Making friends and influencing trends

German practices have traditionally been alliance-shy but recent movements show that trends may be changing says Patrick Stewart>

It looks as though 1998 is shaping up to be the year of the euro-merger in Germany. Bruckhaus Westrick Stegemann was the first off the mark when it tied the knot with Austrian firm Heller Lober Bahn & Partners, the first major cross-border merger involving a German firm.

But this was soon overshadowed by Deringer Tessin Herrmann & Sedemund and UK firm Freshfields announcing their alliance as the first step to merger.

“These are not the last merger talks we will see,” predicts Jan Byok, a partner at Wessing Berenberg-Gosler Zimmermann Lange. More announcements may be on the way soon.

Oppenhoff & RAdler is keen for UK firm Linklaters to join the Alliance of European Lawyers while other foreign outfits US firm Shearman & Sterling, accountants Arthur Andersen, UK firm Allen & Overy and its continental associates Loeff Claeys Verbeke and Gide Loyrette Nouel are rumoured to be searching for German affiliates. They may be just the tip of the iceberg.

As a senior partner of a leading firm notes: “Everyone is talking to everyone.”

However German partners are reluctant to talk publicly about their views. Still, the most surprising development is that the traditionally alliance-shy German firms are talking at all.

Even Bruckhaus Westrick, a firm well-known for its stand-alone position on the international stage, is shifting position.

A firm source denied that it was in talks with any other firm (although its name has been linked to the Allen & Overy-Gide-Loeff Claeys grouping), but did not rule out getting closer to a UK or US firm: “We wouldn't exclude it and, if the right firm showed up, we would consider it.”

In fact, part of the thinking behind the merger with Heller Lober, with its well-regarded central European practice, was to place the firm in a better position for the future: “We wanted to be an interesting partner for whoever may approach us,” the source said.

A sea-change is taking place in the way many German law firms view the world with many now taking globalisation on board as an inevitability and a process of which they need to be part.

“We believe that there will be, in the next five to 10 years, a market for integrated legal services throughout the European Union,” says Ludwig Leyendecker, a partner at Deringer Tessin. “There will be a concentration towards international networks.”

The view is echoed by a partner at Openhoff & RAdler: “My guess is that, in the not too distant future, we will have a Big Six or 10 of law firms at an international level. Either you will be part of a big player or you will be a smaller regional boutique.”

In the past, many firms believed they could shape their own destiny on the international stage. Bruckhaus and another leading firm, Hengeler Mueller Weitzel Wirtz, for example, have set up offices in Eastern Europe and Asia while Punder Volhard Weber & Axster is the driving force behind the Punder Group, an alliance of European law firms.

Other firms have set up small boltholes across the globe, most notably in Eastern Europe.

But there is a growing realisation that this may not be enough to be a real international big hitter. As one partner in a foreign firm in Frankfurt notes: “It is difficult for them to do it on their own. They need to have critical mass to compete for major projects.”

Many firms now want to ensure, like Deringer Tessin, that they are firmly positioned in the top rank and that means putting aside old prejudices and linking with a top US or UK firm. The Alliance of European Lawyers was conceived as a continental counterweight to expansionist US and UK firms. But its German member, Oppenhoff & RAdler, has been pushing hard for what was unthinkable five years ago bringing a UK member on board.

“The Alliance has been instrumental in giving us international clout and has increased our ability to do international jobs and be involved in cross-border transactions,” says Oppenhoff partner Hanno Goltz.

But, although he would not be drawn on details of a Linklaters link-up, he agrees that times have changed.

“The industry has started to become more global. I do not believe that the legal profession can remain outside it.”

Likewise, Wessing Berenberg-Gossler is a member of the Conference of European Lawyers, which is modelled on the Alliance.

Byok says that it too is open to expanding the network and that the UK is high on the agenda. There have been discussions with a number of firms, he says.

But firms are not in a hurry the Deringer deal took 18 months to negotiate and there are still plenty which value independence above all.

As Andreas Brandt, a partner at the 45-lawyer Bonn-based practice Redeker Schon Dahs & Sellner, says: “We are quite happy being independent.”

In this unfolding scenario, German firms are still concerned about the loss of independence that being part of a larger network entails, and many will be looking to see how the Freshfields-Deringer merger works out.

Is it a takeover by a UK megafirm of a relatively small and digestible German practice? Or is it a merger of equals?

Opinion is divided. Byok says: “The general view is that Deringer has been swallowed and, if you look at the size of the firms, there is good reason to come to that conclusion.”

But a Bruckhaus partner disagreed: “Given the fact that Deringer is much smaller, I think it managed to get a good deal. Already by agreeing to take on the name of Deringer and calling the new firm Freshfields Deringer, Freshfields has taken a big step.”

Freshfields also insists that Deringer will have a high degree of autonomy, something which is believed to have caused some consternation among lawyers in the firm's Frankfurt office.

But, if that turns out to be the case, it will send a strong signal to German lawyers that the Anglo-Saxon contingent is not intent on total control.

As a partner at Punder Volhard notes: “If it is not a camouflage for a simple takeover, then it is something new and needs to be taken seriously.”

But he adds that it will be at least a year before the direction of the Deringer-Freshfields relationship becomes clear. Most German firms are prepared to wait.