Brewing up a storm in Benelux

The Netherlands legal scene is in turmoil after a series of UK firms broke

into their markets. Alison Laferla reports on the new European invasion.



Twelve months ago, probably the best word to describe The Netherlands'

legal scene would have been "stable". The market was dominated by a handful

of large local firms and poaching at partner level was rare.

Local lawyers had recovered from the shock of Clifford Chance opening an

Amsterdam office in the 1970s, and everything seemed to be ticking along

quite comfortably.

How much can change in a year? Now, as one Dutch lawyer puts it: "The

Netherlands' legal scene is in turmoil."

Local firms had barely digested the news that foreign giants Linklaters &

Alliance and Freshfields were elbowing in on their lucrative market, when

Loeff Claeys Verbeke, the largest Benelux law firm, confirmed last month

that it was breaking up to pave the way for a merger with Allen & Overy.

Last week, The Lawyer revealed that the merger is set to exclude Loeffs'

Rotterdam office.

The news has flabbergasted the legal community, and it is not surprising

that the local press is muttering about an unwanted invasion from foreign

firms.

So why has The Netherlands been targeted by international heavyweights?

Part of the answer lies in the quest of large City firms to build up

pan-European practices, offering a seamless cross-border capability. As

firms like Linklaters and Freshfields rolled out into Europe, they could

not afford to ignore The Netherlands, where the major firms already had

healthy trans-border practices.

Dutch firm De Brauw Blackstone Westbroek, for example, was one of the

initial firms to join up to Linklaters & Alliance last year.

Allen & Overy managing partner John Rink says: "The Dutch economy ranks

among Europe's largest and for us The Netherlands are an integral part of

our strategy to build a truly pan-European law firm."

Dick van der Stelt, resident partner in the London office of Dutch firm

Nauta Dutilh, explains: "The fact that The Netherlands is a small country

means that it is internationally oriented. We have a tradition of doing

business abroad and of being an intermediary between countries and

companies."

Dolph Stuyling, partnership secretary at Loeffs, goes further.

"My personal view is that British firms are all making one another

increase their market positions, as a growth procedure and to foresee

future mergers with US firms. If they can bring in their dowry a truly

integrated European practice, this will up their stature in merger talks,"

he says.

Along with the strategic goal of expanding across Europe came the

realisation that there were rich pickings on offer.

Many European top 300 companies are based in The Netherlands because of

its favourable corporate tax regime. Freshfields, for one, thought the role

of Dutch lawyers in cross-border transactions was disproportionate to their

size in terms of the European economy. The firm decided to muscle in on the

market, and in March this year announced it was opening an Amsterdam

office.

After preliminary talks with local firms, in particular Nauta, came to

nothing, Freshfields decided to set up an office from scratch. Chief

executive Alan Peck says Dutch firms proved too big and insufficiently

profitable for merger.

Freshfields promptly recruited four very high-profile Netherlands

partners, three from Belgian-Dutch firm Stibbe Simont Monahan Duhot and one

from De Brauw. This aggressive move came as a shock to Benelux firms, which

are not used to losing their partners.

The big five accountants were also moving into the market, after the Dutch

bar gave the go-ahead for multidisciplinary partnerships in The Netherlands

earlier in the year. In March 1999, Ernst & Young's captive firm, Van

Gijzen Advocaten, recruited a 12-strong notary team from Dutch firm Trenite

Van Doorne, making it one of the largest Dutch firms.

Stuyling says these developments precipitated Loeffs' disintegration.

"There was a general feeling that, given developments in the market, we

should be doing something in order to prevent Loeffs from disintegrating as

a result of one partner leaving every six months to join Freshfields,

Clifford Chance, et cetera. We wanted to keep our future in our own hands,"

he says.

Under the new plans, a group of 35 partners will join Allen & Overy and

another group of 26 partners is merging with Dutch tax firm Loyens &

Volkmaars. What will happen to the rest of The Netherlands partners remains

to be seen.

The speed of Loeffs' decision took many by surprise, but so far the

reaction has generally been positive. Peck describes it as a brave and

far-sighted move.

