17 January 2011 | By James Swift
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Consolidation in the Baltic countries has been a dominant theme in the past year, says James Swift
In 2010 the trend towards regional mergers among law firms in the Baltic countries continued, providing confirmation - if anyone still needed it - that international clients who see the region as a single market want to deal with one firm when doing business there.
The first tie-up took place on 10 September 2010 as Estonia’s Tark & Co merged with Grunte & Cers in Latvia and Sutkiene Pilkauskas & Partners in Lithuania. The new firm is called Tark Grunte Sutkiene and has 80 lawyers across offices in Tallinn and Tartu in Estonia, Riga in Latvia and Vilnius in Lithuania.
“Our decision to merge was driven by client demand because the Baltic States are looked upon as a single region,” says managing partner Aare Tark. “More than half of our clients are foreign or local subsidiaries of international companies.
“Technically, we’re three separate legal entities, but that’s because the law restricts us from having a single partnership. All the budgeting and decision-making at the firm is joint. We have country partners and we’re going to have pan-Baltic partners in the near future. It means that we’re truly operating as a single unit. We have pan-Baltic practice areas and that’s the most important thing - serving the clients.”
Also in September, pan-Baltic alliance Lawin, which launched in 2004, integrated even further by shifting its decision-making responsibilities to a regional management board and creating pan-Baltic practice heads.
Managing partner Filip Klavins is unequivocal about the need to work across the three countries as a single outfit.
“We can’t operate otherwise,” he states. “This year we merged practically everything, except for the firms’ full financials. There’s just no other way to operate in the region with the quality we wanted without being fully integrated.
“A decision may come from our Vilnius office or it may come from Tallinn, but we know that whoever makes the decision won’t just be thinking about their own office, but taking into account the whole firm.”
Some believe that the creation of Tark Grunte Sutkiene could be the last pan-Baltic tie-up for the foreseeable future.
“I think we’ve now seen the last of these mergers because the biggest law firms all now have one brand across the Baltic States,” says Priit Lätt, managing partner of Glimstedt Straus & Partners in Estonia. “However, they’re not true mergers because they don’t have a corporate structure whereby there’s a single holding company. They’re just contractual mergers with increased cooperation between firms - the future will show which firms are truly integrated.”
Room for one more?
There may be at least one more pan-Baltic merger on the horizon, however. Tamme Otsmann Ruus Vabamets (Torv), a full-service commercial law firm in Estonia, which only recently completed a domestic merger, is looking to create a single brand across the Baltic region.
“Over the years we’ve worked with several Latvian and Lithuanian firms and this has been good for us in working out which firms are a good fit for us and whose service levels match the expectations of our clients,” says Tõnis Tamme, head of transactions at the firm. “We’ve found two such firms and shaken hands on a deal involving closer cooperation. And we’re preparing a joint brand, which we hope we’ll be launching in the next three or four months.”
Torv was created in September 2010 - evidently an exceptionally busy month for Baltic law firms. Previously it was two firms, Tamme & Otsmann and Ruus & Vabamets. The former was well-known for its transactional practice, the latter for dispute resolution.
According to Tamme, increasing competition in the Estonian legal market prompted the merger, with low activity levels providing an opportune window for the firms to get their houses in order.
“We can now use our firms’ knowhow to work together,” says Tamme. He says the tie-up complements both the contentious and non-contentious practices - the former gaining from the ability to solve a tricky dispute with a transaction, while M&A lawyers will have a better idea of what will happen if a case goes to court.
“The partners at each of the firms had known each other for some time,” notes Tamme. “Competition in the Estonia legal market’s tougher than ever. Tougher, I think, than in Latvia and Lithuania. The hunt for good M&A work’s difficult.”
Signs of hope
Indeed, 2010 was on the whole a disappointing year for transactions in the Baltic region. Most firms reported a pick-up in the last few months of the year, but it is still too early to tell whether this was a sustained boost or merely the usual end-of-year scramble by companies to get something done. Either way, the improvement on 2009, which yielded no end-of-year rush whatsoever, and the return of Nordic investors to the Baltic countries in late 2010 are both good omens.
