Making the leap
11 January 2010
26 October 2009
5 March 2007
1 September 2008
3 April 2006
5 January 2009
Traditionally known as a cautious market, Portugal is now awash with changes, with Spanish firm launches, major partner moves and new boutiques. James Swift reports
Ask any Portuguese lawyer to talk about the country’s legal market and sooner or later the word ‘conservative’, ’cautious’ or some variant will come up. Despite a market characterised by young firms, caution seems the order of the day - although this is not surprising given that the country is in the middle of one of the largest economic downturns in history. Portugal’s prudence in relation to risky derivatives may have made its crash seem less harsh, but the lack of liquidity has hit hard like everywhere else.
But for 2010 a new buzz word may have to be added to the lawyers’ lexicon, one more pertinent to a market in which ‘caution’ might not cut it.
“2009 has been and 2010 will be crucial in redesigning the Portuguese market in terms of who the major players will be,” says João Vieira de Almeida, managing partner of Vieira de Almeida & Associados.
Last year Portuguese lawyers witnessed three high-profile developments that, ostensibly at least, changed the face of the market. First Gómez-Acebo & Pombo launched a Lisbon office after netting two partners, Jorge Santiago Neves and Albano Sarmento, from Barrocas Sarmento Neves.
Second, Uría Menéndez’s former managing partner, Francisco Sá Carneiro, caused a stir when he left the firm along with finance partner Duarte Brito de Goes and corporate partner Bernardo Abreu Mota. The trio then established a corporate boutique at the end of December with PLMJ’s former managing partner Fernando Campos Ferreira, who took with him co-heads of corporate Maria Castelos and Martim Morgado.
Add to the engorged market a faltering economy and political instability, and you have the makings of a difficult year for lawyers.
“The market is becoming more competitive with more difficult circumstances. So it’s going to be a difficult 2010,” says Cuatrecasas Gonçalves Pereira corporate partner Diogo Perestrelo.
According to Perestrelo, all eyes will be on the recently diminished practices of PLMJ and Uría to see how they react to their respective departures.
“Already there have been big changes in the market,” he points out. “One was the spinoff from PLMJ, where a group of important lawyers left. Of course, PLMJ is a big firm with a lot of good partners, but the market is waiting to see how it will respond. It is looking to see how Uría will react because Sá Carneiro and the group of lawyers he left the firm with had a very good package of clients.”
“It’s a blow for both PLMJ and Uría because they’ve effectively lost ther best teams, but whether two groups of good lawyers will make a good firm isn’t obvious,” says Morais Leitão Galvão Teles Soares da Silva & Associados corporate managing partner João Soares da Silva. “Although I would say that the fact you have PLMJ and Uría clearly weaker is going to be much better for the competition.”
Sá Carneiro’s six-partner firm, Campos Ferreira Sá Carneiro & Associados, was incorporated on 30 December 2009 and houses around 20 lawyers.
“For the time being we’re concentrating on corporate M&A and private equity, capital markets, and banking and finance,” explains Sá Carneiro. “There are areas we still want to invest in, such as litigation, arbitration and project finance, and we’ve made a couple of invitations to people, but the strategy is not to take rash decisions.”
Although it is fair to say that Portugal’s lawyers are curious about their new competitor, few seem unduly concerned.
“It’s normal,” says Raposo Bernardo corporate co-head Joana Andrade Correia. “Every year there are operations that change and the impact on the market is zero. What those lawyers do in their old offices, they will be doing more or less the same in their new offices.”
Others believe that the economy may be a limiting factor.
“The partners who left these firms are very well-known and respected in the market but a lot depends on the economy: it’s not a good market for a niche M&A practice,” says Abreu Advogados corporate partner Pedro Pais de Almeida. “I don’t think it’s a question of the firm’s survival, though. When they left they always had clients that would follow them, so the firm will have a certain clientele and that will be enough to keep the new venture moving.”
Uría partner and Lisbon head Duarte Garin is also unperturbed by the departures at his firm.
“We don’t have any immediate plans to replace the partners who went because we don’t feel the need to,” he says. “We have 10 partners still - four in corporate and two in finance. But I’ll continue to keep an eye on all areas of the market. We’re very conservative in Portugal and I’ve not seen too many departures apart from these, although the moves involving Gómez-Acebo were the most notorious. But I don’t think we’ll see many more such moves.”
PLMJ deputy managing partner Manuel Santos Vítor takes a similar view of his firm’s departures, stating that it will have little effect on the practice. The partners who left were certainly well thought of in the market, but the firm has reason to be confident and has a precedent of weathering losses: in 2008 five partners left to start spin-off firm AAA, to no obvious detriment to PLMJ.
