Merkel's middle-class moneymakers
24 October 2013 | By Joanne Harris
Germany’s legal market remains strong thanks to a wealth of corporate work from mid-size companies
In mid-September 2013, German voters re-elected Angela Merkel as their chancellor. Merkel has now been in power since 2005, and has seen Germany safely through the financial crisis with a reputation as Europe’s strongest and most stable economy.
That stability has benefited German lawyers in particular. The country’s legal market is the biggest in Europe outside the UK, with a number of strong independent firms competing for work with the biggest international players.
Research carried out for The Lawyer European 100 2013, the annual ranking of the top 100 independent European firms produced by Lawyer 2B’s sister magazine, showed that all the major German firms grew their turnover in 2012.
This was driven mainly by the country’s mid-tier corporates, known as the Mittelstand (literally, the ‘middle classes’). The group of companies were actively investing, both within Germany and outside its borders, and remain attractive targets for foreign companies. As a result, corporate work in Germany has remained strong while in other European jurisdictions it is faltering.
That transactional activity is buoyed up by litigation and insolvency work. Earlier in 2013 it emerged that the German arm of international firm CMS, CMS Hasche Siegle, had run up costs of more than €200m (£168m) for its work advising on the insolvency of the German arm of Lehman Brothers – the bank whose collapse kickstarted the economic crash back in 2008.
All sorts of firms in Germany are piling into the Mittelstand market. At the top end of the independent market, firms such as Slaughter and May’s ‘best friend’ Hengeler Mueller and Gleiss Lutz are relying more on mid-tier clients than they did before. Meanwhile, the Mittelstand has been a driver for the consistent growth of Noerr, which is enjoying a solid run of results.
For international firms, Germany has been a key European focus over the years. The jurisdiction was one of the first to see a significant influx of UK and US-headquartered law firms – most notably the merger in 2000 between Freshfields and German firms Deringer Tessin Herrmann & Sedemund and Bruckhaus Westrick Heller Löber, which created magic circle giant Freshfields Bruckhaus Deringer. More than a decade on, Freshfields is the biggest German firm by size and turnover and has a strong reputation in the market.
In this year’s round of partner promotions, Germany was the biggest jurisdiction outside the UK when it came to sheer numbers. The top 20 UK firms promoted 47 lawyers in Germany in 2013, six more than in 2012 – an indication that they feel there is still growth potential in the market.
Meanwhile, the past year has seen a number of UK and US firms launch new offices in Germany. After calling off its long-standing alliance with Gleiss Lutz in 2011, Herbert Smith Freehills has launched its own office in Frankfurt and plans to expand into other cities. Latham & Watkins has opened in Düsseldorf, and Simmons & Simmons in Munich.
Germany is unique for lawyers among Continental European jurisdictions in the sense that most firms feel it is necessary to have offices in several cities rather than just the capital. Frankfurt remains the most popular place to set up, with strong links to banks and financial institutions, but there has been a number of openings recently in Düsseldorf and Munich to tap into the industrial heartland of Germany.
Hamburg is also a popular option for firms practising shipping and insurance, and lawyers working in the regulated sector might feel a need to be in Berlin and close to the federal government.
However, not all firms want this multi-city approach. US firm Shearman & Sterling shocked the market in April when it announced, in the wake of a number of departures, that it was slimming down in Germany and focusing solely on Frankfurt.
In the future, German lawyers are expecting a significant increase in work from the Far East. Chinese investors have already shown substantial interest in German businesses and most firms are working on their relationships with Chinese lawyers. The impact of the recently-announced merger between Sino-Australian firm King & Wood Mallesons and the UK’s SJ Berwin – which employs about 80 lawyers in Germany – is something many are watching closely.