Ireland: The American connection

Inward investment to Ireland is rising, just the tonic for its law firms

Ever since the first Irish immigrants set sail for America in the 17th century, the US and Ireland have shared a close relationship – only accentuated in recent years when it emerged that President Barack Obama was descended, through his mother, from an Irish family.

During the financial crisis the importance of the US as a trading partner has grown. As a result, Ireland’s law firms are stepping up their presence in the US to take advantage of American corporates’ and financial institutions’ interest in investing in Irish assets.

Dublin

The first Irish firms opened US representative offices as long ago as the early 1980s. Arthur Cox had a Boston office – later replaced by one in New York – while A&L Goodbody opened in New York in the late 1970s.

Since 2000, however, there has been a wave of reopenings and launches in the US. Mason Hayes & Curran opened in New York in 2011.

Arthur Cox, having closed its New York office at the turn of the century, relaunched in 2010. A&L Goodbody added a Palo Alto office in 2011 and opened in San Francisco last year.

Matheson added to its long-standing Palo Alto office by expanding into New York in 2003, and William Fry, having been in New York for several years, moved into Silicon Valley about four years ago.

For smaller Irish firms, the cost of investing in a presence overseas has been less attractive. But Dublin commercial firm Philip Lee moved into San Francisco last year to target emerging mid-tier companies, particularly in the technology sector. 

A US base in Europe

“The US is important in terms of Ireland plc,” affirms Arthur Cox tax head and US group chairman Conor Hurley. Hurley will head out to New York later this spring to take over as resident US partner from Ailish Finnerty and Gary McSharry, who are returning to Ireland after three years in the US.

According to data from the Irish Development Agency (IDA), 531 US companies had a presence in Ireland in June last year – more than all other countries combined.
Employment among “client companies” is also at an all-time high, according to the IDA, and investment in the country rose significantly last year.

McCourt
McCourt

“From every perspective the States has always been a focus, but it’s seen a renewal in the past couple of years, given the domestic slump,” says A&L Goodbody New York resident partner Cian McCourt.

“We’re starting to see Dublin take on more of a leading role in cross-border advisory and transactional work,” adds Mason Hayes & Curran commercial head Philip Nolan. “Ireland is the gateway to Europe and a natural bridge between East and West.” 

US companies and private equity funds have been among the keenest investors in Ireland’s distressed assets and the real estate loan books being sold by banks and Ireland’s ‘bad bank’, the National Asset Management Agency (Nama).

“A lot of the private equity funds here have moved in and that’s led to a lot of work for us,” notes Matheson tax partner Mark O’Sullivan, based in the firm’s Palo Alto office.

“They’ve identified Irish assets, acquired Irish assets and set up Irish companies,” Hurley points out. “They’re also looking at using the same kind of structures for investing elsewhere in Europe. It’s not all one-way traffic – there is a lot of Irish investment and activity in the US also.” 

Private equity funds that have invested in Ireland include Blackstone and Kennedy Wilson. The former has invested in property in Dublin and was also a bidder in the government auction for state-owned gas company Bord Gais Energy, although the latter sale ultimately fell through as a result of bids not being high enough. Kennedy Wilson has also invested in Irish property.

Tech and pharma on the rise

However, a more significant driver of work for Irish firms from the US has been technology and pharmaceuticals. The latter sector (covered extensively in The Lawyer on 23 September 2013) dominated M&A activity in Ireland last year as US pharmaceutical giants Perrigo and Actavis took over Irish-incorporated Elan and Warner Chilcott.

McCourt led A&L Goodbody’s advice for Elan on both the Perrigo takeover and the previous hostile bid by Royalty Pharma (also a US company) out of the firm’s New York office, with support from Dublin.

McCourt says the Elan deal, as well as Warner Chilcott, represents the way that US work has moved on from being crisis-related.

The big M&A deals have developed in another way. Hurley explains that five years ago, corporate transactions focused on US companies migrating holding companies to Ireland from other jurisdictions, such as offshore, in a bid for more regulatory transparency – a comfort to shareholders in difficult times.

The pharmaceutical deals are an example of a new trend – inversion transactions. While the acquiring company is generally New York-listed, the resulting merged entity is incorporated in Ireland and has put its top holding company there.

Whelan
Whelan

The sector that has seen the most growth in companies establishing headquarters in Ireland is technology, which is the catalyst for firms’ West Coast offices. This focus is widening, according to A&L Goodbody San Francisco partner John Whelan, who explains that offices in Silicon Valley or Palo Alto serve a fairly narrow client base.

“Palo Alto has a specific venture capital and technology sector angle. We wanted to have a broader offering on the West Coast,” he says, referring to A&L Goodbody’s San Francisco launch. Areas of expansion include aircraft finance.

Philip Lees San Francisco representative Sarah Johnson says the firm is targeting companies that may invest in Ireland in the future. “We’re trying to catch them at an early stage,” she says, adding that the firm is also looking to provide ongoing advice on issues such as regulation.

At Matheson, O’Sullivan says about 80 per cent of Palo Alto clients are technology companies with the balance being banks, hedge funds and private equity funds. 

Tax benefits

One reason for Ireland’s enduring popularity with foreign investors, from the US and elsewhere, is the government’s firm stance on tax issues. Rather than raising corporate tax rates during the crisis, Ireland maintained its 12.5 per cent rate, and it is no coincidence that several resident partners for Irish firms’ US offices are tax specialists.

“Tax tends to be more front and centre in decision-making,” says O’Sullivan of US investors looking at Ireland, compared to countries like the UK. “It’s important we have a tax person here to get involved in the decisions.” But tax is far from the only deciding factor. O’Sullivan points out that, in the end, tax rates of jurisdictions like Ireland tend to “balance out” and investors look for other factors in deciding where to set up.

