Austria: can its firms survive if they refuse to open up?
18 November 2002
There are two statistics that Austrian lawyers are never tired of quoting: 'There are more lawyers in Munich than the whole of Austria,' and 'There are less lawyers in Vienna now than in 1937.'
Whether this represents the progressive marginalisation of the Austrian market or the secret of its success is barely discussed among Viennese lawyers over their melange. As German legal magazine JuVe's Falk Schornstheimer found out on a recent visit to the Austrian capital, Austrian lawyers are proud of what they have achieved - closely linked as it is to Hapsburg legacy in Eastern Europe - and supremely confident about the future.
They see the disinterestedness of most foreign firms in the Austrian corporate market as a sign of the underlying strength of the leading firms there, not withstanding Heller Löber's mergers with Bruckhaus some five years ago and the integration of Hügel Rechtsanwälte into German multidisciplinary partnership Haarmann Hemmelrath. Talks between Pünder and Cerha Hempel & Spiegelfeld, or between Clifford Chance and Wolf Theiss have come to nothing, and nowadays few German firms would see a move into Austria as a primary strategic issue.
Given the corporate track record of Austrian firms, this reluctance is surprising. There is highly lucrative work inside Austria that is there for the taking. Advising Hypovereinsbank on the takeover of Bank Austria (Binder Grösswang); or Telekom Austria on the repurchase of 25 per cent of its shares from Telekom Italia (CMS Strommer Reich-Rohrwig Karasek Hainz); or the privatisation of Austria Tabak and the Austrian Savings Bank, are all examples of deals that, had they occurred in the emerging economies of Central and Eastern Europe, would have provoked new offices of international firms.
Foreign firms that have been involved in the major Austrian transactions in the past few years have not seen fit to follow it up with a permanent presence, but the major reason for this is the ability of Austrian firms to remain independent, bolstered by a profitability that certainly matches most German firms.
Many have been able to build up an organic structure - the dream of many a Continental European manager. A 1:5 partner-associate ratio is standard, and some are nearing double figures. Austrian firms benefit from what is effectively a state-guaranteed leverage. Lawyers have an effective five-year articles period before they are fully qualified. This has allowed the firms to bulk up over a relatively short space of time, allowing the sort of specialisation to take place that German law firms could achieve only through merger.
Viennese firms have continued to grow organically because Austria continues to be highly centralised in practice. Although its federal states have de jure autonomy, the economy continues to be focused sharply on the capital. The odd satellite office in Graz (Schönherr) or Innsbruck (Binder Grösswang) is for the most part cosmetic, even though the skiing is, of course, infinitely better.
The combination of a small legal community and an economy that is not only geographically centralised but is also only half-liberalised tends to make it particularly difficult for outsiders to break into the deals market. While the international financing banks have been able to insist on their own lawyers for deals in the reforming economies, the Austrian banking and finance scene has remained a closed shop for the most part. Only the very biggest deals will need outside finance and so the track record for international firms is, at best, stop-and-start.
The success of Austrian firms in the markets on their doorstep is less monolithic. Viennese lawyers never tire of pointing out that Bratislava is only an hour away, and that the common Hapsburg roots of Central European citizens allows Austrian lawyers to see themselves as kindred spirits. But most foreign lawyers in Central European markets see Austrians as minor players, emphasising that few major deals will be closed with the exclusive participation of Austrian lawyers.
On the one hand, this might underestimate the role that Vienna can and will play in the corporate market when the EU is widened to include the reform economies in 2004. A number of Austrian firms already make more turnover outside their home country than within. Weiss-Tessbach, for example, now has offices in Prague, Bratislava, Zagreb, Budapest and a brand new presence in Sarajevo. Vienna is the administrative centre for Eastern Europe for a number of multinationals - 85 in all, according to a recent survey by the Austrian National Bank. So it is no surprise that Freshfields Bruckhaus Deringer had a major role advising a consortium in the privatisation of the Slovakian gas company SPP, the largest to date in Slovakia.
But on the other hand, the secret of Austrian firms' success, and their ongoing independence, could be their undoing if corporate work opens up post-2004.
Most lawyers expect a growth, albeit unspectacular at first, of mid-volume corporate work beyond the headline privatisation deals. This ought to be natural terrain for Austrian firms, but their pre-eminence in their domestic markethas been based on their ability to remain a relative closed shop, carved up by a small number of firms. Accord-ingly, Austrian firms argue that some of their German counterparts do not have the manpower to exploit any substantial growth in the Central and Eastern European corporate markets.
That throws up other interesting questions. If they can only achieve that critical mass through merger, who are the candidates that could snap up the leading Viennese firms? Given the huge amounts of German Mittel-stand investment into their neighbours, the axis between Vienna and Munich (itself an ever more important financial centre in Continental Europe) begins to look very interesting.
Aled Griffiths is editor of German legal magazine JuVe Rechtsmarkt