14 September 2009 | By Tom Phillips
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The French economy is in recovery and its lawyers are looking ahead to rosier times. By Tom Phillips
Now out of recession and with the economy levelling out, France has an air of confidence at present. For lawyers in Europe’s second-largest economy there are signs of stabilisation, with much of the praise going to an ex-member of the legal fraternity. The French minister for economic affairs, industry and employment, Christine Lagarde, who prior to her appointment to the French cabinet in 2007 was chairman of Baker & McKenzie, has made many friends outside the legal community with her steady hand on the country’s coffers.
Lawyers are pleased too, with strong growth in employment work and the booming energy sector, to pick out two (energy is no surprise - France still leads the world in nuclear and is fast catching up in renewable energy).
Jean-Paul Bignon, a partner at Bignon Lebray & Associés and chairman of the international independent law firm network Meritas, says there is optimism among French law firms, but also caution.
“Lawyers are waiting to see what happens,” he says. “Last year saw a drastic drop in private equity and M&A work, and firms were doing better in ‘social’ work and restructuring. In 2009 this trend has continued and the larger firms have either not recruited or laid off associates. What we’ve seen is a growth of niche firms.”
Small is beautiful
Indeed, some of the firms that have seen the largest growth over the past year have been in the niche space, such as employment boutique Flichy Grangé Avocats. Bignon says there is a “huge movement” in France for such firms, as those that specialise in the successful practice areas grow (eg energy, IP, insolvency), while those that were unlucky enough to head down the real estate or M&A road, for example, suffer. Such is the rollercoaster world of extremes that we now live in, this is a boom-and-bust time for such practices.
Bignon also highlights two sectors that have seen a dramatic increase in work for law firms.
“Public law - that is, the relationship between the state and private world - has been growing quite a lot due to new government financing for projects,” he says. “This has been a trend because of the opening up of public-private partnerships and a willingness of the government to develop new private projects in an effort to stop the recession. At the same time the environmental sector has been growing. This is anything from renewable energy to environmental laws.”
Among law firms themselves, Bignon believes that consolidation would have been more common were it not for the economic crisis. Law firms have been reluctant to merge while they sorted out the problems in their own backyards.
“2009 should be better than 2008, both for law firms and the economy,” Bignon predicts. “2010 should be a better year as firms will have reacted to their clients’ needs.”
To gain a picture of what is happening, The Lawyer spoke to lawyers in a cross-section of practice areas that have seen big changes over the past 18 months. Their responses paint a surprisingly positive picture.
Alyssa Gallot, partner, Baker & McKenzie
“Prior to 2001 we saw many deals for industrial buyers, but post-9/11 they went down and the amount of deals for private equity funds went up. Since then, and even more so since the economic crisis, that balance has been tipping back in favour of the industrials.
“Industrial clients needed to change the way they approach deals to compete with the private equity funds. While they are more cautious, they haven’t gone back to how they previously functioned. The funds that are doing deals are generally those concentrating on small to medium-sized deals.
“We’re seeing transactions in a number of industries, notably in the pharma, infrastructure, aeronautic, IT and automotive sectors. Companies are selling off their non-core businesses and spinning off activities they previously handled internally. The spin-off of internal logistics activities has created transaction opportunities in the fourth and even fifth-party logistics sector.
“Companies that aren’t doing many transactions at the moment are taking the time to organise their businesses and integrate prior acquisitions or divestitures, meaning that restructuring work has really taken off. Debt restructuring has also been on an upswing since the crisis.
“What I find positive is that there’s consistent activity and deal flow, although long-term visibility remains less than optimal.”
Mark Richardson (right), partner, Franklin
“M&A and capital markets are both down, as are large-scale private deals. But we’re doing more private deal work than we were 12 months ago, with private investors asking sellers to assist with the funding.
Banks are more cautious and deals are getting done but they’re taking longer.
“Cash deals aren’t the flavour of the month for corporate purchasers at the moment. On the selling side companies are trying to take some of the more costly parts of their businesses off the balance sheet, cleaning out their wardrobes to increase capital.
“There are a slew of private transactions that require extra funding at present. There’s more strategic M&A today - that is, corporations making acquisitions that make strategic sense. We’re seeing a large amount of corporate restructuring, partly due to the high cost of employment. There’s a lot of nibbling in the market - companies and funds would like to get back into the deal game.
“Funds and companies are putting sell-side portfolios together that include gems and dogs as a way to clean up their balance sheets.”
Laurent Vandomme, partner, Herbert Smith
”We’ve been extremely busy during the financial crisis and the energy sector is booming. EDF, for instance, is investing in European pressured reactors, which will involve years of work for us.
“France is behind in the renewable energy sector because the production of electricity is higher than its consumption [France has 53 nuclear reactors]. But it has to develop renewable energy in line with the Kyoto Protocol, so that’s changing. We’re working with Dutch companies looking for opportunities in this sector outside their own country.
“The gas sector is moving too, with some companies wanting to build liquefied natural gas terminals - expensive projects that require a lot of capital.
“The energy sector is a real opportunity for us because there’s great demand for energy all over the world. France is a world leader in the development of nuclear power plants and many countries in the Middle East, China and North Africa have decided to develop their nuclear power capabilities, so there are opportunities to follow clients to other jurisdictions.
Joël Grangé (above), partner, Flichy Grangé Avocats
“Fees aren’t as high as they used to be because clients are under pressure, but the amount of work is increasing and it’s been a very good few years for us. Since 2007 we should increase our turnover by between 30 and 40 per cent this year.
“Last year we saw a change in the law that modified the way companies negotiate with unions. This has created a lot of work for us. The economic situation has meant employees have asked for larger severance packages because they’re worried they won’t get another job.
“I think these restructuring issues will continue into the first quarter of 2010.”
Jean-Luc Calisti, partner, Herbert Smith
“The nature of tax work has changed in France. There’s more dispute work that was previously dealt with by dispute tax boutiques. This was limited to wealthy individuals. Now there are harsher disputes between businesses and the tax authorities.
“Over the past few years tax views have been following the Anglo-American trend of being softer and more business-friendly. Now the authorities don’t hesitate to sue big companies for tax fraud. They come down hard on those who break the rules.
“As a tax adviser you need to consider how the authorities think, so there’s a two-fold trend to consider: more business-friendly regulation and more rules and increased penalties. There has been a tightening of the definitions of what constitutes abuse of the rules. Some tax schemes wouldn’t attract attention of the rules in the past, but that’s now changed.
“On the private client side it’s now difficult to use some Anglo-American tax structures, such as trusts. Before the last G20 Summit there was legislation against blind tax structures that feature the non-disclosure of individuals.
“The fact that there’ll now be treaties featuring the usual tax jurisdictions means we’re likely to see more clients wanting to know if they should disclose their foreign assets.”