Brazil comes of age
18 October 2010 | By James Swift
As more international firms arrive, local players expand and competition increases, Brazil is finally starting to realise its potential.
Once the perennial ’market of the future’, few would dispute that Brazil’s time has come. GDP grew by 9 per cent during the first quarter of 2010, M&A volumes have surpassed $81bn (£51.2bn) so far this year and, with preparations for the 2014 World Cup and the 2016 Olympics underway - as well as an emerging middle class to cater for - there’s a strong pipeline of infrastructure deals.
Capital markets work was thin on the ground for a while but now state-owned oil company Petrobras’ $70bn IPO is out of the way, the world’s largest-ever share offering, more Brazilian companies are confident about getting their own deals away. In short, things look good for Brazil.
Things look good for Brazil’s lawyers too.
“From water to wine - that’s the difference,” says Alexandre Bertoldi, managing partner of Pinheiro Neto, when asked about the difference between being a lawyer in Brazil 15 years ago and now.
“The work is much more sophisticated when I compare what I did to what our associates do today, and the cases and amounts of money they’re exposed to. The exposure to foreign firms is very different too, we’re much more part of the international market and have foreign lawyers here in meetings every day. In the past, travelling to international meetings was a big thing, now we have between 10 and 15 lawyers out of the country all the time.”
But while the internationalisation of the profession in Brazil has opened up firms to new lines of work, new clients and bigger deals it has also meant more competition.
A few firms, such as Baker & McKenzie, Clyde & Co and White & Case have had a foothold in Brazil for more than a decade - more than half a century in Baker & McKenzie’s case. But over the past two years the number of international firms in Brazil has exploded: Allen & Overy; Barlow Lyde & Gilbert; Chadbourne & Parke; DLA Piper; Garrigues; Gibson Dunn & Crutcher; Mayer Brown; Milbank Tweed Hadley & McCloy; Simpson Thacher & Bartlett; and Skadden Arps Slate Meagher & Flom have all entered the market since 2008.
It is not a trend that looks to be slowing down, either.
“I know of 12 international firms shopping around right now,” says Pedro Amaral Dinkhuysen, managing partner for Latin America at Laurence Simons International. “It’s not just corporate firms from the US and UK either, but also firms from Europe and litigation firms too.”
The market is busy enough now for local firms not to notice whether the presence of their international rivals is having an effect on workflows, says one partner, who adds that the situation will become clearer when the workload diminishes. Still, recent high-profile hires by DLA Piper and Mayer Brown’s local counterparts, Campos Mello and Tauil & Chequer (Brazil bans foreign firms from practising local law, so many of them establish consultancies) were enough to prompt the São Paulo bar to give an advisory opinion stating that some of these international/local firm tie-ups breached local rules.
This indicates which way a ruling would go if proceedings were to be brought against an international firm.
“In the long run I think that these barriers will go away although I’m not sure for how long,” says José Virgílio Lopes Enei, a partner at Machado Meyer Sendacz Opice, which recently lost a partner to Mayer Brown’s counterpart. “Right now, the major discussion is whether, under the current framework, international firms should be allowed to partner with local firms. I believe that some of these associations are true associations and should be permitted and respected, and some others are merely disguising their true position.”
And while international firms are careful to toe the line in Brazil, their need to expand may bring this dispute to a head as more lawyers are poached.
“Everyone I speak to in the international firms’ local counterparts say they expect to grow by 30-40 lawyers in the next year,” says principal consultant at Hudson, David Stuckey.
But it is not just international firms upping the ante in terms of competition. As Brazilian companies continue to grow, and once family-owned businesses float for billions of dollars, in-house positions are looking increasingly attractive to private practice lawyers, providing an extra dimension of competition for local lawyers.
“The problem for us now is that in-house teams are not just getting bigger but getting better too,” adds Bertoldi. “In the past there was a clear division in the market between private practice and in-house. It was almost impossible for in-house departments to poach lawyers because the wages were different and they couldn’t attract the same lawyers. But now many companies are taking the decision to enhance their teams and it’s a dilemma - if a very good client comes to us and says they want to hire a lawyer of ours, do we let them go?”
“[In-house] is not as busy as private practice but there are things happening,” says Dinkhuysen. “A lot of mid-sized companies are growing and so the requirements for legal directors are changing. So I could see some early retirements for some of the older counsel because the market is changing and in-house lawyers need to be more business- oriented than used to be the case.”