Focus: European firms in London - The English channel
26 September 2011
London’s global hub status means many big European practices are enhancing the capabilities on offer at their City bases. By Joanne Harris
The continuing significance of London as an international financial centre cannot be overestimated, even at a time when much of the world is looking eastwards. Over the years this factor has drawn dozens of Continental law firms to the UK to establish discreet, well-appointed offices across the City.
The original European strategy was to set up a representative office in London, network furiously and attract work that could be sent home to the country of origin. These days that model is rarer. Most European firms now pursue a strategy focused on a specialised practice area.
Only a handful have dared to take on the UK firms on their own ground and practise English law, with varying degrees of effort and success. The majority believe that the risk of losing referral work from UK and US firms far outweighs the benefits of offering clients a one-stop English-European capability.
Hans Radau, who manages Noerr’s London office, says the German firm decided to open in the City last October because it wanted to be at the centre of the action.
“It’s inconceivable to think of Noerr as a leading European law firm without an office in London,” he says. “London’s a hub - it’s the place where many deals are made, trends are set and most of the transactions and deals that we’re concerned with originate.”
Noerr had considered a London office previously, but these plans coincided with the financial crisis and so were shelved.
Other European firms have been in London for much longer - some for well over two decades. Swiss independent Froriep Rengli was an early arrival, launching due to demand from two big clients of partner and office founder Bruno Boesch.
But Froriep London managing partner Dunja Koch says the clients were “more of a pretext than a reason” for opening in London and that the firm always had growth plans for the office.
Spain’s Uría Menéndez is another longstanding presence on the London scene.
“Twenty years ago, when we came here, we were the only Spanish firm for a long time,” says office managing partner Juan-Carlos Machuca, who has now been an honorary Londoner for 11 years.
Machuca says the office strategy was built on advising both international and Spanish clients, and this has not changed over the years. Uría’s close friendship with Slaughter and May does not prevent it picking up work from other sources.
“London’s still a hub for our clients - international ones coming into Spain and also Spanish ones expanding overseas,” Machuca notes.
European firms pick up the bulk of their work in London from referrals from UK and, increasingly, US firms. The ability to nip round to another firm’s office or dial a phone number without having to add the country code is an invaluable advantage.
“Proximity to clients isn’t a must, but it’s pretty convenient,” says Miguel Lamo de Espinosa, managing partner of Gomez-Acebo & Pombo’s London office. “Having the possibility of popping into somebody’s office and having a coffee - those types of things are important to show that you’re there.”
The referral market has changed, concede Europeans, who all report that US firms contribute far more work than they used to, mainly because they have also been setting up in London.
“They use London as a hub for European business,” remarks Gianni Origoni Grippo & Partners London head Marco Zaccagnini.
“From my experience it’s often the case that even US-driven deals are routed through the London office of the US law firm into Continental Europe,” says Nauta Dutilh London head Arjan Pors.
Another reason for seeking referrals from US firms is that UK firms have expanded more aggressively into Europe in recent years, limiting opportunities for the Continental firms, which have suddenly found themselves competing for work with firms that previously gave it to them.
“Some 20 ago there were very few English law firms in Madrid,” Machuca explains. “Now it’s more difficult because they have their Madrid offices. The task for us here has become more difficult.”
It is the referral work that is used as an excuse by most Europeans for not trying to start an English law practice in London. The firms that have attempted this model are few and far between. Some, it is generally accepted, have been pretty successful. Others have not.
Perhaps the best known of these English law practices belong to Gide Loyrette Nouel and Salans. Both firms have large teams of solicitors in the City, although their models, both in the UK and Europe, are very different.
Salans opened in London in 1998 by taking over UK firm Harris Rosenblatt & Kramer. The fact that Salans bought an existing, successful practice is important, say observers. Despite rumours that Salans’ London finance practice is being targeted by US firm Locke Lord Bissell & Liddell for its London opening, Salans London has a strong reputation in several core areas and is a full-service firm.
Local managing partner Howard Cohen estimates that approximately two-thirds of the work in the City is domestic, but a growing amount involving London is taking place in countries where perhaps there is no direct link with the UK. This is because English law is a popular choice of governing law for transactions, especially in Central and Eastern Europe (CEE).
Salans has exported English-qualified solicitors from London to Moscow, Warsaw, Almaty and Prague as a result of this trend.
“We’re a net importer because we’re pulling in this work,” explains London-based corporate partner Jonathan Polin.
Salans global managing partner Darius Oleszczuk says that, because Salans operates as a single firm, it is “less relevant where work goes”.
“It’s not just sending work back and forth, it’s teams from multiple places working on a single transaction - this is part of our business model,” adds Oleszczuk.
“It’s important to have a strong domestic capability so one can properly service not only one’s UK clients, but also international clients looking to invest in the UK,” Cohen explains.
Oleszczuk describes Salans as an “emerging markets” firm, with much of its strength in CEE - the main region using English law for transactions. Cross-selling to these countries is also a feature of Gide’s English law practice in London, although the French firm’s approach to the City has been different from that of Salans.
Gide set up in London in 2003 with the hire of a four-partner finance team from what was then Sidley Austin Brown & Wood (now Sidley Austin), comprising UK-qualified Colin Mercer and Michael Doran as well as US-qualified Scott Cameron and Christopher Mead. Partner Arnaud Duhamel also relocated to London from Paris.
Some eight years on and the team in London is now comprised of 35 lawyers, although it has not been without some high-profile losses. Most recently Cameron left for Reed Smith, while Doran quit for White & Case last year along with Christopher Czarnocki, who was hired by Gide as an associate before being made up to partner in 2007.
