Hard nut to craic
29 June 2009 | By Margaret Taylor
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The Irish legal market is notoriously hard for foreign firms to break into. But this hasn’t stopped some from trying. Margaret Taylor reports
For firms keen on international expansion, Asia and Africa are the current destinations of choice. Which is why it made sense when Beachcroft announced a joint venture with Indian firm Khaitan Jayakar Sud & Vohra earlier this year (The Lawyer, 19 January).
The fact that Beachcroft’s international growth also included a Dublin office launch does not make such immediate sense. The Irish market is dominated by five large local players and, with a few exceptions, has rarely been looked at by foreign firms.
Given that the barriers to entry are seen as incredibly high and that similar ventures in the past have failed - Pinsent Masons legacy firm Masons launched a niche projects and construction practice in Dublin in 1998 but was forced to pull out in 2004 citing competition from domestic firms as the reason - is Beachcroft’s venture also doomed to failure?
One Irish lawyer thinks so. “Masons tried but found it couldn’t provide a boutique service,” he says. “It shut because it realised it needed to be full-service. The boutique model doesn’t really work in Ireland.”
Which is not to say there is no room for any new players in the Irish legal market. Indeed, Andrew Doyle, Dublin managing partner of offshore firm Maples and Calder, which launched in Ireland in 2005, believes that the market is underserviced.
“We looked at the Irish market and said that there has to be an opportunity for one, or indeed a number of, high-calibre alternatives to those firms,” he says. “Ireland has 1 per cent of the EU’s population but 10 per cent of US inward investment into the EU. It has 17 of the top 20 pharma companies and some major technology companies. The key point is that this is a market serviced at the top end by a very small number of firms, so there has to be an opportunity. There’s more than a gap in the market - there’s a gaping chasm for a top-class alternative to the big five.”
Despite this, the so-called big-five Irish firms - A&L Goodbody, Arthur Cox, Matheson Ormsby Prentice (MOP), McCann FitzGerald and William Fry - remain sceptical about whether there is room for new entrants to the market.
“The view of most Irish lawyers is that the Irish market is very competitive already,” says Turlough Galvin, head of tax and structured finance at MOP. “New firms would have to distinguish themselves in some way and it may be quite difficult to do that.”
According to Beachcroft senior partner Simon Hodson, such a protectionist-leaning stance from Irish firms was evident when the firm was planning its own Irish debut.
“In the past the reason for firms not to launch in Ireland was that they didn’t think it was a big enough market and it was very well-serviced by Irish firms,” he explains. “The reason we’ve done it is that we’ve got insurance clients who have operations in Ireland and it’s a way of us providing them both the service levels and the costs they are more used to. I don’t think people were very keen on it, but we’re not attacking a market that they perceive as very valuable.
We’re very clear on what we want to do and that makes us less of a threat.”
Beachcroft’s office in Dublin is a niche practice focused on the professional indemnity market. So far it has just one partner - former MOP partner Katie da Gama - and although the plan is to expand the office’s total headcount to 10 within the next six months, Beachcroft is not looking to compete with the domestic firms’ traditional practices.
“Our principal interests are insurance and health,” says Hodson. “The Dublin office is focused on insurance, specifically professional indemnity. We have substantial interests in health in the UK and will in time explore that in Dublin too.”
But if Doyle is right that the Irish legal market is underserviced, and if foreign firms are able to compete with domestic firms on price, why are international firms not flooding into the market? One reason is that, even if the Irish market is underserviced, the fact it is so developed makes it less attractive than some higher growth economies.
One partner at an Irish firm argues: ”International firms haven’t come here because when they’ve looked at the landscape of Europe and said, ‘do we go to Eastern Europe or do we go to Ireland,’ they see that Ireland has a small but highly evolved legal market with five big firms. It’s very competitive so it’s much easier to go to Eastern Europe and take advantage of economies that are growing quickly.”
Another and perhaps more obvious reason for international firms not launching in Ireland is that UK and US firms do not compete with Irish firms for work, but rather work alongside them on deals.
“A lot of the work generated in Ireland is work that’s referred from US and UK firms,” explains Doyle. “Large international law firms are only interested in the very large transactions. When those deals happen they’ll get involved but get us [firms in Ireland] to do the Irish law aspect. Do they need to have an Irish office? Probably not, because they can get a piece of the action anyway.”
That said, with the bulk of the big-ticket Irish work being divided between a small group of domestic firms, conflicts of interest can be an issue, as the other article in this Special Report highlights.
According to one partner at a leading Irish firm, 10 years ago clients would have remained loyal to their firms and would have trusted them to come up with a way to manage conflicts, but now they are more likely to instruct alternative counsel. That can create significant opportunities for firms outside the big five, whether they are domestic players or those looking to enter the market.
“Things have moved on a lot in the past 10 years,” the partner adds. “Clients have become much more sophisticated in their decision-making. I don’t think there’s any large Irish corporate that doesn’t use multiple legal providers.”
But that is not to say foreign firms will be rushing in to clean up that work. As MOP partner James Scanlon says: “Even if foreign firms were interested in establishing an office in Dublin, one issue would be how to do it. They could come in and set up a new firm and try to attract lawyers from existing firms, but there’s a relatively small amount of movement between firms and that would present difficulties.”
Doyle at Maples admits that recruitment was an issue for the firm when it first opened in Ireland. “We’ve recruited a number of the best partners from the big five, but initially it was difficult,” he says. “With every recruit - and we’ve recruited more than 30 people from the big five in the past two years - it becomes easier though.”
Scanlon adds that although international firms could gain access to the Irish market by seeking a merger with a domestic player, Irish firms are unlikely to be open to this given that most already have relationships with numerous UK and US firms. By allying themselves to one firm they would cut off the flow of work that comes from all those other relationships.
Regardless of the barriers to entry it is possible, although not certain, that more foreign firms will look to set up shop in Ireland. Dechert has already tried to poach lawyers from local firms and is known to be considering a boutique launch in the republic.
And although it would be easy for UK firms to relocate lawyers to Dublin, with the conversion to Irish qualification simple to achieve, now could be the perfect time to attract some talent from the big five.
As Hodson at Beachcroft says: “The current market makes it easy to find the right people.”