“We’ve got a handful of deals and about 80 per cent of them come from the Nordics and Scandinavia - Denmark, Finland and Sweden mostly,” says Klavins. “There isn’t much local activity in terms of merging or buying; it’s mostly companies taking a look at themselves and trying to match themselves with foreign companies, which is good. For a long time local entities didn’t want to face facts and reduce their prices.”
Klavins points to recent deals to provide examples. “We’ve had a couple of service sector transactions, something in telecoms and something in the food sector. It’s been spread out. The energy sector’s still interesting - that’s been going on throughout the crisis, though,” he says.
Estonia has been the most active jurisdiction of the three Baltic countries, its entry into the eurozone in January setting it apart from
its stablemates as the most advanced economy in the region.
Although the largest potential deal, the planned IPO of Estonia’s largest electricity company Eesti Energia, fell through due to market instability, there were still some notable transactions. For example, Eesti Telekom’s e320m (£266m) public takeover and squeeze-out of shares by Telia Sonera saw Tark & Co and Sorainen both landing roles on the deal. Luterma’s sale of its shares in Kalev Chocolate Factory - a jewel in Estonia’s manufacturing crown - to Norway’s Orkla group was also a highlight, with Tark & Co advising Luterma.
A new law in Estonia in 2010 that allows authorities to seek damages from media outlets for libel and breaches of privacy to stop outlets causing further damage led to outrage from the country’s newspapers. The six biggest left their front pages blank in protest and some lawyers wondered whether punitive damages could be sneaked into Estonia through the back door. However, many believe the issue was given more attention than it deserved.
“There’s a new law concerning the penalties for libel, which provides the possibility for punitive damages for infringements, but I don’t think there’ll be many problems connected with the issue,” says Lätt. “There are more pressing issues in Estonia that need to be dealt with. For example, the country needs to make its tax code more entrepreneur-friendly and the general business climate friendlier too.
“We also need to decrease the state fees that arise when a business wants to file an application. These cause a problem because the high fees for a civil action affect a company’s decision to go to court or not. This is having an impact on their civil rights.”
Construction work has been the most lucrative avenue in Lithuania. Iberdrola’s e350m combined circle gas turbine power plant is the largest continuing project, while the country’s plan to build a nuclear power plant (currently on hold) has drawn attention from law firms across
“Our Vilnius team is still working on the nuclear power plant project,” says Klavins. “We’ve had enquiries of a business development nature from foreign firms who want to partner us and do something relating to this.”
Lithuania’s Invest LT+ programme, which was launched in 2009 and designed to promote foreign direct investment in the country, also continued to yield positive results. In September 2009 Barclays signed an investment agreement with the Lithuanian government and in early 2010 launched a technology centre in the capital Vilnius. This was followed by several more high-profile investments.
In May 2010 finance specialist Western Union agreed to set up the first major shared services centre in Lithuania. In July Ideal Invent, advised by Sorainen, established an R&D software company. These investors were followed by US company Moog, again advised by Sorainen, which in December agreed to establish a new production and R&D facility in Vilnius. IBM has also agreed to open a research centre in the country.
Hope springs eternal
Latvia was probably the hardest-hit Baltic state and, fittingly, the largest project there in the past few years has been the state bailout and subsequent break-up of Parex Banka, the only bank bailout in the Baltic region.
There is, however, light at the end of the tunnel for Latvia and the other Baltic states, which have been dominated by reorganisations in the past year. The numerous restructurings have resulted in valuable properties ending up in the hands of banks or with foreign investors who do not want to keep the assets for long.
“After one or two years of a quiet period it’s great to be able to forecast a pipeline of two or three months of work,” says Tamme. “And as soon as the financing becomes available there should be more transactions.”