Mihai Mares, Mares Danilescu & Asociatii
2 January 2012
Local firms rule in Romania, but that may change if the economy takes an upturn. By Dale McEwan
Like much of Europe, Romania is currently in a period of economic stagnation, with minimal growth expected to materialise when figures for the past 12 months are revealed.
As a result, dynamic is not a word that many lawyers would use to describe Romania’s legal market. The country has seen little in the way of movement since Spain’s Garrigues made a sharp exit at the end of 2010. The past few months, though, have seen some consolidation as firms bid to safeguard their survival.
An example of this is Eversheds’ tie-up with local full-service outfit Lina & Guia in October 2011. As a result of the move Lina, which advises Danone, Volvo and RBS, was renamed Eversheds Lina & Guia.
“That was long expected in the market,” says Kinstellar Romania partner Bogdan Bibicu.
Four-partner firm Lina was not integrated fully into Eversheds, instead becoming part of Eversheds’ international network.
For Eversheds chief executive Bryan Hughes, Romania shows potential for growth within the infrastructure and projects fields.
“The Romanian market’s a critical hub for the Central and Eastern European (CEE) market and has strong growth potential, as well as being a strong trade partner with Russia,” he says.
The development replaced Eversheds’ previous relationship with Tuca Zbârcea & Asociatii.
The past few months also witnessed Mares & Asociatii hire Zamfirescu Racoti Predoiu partner Lucian Danilescu in a move that saw the firm relaunch itself as Mares Danilescu & Asociatii.
Mares & Asociatii originally mer-ged with Garrigues following the latter’s launch in Bucharest in 2008, with Mihai Mares becoming managing partner of the new office.
When Garrigues pulled out of Romania the local office joined Musat & Asociatii. Mares joined Musat for less than six months as a managing associate before relaunching his firm in September 2011.
Danilescu brought 14 years’ experience in M&A, real estate, energy and capital markets. His arrival brought the Mares & Asociatii team to six partners and six associates.
“We consider it as a sort of consolidation and a good move for us in the market,” says Mares, seizing the chance to break expectations and use the word ‘dynamic’.
“This type of young, dynamic law firm, there are only a few of them on the market,” he stresses. “Lucian’s a high-profile lawyer in Romania.
He complements the rest of our partners’ expertise.”
Recently established local firms often end up being integrated with international players. Mares says such an outcome is not the primary goal for his firm, although he will not exclude it as a future possibility.
Mares and Danilescu made a trip to London in December 2011 to meet with UK and international firms in order to start establishing a referral network.
“It’s about exposure and to be able to use the full-service expertise for pitching,” says Danilescu.
They remain tight-lipped on who they were meeting.
Romania’s drive towards further nuclear power may be the perfect opportunity to team up with an international firm, suggests Mares.
Around 70 per cent of the firm’s work is derived from international sources, with the remainder coming from domestic activities. Mares says that Danilescu’s arrival also allowed the firm to target capital markets and the firm will now look at developing private equity, project finance and international arbitration teams.
It has plans to add another 10 lawyers by the end of 2012. The long-term plan is to push turnover up to €1m (£850,000) by the end of the year.
“1 January 2012 is the ignition moment,” says Danilescu. “Targets will be set from this point.”
The remainder of the market movement saw bpv Grigorescu and Stefanica & Florea merge to create six-partner bpv Grigorescu Stefanica.
“We found that there were comp-lementary capabilities in the two firms,” says managing partner Catalin Grigorescu, adding that the move strengthened bpv Grigorescu’s energy and litigation competencies.
“We believe this combination’s a natural fit that will create a highly leveraged business model,” adds Daniel Stefanica, founder of Stefanicaă& Florea.
As Stefanica explains, the merger also gives both firms the benefit of the combined international expertise of the member firms of bpv Legal – an alliance of firms spanning Hungary, the Czech Republic, Austria and Romania.
The main challengers
But international firms have tended to lag behind the domestic Romanian market. At present there is little sign of them catching up, although things could start to change in the coming years.
“The market’s been characterised by some kind of status quo,” says DLA Piper country managing partner Marian Dinu.
“If I were to choose words for 2011, I’d say stability and consistency,” says Tuca Zbârcea partner Cornel Popa.
“There’s been a compression in the market in the sense that local and international firms are competing for some of the same work,” explains Kinstellar Romania managing partner Daniel Torsher.
“In many sectors the international firms have a good share of the market,” says Salans Bucharest managing partner Anda Todor, adding that sophisticated advice relating to international financing, PPPs and IPOs are such areas. “We come with experience working in these sectors, which Romanian firms don’t have. I think this type of work gives foreign offices like us an advantage.”
As international firms do not cover litigation, the general consensus is that the local players still hold the bulk of the weight in the market. However, this could change as the “dinosaurs” leading domestic firms begin to retire, according to Mares.
“Half of a partnership that’s led by a dinosaur is unhappy,” he asserts, explaining that there are two types of dinosaur: traditional litigators and the ones who were involved in Romania’s biggest privatisations. “Both will disappear in the near future,” he predicts, anticipating the demise initially of the privatisation lawyers.
With the exception of Tuca Zbârcea, Mares highlights a number of succession problems at the big local firms in the coming years. He believes there will be a dramatic shake-up of the legal landscape.
“After the succession problems are solved there’ll probably be much more room for international firms,” says Danilescu. “Not because [the local firms] are stopping international firms, but because they’re keeping everything closed.”
