months,” says Armen Khachaturyan, senior partner at Ukrainian firm Asters.
Khachaturyan believes that in order to survive this difficult market, firms must re-group, focusing on their restructuring, bankruptcy and litigation practices. Clearly this will be more straightforward at firms where lawyers do not have narrow specialisations: “Asters is an integrated law firm where lawyers are trained to be flexible in terms of type of assignments and legal issues to be resolved.”
He adds: “Our banking, finance or real estate lawyers are equally ready to work on a restructuring matter, just as our litigators can handle bankruptcy-related disputes.”
Khachaturyan also emphasises the importance of letting clients know about a firm’s ability to handle downturn-related work.
“Our marketing message must be that we consider our zone of expertise in these types of work to be just as strong as in ‘traditional’ areas, such as finance or real estate. Of course, the marketing effort will be combined with a deepening of practical training for younger lawyers.”
New business: Havel & Holasek – sports and media
In response to growth in the sport and media sectors, Czech firm Havel & Holasek have will launch two new practice areas in 2009.
“Our sports law practice will focus on sport agencies, sport managers and sportsmen. We identified a growing trend of professional sportsmen investing in companies or establishing their own businesses during or after athletic careers. We see many opportunities in this area and do not want to ignore them,” says managing partner Jaroslav Havel.
Already the firm represents an international sport agency and has advised an international group organizing motorcar racing events on creating a joint venture in the Czech Republic.
Havel & Holasek’s media practice will provide assistance on licensing and regulatory issues of terrestrial, cable and satellite broadcasting, advertising, film production and related IP rights.
“The media market represents a quickly growing area of the Czech economy, particularly in media investments. Accordingly, we are extending the IT/IP practice group to include media law services and are launching a Media and Telecommunications team,” explains Havel.
The merger questions
Firms that say ‘yes’ or ‘possibly’ to a merger with a fellow independent firm in Europe (excluding UK firms):
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