International Eye – Iberia

The long-awaited arrival in Madrid of a new wave of US firms is becoming a reality.

US firms make a move on Madrid

The long-awaited arrival in Madrid of a new wave of US firms is becoming a reality. Firms queuing up for some time to open in Spain include Dewey Ballantine, Shearman & Sterling and White & Case, but each has failed to prise away the people they need from their current homes. Latham & Watkins, meanwhile, has stolen a march on its rivals by securing the head of M&A at Cuatrecasas José Luis Blanco.

The debate among managing partners in Madrid is what type of business model the new arrivals might adopt and how they plan to reach the high billing and income targets associated with US firms.

US giant Jones Day was fortunate six years ago to gain the critical mass required in Spain for M&A, picking up a quality local practice at a time when many firms saw merger as their only means of surviving the Anglo-US hegemony.

Davis Polk & Wardwell‘s New York-style opening in Madrid a year later suggests that small can indeed be beautiful. With just a handful of US lawyers working exclusively in the US law-governing securities, it now advises all the Spanish companies currently listed on the New York Stock Exchange – a highly successful extension of its New York practice.

Spanish firms spread their wingsWhile US firms have been looking to break into Spain, Spanish firms have quietly been making plans to break out.

Gómez-Acebo & Pombo has become the latest Madrid firm to say that it will be opening in London, after Cuatrecasas moved a team into the City this summer.

Gómez-Acebo managing partner Manuel Martín said: “A London presence is now back on the 2007 agenda, but only as a base for Spanish lawyers.”

Similarly, Garrigues international partner Albert Collado said his firm is now expanding in New York and, in a highly novel move, looking to recruit dual-qualified lawyers there.

“Having some US legal capacity in-house should facilitate the translation of US legal concepts into the culture of our clients when doing business in the States,” he says.

It is too early to say, however, whether Garrigues will be more successful in winning over US talent than the legal recruiters, which will presumably be calling star partners at Garrigues, and the other major Spanish firms, for a Madrid opening.

Today, achieving entry to the Spanish market through merger is less viable. The respected corporate specialists, such as Pérez-Llorca and Araoz & Rueda, have profitability levels and equity structures that make a merger with a US firm difficult. They might also fear the potential loss of autonomy and highly valued international referral relationships.

London recruiter Abrahams Russell has broken the silence from one of the US law firms, advertising in The Iberian Lawyer for a well-respected corporate/private equity or finance partner to open “a niche US practice focused on high-value transactions”.

For some this approach is logical – within private equity and finance a small team can handle transactions with back-office support from the London or US offices. As a defensive strategy it could also serve to keep those treasured private equity clients such as Candover away from the likes of Clifford Chance, Freshfields Bruckhaus Deringer or Linklaters as they enter the Iberian market. It might also initially provide high hourly rates, although there is strong fee pressure for private equity work in Spain.

Most see it as inevitable, however, that in the medium term any new US arrivals need to develop the wider resources required for larger follow-on transactions. As building a team could take three to five years in this market, under this scenario, presumably the new managing partners will have negotiated some space before they have to make the numbers.

Locally, nobody seems too concerned about any increased competition. With the surge in Spain of bids, counter bids and auctions, and increasing client sensitivity to conflicts, there appears to be more than enough work to go around.

Busy Portuguese market attracts outside interest
This year has hardly been quiet for Portugal’s corporate lawyers either. With deals running at their highest level ever, and international business and private equity groups sensing bargains to be had, the final months of 2006 promise to be equally busy.

All eyes are on the current phase of the Portuguese government’s privatisation programme. The flagship offering has been the sale of 23 per cent of national petroleum company Galp, which netted €1.1bn. Maria João Ricou, head of capital markets at Gonçalves Pereira Castelo Branco, led the team advising Galp.

The heightened level of activity has attracted outside interest in the Portuguese legal market. Spain’s Garrigues has recently stepped up its presence in the country, opening an office in the second city Porto by poaching eight lawyers from rival Cuatrecasas. However, locals are not expecting any new openings from the London firms. The successful Portuguese entries of Linklaters and Simmons & Simmons, locals say, is not easily repeatable – both grabbed the chance to gain high-profile local lawyers, which only happens in exceptional circumstances.

Allen & Overy, which led the Portuguese project finance market a decade ago, and increasingly Clifford Chance, are still visible in the market. Both seem content to refer work to the top local firms, although some predict they will be quietly increasing the number of their Portuguese lawyers in London and Madrid.

Spain’s dynasties provide corporate deal bonanza
The sale of family businesses is gathering pace in Spain, driving up the number of corporate mandates available for local firms on big deals. It is estimated that its richest families own corporate assets worth €547bn (£368bn). Seventy of these have sold some of their wealth during the past 12 months, in particular those managed from Barcelona, for an aggregate total of €7bn (£4.7bn).

While the buyers tend to hire international law firms, the families have retained their longstanding advisers. Garrigues and Cuatrecasas lead the list of advisers to the family owners of companies. Cuatrecasas has advised the Franco family on the sale of a 45 per cent stake in gaming business Codere to shareholders, and the Arango family on the sale of 30 per cent of its VIPS business to Goldman Sachs. Garrigues advised the Costafreda family on the sale of Panrico to Apax Partners, as well as the owners of Cortefiel, 58 per cent of which was sold to a private equity club.

Ashurst, Cleary Gottlieb Steen & Hamilton, Clifford Chance, Jones Day and Linklaters are the firms most often seen acting for the buyers. While most would hope to advise the acquired business, only Clifford Chance, as well as Freshfields, can offer a local service in Barcelona. Linklaters preferred a Lisbon opening over Barcelona within a wider Iberian strategy. While Lisbon is now providing it with a number of high-value deals, many are now looking to Barcelona for an ongoing deal flow.

Spanish M&A boom proves media boon
Spanish lawyers, financiers and chief executive officers (CEOs) always believed that the 2003 changes to the laws on M&A would stimulate the top end. What no one anticipated was that the new boom would come with so much regulatory, competition and litigation work. Most unusually, lawyers have resorted to placing comments in the media defending their respective clients’ positions. In the longstanding battle to control Metrovacesa, Spain’s largest real estate company, Sebastián Albella of Linklaters, representing its CEO, burst into print, followed by Pablo Bieger of Clifford Chance on behalf of the counter-bidder, the Sanahuja family.

On the regulatory front, full-service firms are expected to benefit from the anticipated arrival of yet more complex legislation and directives.

DLA Piper corporate partner José Antonio Sánchez Dafos comments: “Spanish regulatory watchdogs are struggling to keep up with the challenges brought about by this situation. The highly regulated environment and new takeover regulations, though not thoroughly tested, have given rise to different interpretations and a significant number of conflicts. These requirements automatically reduce the number of suitable law firms to a one-digit number.”

A number that could be set to rise with any US arrivals, as long as they gain the critical mass of lawyers this suggests.

Spanish firms spread their wings
While US firms have been looking to break into Spain, Spanish firms have quietly been making plans to break out. Gómez-Acebo managing partner Manuel Martín said: “A London presence is now back on the 2007 agenda, but only as a base for Spanish lawyers.”

Similarly, Garrigues international partner Albert Collado said his firm is now expanding in New York and, in a highly novel move, looking to recruit dual-qualified lawyers there.

“Having some US legal capacity in-house should facilitate the tranlation of US legal concepts into the culture of our clients when doing business in the States,” he says.

It is too early to say, however, whether Garrigues will be more successful in winning over US talent than the legal recruiters, which will presumambly be calling star partners at Garrigues, and the other major Spanish firms, for a Madrid opening.