“It ends up coming down to the ‘soft’ factors such as where has the best employment laws or a work culture that matches,” he says.

Whelan agrees that labour is a key factor. He notes that skilled employees in areas such as technology are in short supply in parts of the US.

“The next place they look is in Dublin,” he says.

Culture, and the cultural ties between Ireland and the US, cannot be underestimated. “There’s a cultural understanding and ability to put yourself in the shoes of the US client,” says William Fry foreign direct investment group head David Carthy. 

Time difference 

For firms, the growth of interest from the US market has made being on the ground ever-more important. Those who spend all their time in the US are adamant that a real difference can be made by being in the same time zone as a client and being able to meet at short notice.

“The time difference, particularly on the West Coast, is a big issue,” says Whelan. “Over the past two to three years we’ve seen the difference that investing in the area has on the relationship with clients and law firms here. Doors are opened to you whereas before we had found it difficult to get to the people we wanted.”

O’Sullivan, who moved to Palo Alto in 2007 and stayed beyond his initial term because he felt that there was still ground to be made in developing relationships, agrees that the time zone issue is crucial.

“Well over half of what I do is generating leads and getting out there,” he says. “You need to build the relationships and be serious about the business,” Carthy adds.

Meanwhile, Johnson says Philip Lee’s US launch was driven in part by an increasing number of visits to San Francisco – it made more sense for the firm to put someone on the ground.

The Irish firms run their US offices fairly leanly. For example, Matheson has O’Sullivan and a senior associate in Palo Alto and five lawyers in New York; Arthur Cox keeps two lawyers in New York; and A&L is satisfied with Whelan in San Francisco and McCourt plus an associate in New York.

Hurley says the firm has considered having lawyers permanently on the ground in its Mountain View office, but so far is holding off. Instead, partners from Dublin and New York visit regularly.

“That’s one of the things we’re keeping a close eye on. At the moment we find we can serve it quite well from both Dublin and New York,” Hurley adds, saying Arthur Cox will continue to monitor the situation and has not ruled out a permanent presence on the West Coast. 

Essential finance 

While the presence of firms in the US may have increased, the interaction with clients has remained fairly similar. The majority of instructions come from US law firms but lawyers report a sizeable amount of instructions from financial institutions and corporates as well.

“Private equity firms are becoming more and more an important source of work, and we get a reasonable amount direct from corporates,” says Hurley, adding that US firms still contribute the bulk of Arthur Cox’s work from New York.

“General counsel move around quite a bit among the technology companies and sometimes feel more comfortable reaching out directly,” Whelan says.

Nolan also says technology companies are important contacts for Mason Hayes.

“Many of our key US clients are household names in the digital sector. We count a mix of well-established, high potential companies expanding into Europe in the internet and technology space such as Facebook and LinkedIn, and dealing with purchases of emerging Irish tech companies such as Polarlake and Storyful,” he says.

But relationships with US firms remain critical for Irish lawyers.

“Invariably you end up working one way or another with a US firm. The reality is that the US firm is the first firm instructed and invariably the relationship is with the US client,” Whelan adds.

With Ireland now on a more secure economic footing than a year ago, and holding a better position in areas such as investment funds when compared to rivals, the flow of work coming from the US is likely to continue expanding. 

While the size of Irish US offices will undoubtedly remain lean, the necessity of having people on both the East and West Coasts to maintain those key relationships is not going to vanish any time soon.

Behind the bailout

In late December 2013, Ireland became the first rescued European state to exit bailout procedures, once again becoming master of its own financial destiny.

Commentators give mixed opinions over the country’s success in regaining an equal economic footing, some suggesting that unemployment rates of 12.5 per cent still show some uncertainty. Others point out that compared to countries like Greece and Spain, Ireland had a better economy to start with which helped its speedy exit from the bailout.

Ireland first applied for an €85bn (£70.5bn) bailout from the troika of the International Monetary Fund (IMF), European Commission and European Central Bank in 2010. The government had already recapitalised the Anglo Irish Bank, the Bank of Ireland (BoI) and Allied Irish Bank (AIB), before nationalising Anglo Irish.

In 2009, Ireland had established its ‘bad bank’, the National Asset Management Agency (Nama), and appointed a raft of law firms to the Nama panel – most of which, it transpired, have earned a relatively small amount from
their advice.

The big legal winners from the Irish bailout have been the biggest Irish firms and a handful of international players. Figures produced last year by the Irish Department of Finance show that Arthur Cox has earned over €33m acting for the state on various crisis-related issues over the past five years.

A&L Goodbody, McCann FitzGerald, Matheson and Mason Hayes & Curran have all also picked up a fair amount of government work during the course of the bailout – as well as advising private entities.

Hogan Lovells has been the biggest international winner from Nama, earning €4.1m between 2010 and the end of 2012, but Allen & Overy has also been involved on a number of issues – including advising the UK Treasury when it made a £3.2bn loan to Ireland in late 2010.

Although Ireland is now out of the EU’s special measures, financial crisis-related work continues. Arthur Cox and A&L Goodbody are both occupied advising the government and KPMG respectively on the liquidation of Irish Bank Resolution Corporation (IBRC), the group that was formerly Anglo Irish. Other pieces of work continue, including advice for Nama, although indications are that fees relating to Nama are tailing off.

The bailout has helped Ireland’s big law firms grow. Headcount has increased steadily at most, and rapidly at some, and while only Mason Hayes provides any sort of financial figures, anecdotally the story is one of consistent turnover rises too.

Key figures: Ireland 

GDP: $211bn

Inflation: 0.3%

Population: 4.6m

Life expectancy at birth: 80

Unemployment: 12.5%

Source: World Bank, Central Statistics Office Ireland