Small but strong
This lack of trepidation among some partners to the market’s new members also seems to apply to Gómez-Acebo’s entry into Lisbon.
“There’s not much space in Portugal for new international players,” says Pais de Almeida. “Simmons & Simmons has already left and the market isn’t big enough for any more magic circle firms. Most of the Spanish firms are here already, so not much room for manoeuvre there either. Gómez-Acebo is starting here, but with a small firm. Spain is suffering due to the crisis and is therefore being cautious.”
Small though the firm may be, Gómez-Acebo’s Portugal office appears to have the tools to make an impact. According to Fermín Garbayo Renouard, who will be the Spanish partner resident in Portugal, the office plans to open in the first week of February.
“The main reason for opening the office was an overwhelming number of requests from our clients to cover the whole Iberian peninsula,” he says. “Before, when we were working in Portugal, we always had to refer work, so the move has been on the minds of our firm’s management for a few years now. At the beginning we intend to be no more than 20-25 fee-earners, but in the mid- to long-term we want to expand to 40-45 fee-earners. Obviously we’re focusing on M&A, project finance and administrative work, but we’re also building up teams to compete in new areas.”
Sarmento, one of the partners who left Barrocas Sarmento Neves to join Gómez-Acebo, adds: “We need to be careful and prudent, but there’s still room for everyone in the market. We believe 2010 is a good year to start. In a sense, a crisis time is a good time to start a new project because the legal market isn’t moving too much and gives us space to do this without too much complication from other law firms.”
Most partners agree that 2010 will be markedly less volatile for firms and lawyers, with consolidation, not growth, the key aim for managing partners.
“We don’t expect firms to be growing very much this year because the effects of the crisis are still with us,” says Garrigues partner João Paulo Teixeira de Matos, who specialises in EU, antitrust, litigation and labour law. “Firms will be concentrating on tailoring their practices for the times.”
But that does not mean there will be large associate layoffs. “For the time being the partners will be the first to feel the effects of the downturn,” says Perestrelo. “Portugal is quite conservative and we don’t expect business lawyers to reduce associates in large scales. That will be the last step a firm takes.”
Sarmento also believes that the partner moves at PLMJ and Uría, which took place at a similar time to his own, may have been linked to the downturn.
“These moves may have been related to the fact that the crisis made firms adapt, and maybe the mergers were linked to the need to restructure,” he says. “In times like these, people interested in restructuring talk to each other.”
Sarmento is not alone in thinking that partners’ restlessness last year was linked to the economy.
“The changes we saw in the market last year were a sign of the times and had a lot to do with the circumstances surrounding what has been a very atypical year for Portugal,” says Vieira de Almeida. “It was an atypical year in that it was the first time that many firms have registered non-growth or just single-digit growth rates, and the pressure that firms felt has been increasing in terms of margins and fees. But it’s also a sign of a more mature market. Portuguese firms have now matured to the point where impact partners can look ahead and move to new projects because they’ve done all they could where they were.”
There is support for the assertion that the partner moves were down to more organic reasons than a need to realign in light of the recession.
“The changes we’ve seen to firms in 2009 weren’t due to the economic crisis,” says Teixeira de Matos. “I think it was just a case of having very good lawyers and partners who decided to follow different paths. Law firms in Portugal aren’t very old and so there’s a need to consolidate over a long period of time. We’re still young and it’s part of the growing process.”
Sá Carneiro says his move was in line with his personal desires.
“I felt that, with the size of my previous firm, it was becoming more impersonal. I used to use an expression - that I was losing my soul as a lawyer working in such a large firm. Of course, Uría is very successful and will continue to be so. It’s not a case of a right or wrong way of doing things - there’s just no sense leaving to do the same thing.”
The almost unanimous nonchalance among partners in relation to the two new firms entering the Portuguese legal market, especially firms with such high-calibre lawyers, may seem disingenuous, but given the history of the Portuguese legal market, it is not at all surprising.
For all the talk of conservatism and caution from Portuguese lawyers, a quick look at the rate of development in the market in the past 10 years shows a level of change that is anything but cautious.
“Anyone who has a nominal idea of what’s been going on in the past 10 years in Portugal will agree that the market has taken a radical approach,” says João Vieira de Almeida. “When I first came to my firm I was the fourth lawyer there: now I’m one of 170 - and I’m not old. In the past in Portugal you rarely had firms with more than 40 lawyers, and now you have five or more firms with over 100. The legal market isn’t conservative here, on the contrary. In Portugal you won’t find many industries where people have made this much progress in that many years.”