“There’s a guiding chairman deciding everything from the paper in the toilet to the strategy of the firm,” adds Mares.
“When this person leaves, the structure will face problems,” continues Danilescu, explaining that lawyers within these firms will not be used to being involved in a shared decision-making process. “We now position ourselves for the next four to five years. Eventually [the market] will change dramatically.”
“The top of the market will cha-nge,” continues Mares. “For sure the top three firms will change in the next three to five years.”
Head of Wolf Theiss Romania Bryan Jardine says senior lawyers at local firms have indicated their concerns with the ways things are done.
“There’s a feeling that some of these firms are managed on a more paternalistic basis,” he adds. “They feel they’re good lawyers, but there’s not a strong systematic appraisal and promotion process in place. Many feel they may need to perhaps get into a firm that’s more objective in its appraisal and promotion processes.”
But Grigorescu is not convinced that the succession issues of the local players will enhance international firms.
“Maybe the firms in the mid-sized tier may benefit,” he says. “If we’re talking about a larger firm that would be in a position to break up due to succession issues, then smaller chunks would be more likely to go to mid-tier firms than international firms.”
In terms of work, government privatisations seem to be contributing their fair share, with more to come.
Work on privatising state-owned companies will need to be completed under Romania’s €5bn International Monetary Fund (IMF)-led loan. The deal replaced Romania’s €20bn package from the IMF, EU and World Bank, which expired in May 2011.
Musat & Asociatii is still involved in ongoing privatisations, such as assisting the Ministry of Economy and the Office for State Ownership and Privatisation in Industry (OPSPI) in connection with the secondary public offering on the Bucharest Stock Exchange of 15 per cent of the shares held in national gas transmission company Transgaz, as well as electricity transport and system operator Transelectrica.
The firm is also advising the ministry and OPSPI in relation to the privatisation of Oltchim, one of the largest state-owned companies in the chemical industry.
Progress in this field has so far been slow, but Jardine notes that there are still some big-ticket privatisations in the pipeline, such as CFR Marfa’s, the freight transport part of state railway carrier Caile Ferate Române, and that of national air carrier Tarom.
Meanwhile, energy, particularly in renewables, has also been an active area for firms. As Jardine explains, the introduction of secondary legislation last November should give certainty to investors. Romania uses tradeable green certificates rather than a feed-in tariff, with two certificates for wind projects, three for biomass and six for solar.
“The point is that, finally with the approval of this law, the market now becomes more attractive for many investors who’d previously been sitting on the sidelines, considering renewable projects in Romania,” says Jardine.
Tax law is another area of growth. The decision to launch a tax practice at DLA Piper’s local office in March 2011 seems to have paid off in recent months. Tudor Nedelea joined as a tax director along with indirect tax consultant Laura Constantin. Both previously worked at PricewaterhouseCoopers Romania.
“This has been developing quite nicely, but it’s not an easy market for tax,” says DLA Piper’s Dinu.
As he explains, the life sciences industry is going through a relatively difficult period as a new clawback tax is being applied to pharmaceuticals.
“This is where our regulatory life sciences expertise is well-complemented by our tax expertise,” he adds.
Attracting new investment continues to be a struggle for Romania. Foreign direct investment has decreased over the years, with the National Bank of Romania reporting investment of €2.2bn in 2010 compared with €5.2bn in 2004.
“There’s been a lot of talk about the Chinese interest to invest in Romania and the CEE and South East Europe region,” says Jardine. “It’s true that they’ve been sniffing around. They’re particularly interested in large infrastructure projects.”
Romania’s ranking in Transparency International’s Corruption Perception Index over the years perhaps explains at least some of the muted activity. The country came in at 69th place out of 178 countries in the 2010 league table with a score of 3.7 (the range is from zero to 10, with 10 being the least corrupt). In 2011 Romania scored 3.6, putting it in 75th place out of 183 countries.
Estimates suggest that the country’s economy will grow by around 2 per cent during 2012 compared with earlier forecasts of around 4 per cent. It is still targeting a massive reduction in its budgeted GDP deficit, from 4.4 per cent in 2011 to 1.9 per cent in 2012, according to news reports. Last year saw some progress in this regard, with figures for the first 10 months of 2011 putting Romania’s GDP deficit at 2.4 per cent.
“I thought that from the wider economic context we started to see the light at the end of the tunnel,” says Clifford Chance Bucharest managing partner Daniel Badea. “But that light might be more vulnerable than we thought due to the wider economic pressures.”
Where to stay and eat in Bucharest
“There are quite a few good restaurants in town now – Casa Di David for the best desert and the best sunset in Bucharest, Isoletta for the best fish and seafood and Prime, which has the best wine selection.”
Daniel Badea, Clifford Chance
“My favourite hotel is the Radisson Blu Hotel in Bucharest. It has the perfect location – in the centre of Bucharest, near the former Royal Palace – and brand-new facilities, perfect for both business and leisure. It sure is lovely. Madonna stayed in it for a few days while she was touring Eastern Europe.”
Catalin Baiculescu, Musat & Asociatii
“Uptown is my favourite restaurant choice for business lunch/dinner. It’s located in one of the most elegant areas of Bucharest and is always attended by people speaking English. It’s an obvious choice for expats and for important Romanian businesspeople, for its modern look, nice atmosphere, quality food and great service.”
Mihai Mares, Mares Danilescu & Asociatii