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The Baltics: Three cheers
27 January 2014 | By Burhan Khadbai
26 March 2014
4 September 2014
25 November 2013
18 August 2014
19 March 2014
The legal market in the three Baltic states is getting back on track after a turbulent few years
The Baltic states of Estonia, Latvia and Lithuania are beginning to regain some of the economic strength that earned them the ‘Baltic Tigers’ tag before the global financial crisis. And in a market becoming increasingly cross-border, lawyers in the region are confident and optimistic.
“Last year was an excellent one in all three states, particularly Latvia,” says LAWIN’s Riga managing partner of Filips Klavins.
Latvia is the fastest growing economy in the Baltics, and one of the fastest growing in the EU.
“Clients are returning to bigger firms like ours. We hadn’t been hiring for a couple of years,” says Klavins, but he adds that the number of lawyers in the Riga office has risen from 22 to 29 in the past year to meet client demand.
Magnusson Lithuania managing partner Ligita Ramanauskaitė concurs: “The market is recovering. 2013 was a year for investment.”
Strong foreign investment activity has returned to the region and the trend is likely to continue following Latvia’s accession to the eurozone on 1 January, when it became the 18th state to adopt the single currency. From a business perspective, this is likely to bring benefits to Latvia and the wider Baltic market.
“It literally makes business easier and it’s a big boost for confidence,” says Klavins.
The decision to join the eurozone is significant for Latvia, which has been relatively quiet in recent times. Any move to accelerate growth and make the country more attractive to foreign investors is warmly welcomed.
“We hope this will bring in foreign investors,” says Sorainen managing partner Pekka Puolakka. “It will boost the Latvian economy, which crashed hard in 2009/10.”
Latvia is the second Baltic nation to join the eurozone, following Estonia’s entry three years ago. So the only Baltic country not now in the zone is Lithuania, but that jurisdiction is planning to adopt the euro in 2015 and prime minister Algirdas Butkevicius has made it clear joining the single currency is a significant strategic aim.
As well as foreign investment, M&A, in terms of volume, has also been a highlight of 2013 for the Baltic legal market.
“M&A is back,” says Klavins.
Meanwhile, pan-Baltic coverage for law firms is seen as increasingly important. In March 2013 Swedish firm Magnusson completed its coverage of the region with the launch of a Lithuanian office. The firm picked up a four-partner, 20-strong team from Nordia Baublys and now has offices in the country’s capital Vilnius as well as its second-largest city Kaunas. The firm’s strategy is to become a regional powerhouse, able to serve clients across Estonia, Latvia and Lithuania.
Klavins says it is critical for a firm to have offices in all three states. Lawin was one of the first to build a pan-Baltic presence when the firm formed in 2004. In the past decade its three constituent firms have gradually become more integrated, although full financial integration remains impossible due to local regulatory restrictions.
“Local clients are doing business in each other’s countries,” he says. “Also, foreign investment is coming to all three, or at least two of the three.”
With good levels of foreign investment and M&A activity, the legal market has no shortage of work, but it does face other issues.
“The market is not yet saturated, but it is getting that way,” says Puolakka, speaking of Estonia. “Organic growth is slower than in the past and will be slower than in the other Baltic states. This is due to factors such as the size of the economy and the relatively limited human and other resources it has, the size of the law firms and the fact that the cumulative foreign direct investment [FDI] level is higher than in the other Baltic states, leaving less room for growth through new FDI.”
These problems are compounded by the fact that Estonia saw net emigration in 2012, the most recent year for which statistics are available. Hiring could be a big issue for the country as it tries to attract people back.
Another key issue is the recruitment of young associates.
“Young people want to be easy-going and not have to work long hours,” says Ramanauskaitė. “They’re going for more attractive industries like biotechnology.”
She adds that, in an attempt to become more attractive, Magnusson is working with universities and inviting students to gain experience with the firm.
Puolakka agrees that there is a problem: “It’s a challenge to find educated people,” he says. “There’s a need to target people earlier.”
He adds that Sorainen’s internal training academy, launched a few years ago, is beginning to bear fruit.
To add to the recruitment challenge, there are no specialist legal recruiters in the Baltic region, unlike in the UK and other European jurisdictions.
The verge of merger
Mergers are one way for firms to capitalise and boost growth – if they come to pass. Last year Raidla Lejins & Norcous and Baltic Legal Solutions, both firms with offices in all three countries, called off merger talks in Lithuania after conflicts of interest between key clients proved impossible to resolve. The merger would have formed the biggest firm in Lithuania by headcount. Raidla managing partner Irmantus Norkus says: “The Lithuanian market is tight and it’s rather complicated to merge two leading firms without significant loss of business. Spill-over effect was obvious.”
“This year there may be more mergers and splits – the market isn’t calm,” says Ramanauskaitė.
Puolakka adds that merger activity is more likely among small and mid-tier firms than among the bigger players.
Whatever happens, the outlook for lawyers in the Baltics seems bright.
“We expect this year to be quite positive,” says Ramanauskaitė.
“There’s a feeling of great optimism,” adds Klavins. “We have a number of projects in the pipeline, such as a couple of nice M&A deals. This year will be better than last.
Key figures: Estonia
Life expectancy at birth: 76
Source: Statistics Estonia, World Bank
Key figures: Latvia
Life expectancy at birth: 74
Source: Statistics Latvia, World Bank
Key figures: Lithuania
Life expectancy at birth: 74
Source: Eurostat, World Bank, Statistics Lithuania