“The Portuguese market has changed a lot in the past few years,” adds PLMJ’s Vítor. “Ten years ago the market was controlled by Portuguese firms. Now the largest Spanish firms have established themselves here and quite a few of the Portuguese firms have increased their size and also have some colleagues who have set up their own boutiques. Ten years ago the market wasn’t used to movement but that all changed when the Spanish firms came.”
Perhaps it is for this reason that two new competitors are not seen as cause for concern. Indeed, most see it as a boon.
“I don’t think things will change much because of this,” believes Vítor. “We saw quite a few changes in 2009. But I don’t think it will change the landscape here. We’ve seen a lot of major players open here in the past few years and we welcome them. Of course, it will increase competition but competition is already there.”
But with an economy that shows only hints of recovery, the competition is going to get tougher.
“2010 will be a tough year, maybe more so than 2009, which hasn’t been too bad at all,” says Soares da Silva. “I see two contradictory practices; on the one hand there’s more pressure on prices and on the other, clients are requiring more grey hair - more senior lawyers. These conditions will probably revive the era of great lawyers because if a firm can provide a client with one of the top two or three lawyers in the market and add value, then you can charge the top rates.”
Indeed, it is a trend that has influenced the strategy and structure of Campos Ferreira Sá Carneiro, which has no managing partners, just six partners on equal footing.
“One thing we’re trying to do differently from competitors is to reduce our leverage,” says Sá Carneiro. “One of the pillars of the practice is to be closer to our clients and have a leverage of no more than 1:3. Clients are more fee conscious, but you can mitigate this by giving them more quality or seniority, and merit the higher fees.”
Another concern for Portuguese firms is the uncertainty surrounding the country’s PPP projects. The high-speed rail link between Lisbon and Madrid, the new airport and the related infrastructure projects tied to it were set provide a glut of work for lawyers, but following changes to some contracts in response to the downturn, progress has been stilted.
“The courts have vetoed some of the PPP contracts,” says Sarmento. “They’re still handling an appeal from the government to a higher court and maybe that will be effective, but I hope it doesn’t come to that. I believe there will be a political solution to the problem, but if things aren’t settled then there’ll be a big problem.”
However, the country’s ruling Socialist party, although committed to the projects, suffered heavy losses in the 2009 elections, resulting in a minority government that has struggled with opposition dissent.
“It’s very important to have more political stability,” says Vítor. “The minority government equates to a certain amount of instability to managing the country, which could threaten the adoption of important decisions and certain legislative acts, and alter significantly the ongoing projects. There’s even talk of more elections because of the great degree of difficulty in the government finding agreement. If this is the case the government might not survive until the end of 2010, which will have a material effect on the economy.”
The finite nature of the Portuguese economy has also meant that firms are keen to expand internationally, with Lusophone Africa and Brazil the most popular destinations.
“Firms have been expanding abroad for some time now,” says Vieira de Almeida. “A major milestone for us last year was to establish association with a firm in Mozambique. We now have people there and we’re doing much better than expected. But it’s not like we can expand worldwide - even Brazil is difficult as the country has wonderful law firms so not a lot of room for Portuguese firms to make a difference there.”
It is the mid-market firms that most expect to feel the hit of the prolonged downturn, making future market alterations likely.
“There could be some more consolidation from firms, especially in the mid-market,” says Soares da Silva. “Mid-sized firms will be looking to incorporate smaller teams if the opportunity arises. There are a lot of firms that people don’t know how they’ve survived and they’ll have to do something.”
There are some positive forecasts being made too. “M&A is starting to pick up and we have a couple of interesting M&A operations coming out of restructuring and bankruptcy,” says Uría’s Garin. “Real estate is also slowly picking up and we’re starting to see investors doing interesting ventures again. And some areas never slowed down, such as labour, tax and litigation.”
Many partners report the same. But without doubt 2010 will be a test for Portuguese firms, both new and established. And for all the talk of conservatism, the need to adapt seems more apt. But the Portuguese have already proven themselves adept at that.
The new players
Firm name: Gómez-Acebo & Pombo
Date (to be) established: January 2010
Managing partner: Fermín Garbayo Renouard (resident partner)
Number of fee-earners: 27
Number of partners: Three (Fermín Garbayo Renouard, Jorge Santiago Neves, Albano Sarmunto)
Key practice areas: Public law, corporate and financial services
Firm name: Campos Ferreira Sá Carneiro e Associados
Date established: December 2009
Managing partner: N/A
Number of fee-earners: 19
Number of partners: Six (Fernando Campos Ferreira, Francisco Sá Carneiro, Maria Castelos, Martim Morgado, Duarte Brito de Goes, Bernardo Abreu Mota)
Key practice areas: Banking and finance, M&A, private equity, capital markets, project finance and tax.