The London office suffered badly during the recession, seeing turnover slip from e22m (£19.8m) in 2007 to e14m in 2010. Managing partner Mercer rightly points out that “nobody could have foreseen” the financial crisis, but still the drop is significant.
The focus at Gide is still strongly on finance, but Mercer is making an effort to diversify the practice. UBS in-houser Lucy Frew was hired as a partner to start a funds and regulatory team earlier this year, while another partner, litigator Nicholas Tse, moved across from Paris in 2008 to provide what he terms an “international dispute resolution function” in the City.
Litigation now contributes 25 per cent of London revenue through a mixture of English High Court work, offshore litigation and international arbitration. The team is made up predominantly of barristers, enabling it to handle advisory work and drafting.
Tse says Gide’s London litigators are generally instructed as global coordinating counsel, meaning it is rare to find the firm listed as instructing solicitors in English judgments.
Tse and Mercer say moving the team to the UK from France has helped Gide retain instructions on disputes it would otherwise have lost.
“In terms of what clients expect, to be able to handle a London seat of arbitration or London-based court proceedings they expect you to be physically proximate,” argues Tse. “There’s a real issue in terms of the credibility of the service you can provide if you don’t have a team based in London.”
Credibility and visibility have been Gide’s biggest problems in London. A surprisingly large number of partners in UK firms are unaware of the office’s existence, and Gide in London is certainly not regarded in the same light as its strong French HQ.
Mercer maintains that Gide is competing with top-tier UK and US firms in the City, but concedes that there is work to be done.
“We have a lot to do to get the maximum out of the practice areas we’re offering now,” he admits. “We’re still quite small and I think we could do more with other offices - we could do more to develop our business here in London with our current practice areas.”
A narrow practice area focus is the route followed by one of the few other European firms to operate an English law capability. In January 2010 Norwegian firm Wikborg Rein hired partner Simon Tatham from Bentleys Stokes & Lowless and Curtis Davis Garrard partners Clare Calnan and Rob Jardine-Brown to start an English law practice in London.
Wikborg Rein previously had English-qualified lawyers in its Singapore office, focusing on shipping and finance. It is the former area that is the emphasis in London.
atham explains that the international nature of shipping means laws are similar worldwide, with English law dominating contract negotiations. Wikborg Rein’s largely Norwegian shipping client base therefore benefits from a one-stop shop offering.
Tatham says that, because the focus is so narrow, the issue of losing referral work is not a problem.
“Our corporate, litigation and other commercial departments are continuing to cooperate and be the first port of call for many London firms,” he says. “Even with our shipping competitors in London, we have a good relationship with them when work needs to be done in Norway.”
Other European firms have in the past tried to run English law practices. German multidisciplinary practice Haarman Hemmelrath had UK lawyers in London for several years. The firm collapsed in 2006 after rows over profit share, but former Haarman London partner Andrew Visintin, now a partner at McGuire Woods, says the UK model was successful while it lasted.
“We were pitching for work in London, because the clients’ headquarters were in London, to do work in Germany,” Visintin explains, adding that Haarman would share work with UK or US firms where it lacked the requisite number of bodies, for example where a lot of due diligence was involved.
Sectors in the City
However, the majority of European firms reject the English law concept outright, preferring instead to target clients in a particular growth sector. At Gianni, for example, Zaccagnini also heads the firm’s debt capital markets group and has been working closely with clients in the investment banking, funds and institutional investment arenas.
Zaccagnini admits that Gianni has been “a bit lazy” in its efforts to target other clients and says the firm may bring in an M&A partner to expand its offering.
The addition of corporate partners to finance-focused teams in London is something being mooted by several European firms, as finance has tended to be the principal focus in the City.
Dutch firm Houthoff Buruma is one that has widened its London offering recently, adding partner and funds specialist Oscar van Angeren to the finance practice of office managing partner Jessica Terpstra. Terpstra says van Angeren’s presence in London has been useful for both Dutch and UK pension fund clients.
Meanwhile, Gomez-Acebo has in the past couple of years been aggressively targeting international clients wanting to invest in distressed Spanish assets. Lamo de Espinosa estimates that this type of instruction now accounts for around two-thirds of Gomez-Acebo’s London revenue.
“Clients are getting more sophisticated and sometimes don’t need to go through a UK law firm to do a deal in Spain,” he observes. “There’s no reason why a US hedge fund can’t come to Spanish lawyers directly.”
The changing habits of clients are keeping European firms in London and could entice others here too. More pressure on client service means it is crucial to be close to clients, including other law firms, to build interpersonal relationships and monitor more closely outbound work going to UK law firms.
London’s position as a hub for work going elsewhere will remain crucial, and it is this side of things that is the focus for the large domestic practices at Gide and Salans.
“What the future holds for us as part of Gide is an increasing degree of integration with the firm as a whole,” insists Mercer.
Oleszczuk says London and the English practice have been key to the development of Salans.
“If we didn’t have a London office we’d be somewhere, but not in the place we are now,” he says.
That difference has been noted by firms without local law capabilities. Radau says a year of being in London has helped Noerr deepen its relationships with clients and best-friend firms.
“We often hear that our presence here has made a significant difference,” he reports.
However, the Europeans do not see their presence in London as a threat to UK firms. Rather, as Terpstra says, “it’s the Americans the English have to be afraid of”.
Maximising the benefits of the power of the US firms, while maintaining strong relationships with the decreasing number of UK firms without European offices, will be the challenge for the Europeans in the years to come.