Observers expect something similar to happen when De Brauw moves towards a

full merger with its Linklaters partners.

So far, Dutch lawyers are playing down the impact of these developments.

They argue that the Dutch market will not be significantly affected by the

mergers, as Allen & Overy and Linklaters already had referral agreements

with their future merger partners.

Van der Stelt says: "I can see advantages for the Dutch sides, as they

will have access to UK know-how and the UK way of handling large cases. But

I don't think Allen & Overy or Linklaters will attract more Dutch business

than they did before, because the alliances were already there."

His firm Nauta, the largest Netherlands firm, has said it will remain

independent and not look to merge.

"Our practice traditionally comes out of lots of referral work," says van

der Stelt. "We get work and clients from all over the world and are looking

to maintain our relationships with A1 City and US firms.

"We believe this keeps things more interesting for our partners."

Stuyling says: "It's easy to say we will have an alliance but to really

merge, and deal with difference in profitability and size, is quite a

different matter. I think it is going to pose substantial problems."

He believes the mergers will create opportunities for the few remaining

independent Dutch firms, as they will not be hampered by conflict of

interest situations.

Despite their low-key reaction, Dutch lawyers know local firms cannot

match the resources of multinational practices. As Stuyling comments:

"Freshfields still has a long way to go to become a firm with a credible

number of specialists and associates to do the work and a sufficient number

of clients to become a competitive force, but they certainly have the

back-up to do that."

In particular, as Freshfields showed, ambitious Dutch partners are willing

to jump ship for the more profitable international firms. "The turn-on for

the best lawyers is doing the best work, and the non-international Benelux

firms are being excluded from the best work," explains one senior lawyer.

"Dutch firms were too big and had no proper quality control. The good

lawyers were subsidising the poor ones. Some lawyers have been

feather-bedded for too long."

Clifford Chance, for many years the only City firm with an Amsterdam

presence, is also having to face up to the new competition. It has

signalled a desire to expand its Amsterdam presence and there are

unconfirmed rumours that it is looking for a Netherlands merger partner. As

one Dutch lawyer puts it: "We are all waiting to see what will happen

next."

The developments have also had ramifications in the other Benelux

countries. In particular, Loeffs' Belgium operation was affected by the

firm's break up.

Unlike its Netherlands counterpart, Loeffs 30-partner Belgian practice

will not be merging with Allen & Overy.

Loeffs' Benelux managing partner, Wim Dejanghe, says: "The Dutch market is

under greater pressure to do this type of operation at this stage. We feel

to do this sort of thing would be premature. We will continue operating the

way we did before and our relationship with Allen & Overy will remain the

same.

"I do not expect the merger to have a very large impact on us," he says.

Dejanghe believes that so far Belgian law firms have escaped the City

firms' greedy gaze. "English law firms are first concentrating on the most

important markets. Dutch companies are much stronger than the Belgian ones,

so we've been more protected.

"English firms, at this stage, are not really competitors for Belgian law.

They are looking at the larger markets like Italy and Spain," he says.

Yves Herinckx, managing partner of Clifford Chance's Brussels office,

agrees that there have been no huge changes in the Belgian legal scene,

apart from a client-led trend towards internationalisation.

"With firms and their customer base, there is a move towards international

providers of services. This is reflected in the desire of local firms to

internationalise, as seen by De Bandt van Hecke & Legae joining Linklaters

& Alliance and the attempted merger by Loeffs."

European alliances are also giving foreign firms in-roads into the tightly

regulated Luxembourg market.

Linklaters became the first UK firm to move into Luxembourg when it signed

Loesch & Wolter to its alliance in May. The firm joined the alliance via a

full merger with Belgian member De Bandt.

Now Allen & Overy is in merger discussions with Loeffs' Luxembourg office.

Luxembourg is considered a significant gain because of its lucrative

banking market.

Herinckx says: "Traditionally the legal market in Luxembourg was serviced

by a small number of local and very traditional firms. But this is starting

to change as lawyers there realise that internationalisation is key.

"Their natural client base, the large financial institutions, are

expecting an international standard of service and Luxembourg lawyers are

responding to that."