Nordic Special Report: Pole survivors

After enduring some of the most torrid months ever seen in their history, many of the largest US and UK law firms are tentatively hoping for an upturn in their fortunes next year. In ­particular, the transactional teams at these firms are pinning their hopes on the return of significant M&A, largely driven by rock-bottom asset prices in their core ­markets. Not so their equivalents in the Nordic region.

“We’re part of the world just as much as anywhere else, although we’re usually one to one-and-a-half years behind the US,” says Peder Hammarskiöld, senior partner at Hammarskiöld & Co in Stockholm, the gateway to the Nordic region. “Last year was a record year - it’s going to be difficult to beat that - and I think 2009 will be a reasonable year. The problems will begin in 2010.”

That pessimistic view is shared by insiders at the majority of the Nordic region’s leading law firms. Indeed, a recent survey produced by Linklaters highlighted the belief among Nordic large-cap companies that M&A activity would continue to decrease over the coming year. But the report also suggested that of the deals that are done over the next 12 months or so, the primary driver would be the desire to expand to new markets.

Clearly, deals are still happening in the Nordic region and, for the more internationally minded law firms, there are going to be opportunities.

Decline in deals

The Linklaters report, released last month and conducted for the third year in a row by TNS Gallup, was the result of interviews with more than 60 Nordic large-caps, each with a market value in excess of e1bn (£880m).

The survey, which focused on M&A deals with a value greater than e5m (£4.43m), confirmed that the number of deals in the region fell over the past year and suggested that during the coming 12 months, the ­number of acquisitions is expected to decrease further.

Nevertheless, 63 per cent of the companies surveyed were still planning deals worth more than e5m (£4.43m) - although last year the number was 73 per cent. ­Interestingly, when the companies were asked what was the main driver for their acquisition strategies, 40 per cent said they wanted to reach new markets.

“That the primary goal of M&A over the next 12 months was overseas expansion was a little surprising,” says Fredrik Lindqvist, head of M&A at Linklaters’ Stockholm office. “Now that we’re in the midst of a market downturn, one would have expected that cost savings and ­synergies would be an important driver for acquisitions, but the survey shows that the Nordic large-caps are mainly looking to reach new markets.”

Lindqvist believes this trend reflects the desire among these companies to make long-term strategic acquisitions, including using the downturn to reach new geographic markets.

Although the survey was conducted by an independent market research agency, ­clearly its findings appear particularly ­suited to a firm with an extensive overseas ­network such as Linklaters. But in the Nordic region, the magic circle firm is not alone in looking beyond its borders for deals.

“Like Linklaters, we also have an ­international footprint, so we’d love these findings to be true,” says Biörn Riese, chairman of Mannheimer Swartling. “In fact, when we speak to our industrial clients we do get a sense that they’re looking. But maybe it’s just wish fulfilment? We’ll find out in the next 12 months.”

As far as the past 12 months goes, Mannheimer has certainly been busy on a raft of major matters. In February 2009 Riese, along with partner Tom Wehtje, advised the Swedish National Debt Office on the takeover and subsequent disposal of Carnegie Investment Bank and Max Matthiessen Holding to Altor Fund III and Bure Equity AB. The total value of the ­transactions amounted to SEK2.27m (£1.91m), including amortisation of the Debt Office’s loan to Carnegie.

Mannheimer also advised the same client on its bank support and stabilisation ­package, featuring a e150bn (£132.98bn) bank guarantee scheme, with partners Thomas Pettersson and Mattias Lampe ­taking the lead. And partner Jan Kansmark advised E.ON in connection with its asset-swap agreement with energy producer Statkraft, a deal that involved a change in ownership of operations and assets worth in excess of SEK80bn (£6.72bn).

Yet it would be fair to say that the ­confidence in the market’s future among the firm’s leaders is not particularly high.

“The reality now is that the market is very down,” says Mannheimer partner Adam Green. “We’ve been looking at distressed deals for the past year or two, but the ­predicted wave hasn’t really started yet, and if the economy turns it may not materialise - it seems like everyone is waiting for the other shoe to drop. So this survey is maybe a bit over-optimistic.”

Survival strategies

A similar charge could arguably be laid at the door of the Nordic law firms themselves. Although most of the large US and UK international firms have been plagued by layoffs and restructurings, firms in the Nordic region so far appear to have escaped (with the exception of Linklaters and White & Case). How long that situation can ­continue will be a worry for the top firms’ senior partners.

“As far as the Swedish firms are ­concerned, it’s still probably more possible for them to shift lawyers from one practice area to another to keep them busy,” argues Hammarskiöld.

“The law firms in Sweden, compared with those in the US and UK, aren’t so specialis­ed,” agrees Michael Wigge, partner in charge of Vinge’s Stockholm office. “In the good times a Swedish banking lawyer can help a bank to lend money and in the bad times he can help the bank enforce financial covenants or help borrowers. They can put on another hat.”

At Vinge, the hats started to change around 15 months ago when the firm restructured to create a new restructuring group. The new team, headed by banking partner Bo Adrianzon, features four groups: finance, M&A, litigation and insolvency.

And firmwide Vinge has picked up some notable transactions recently, including advising the Kingdom of Sweden on the merger between the Swedish and Danish Post Office, and Kaupthing Sverige and Kaupthing Bank on the sale to ­Ålandsbanken.

Vinge has also boosted its litigation department, as has rival Hammarskiöld, which says the level of instructions in its ­disputes practice has almost tripled in recent months.

International plans

But with the companies in the region ­pinning their hopes on overseas investments, it is small surprise that its top law firms are not only looking to move their lawyers from one practice area to another, they have also been looking to expand beyond their borders.

The Finnish market is roughly half the size of its neighbour Sweden and the local M&A market is seen as being virtually dead. If anything, the prospects for Finland’s deals market look even worse than Sweden’s.

“Q4 2008 in Finland was the worst in six years and Q1 2009 was even worse,” admits Johan Aalto, managing partner of Helsinki-headquartered Hannes Snellman. “It’s definitely quieter in Finland than in ­Sweden.”

Hannes Snellman officially opened in Stockholm on 1 January 2009, although it launched the office in the autumn of 2008 with laterals from Linklaters, Vinge and Setterwalls. “Now we have six partners and 25 lawyers,” says Aalto. “One of the good things about a downturn is that it gives you more time to build and recruit. And if you get a team of that quality and composition, you should do it.”

Hannes Snellman followed the trail blazed by Roschier in 2005. Roschier’s office, which now has around 55 lawyers, is generally seen to have been a successful move for the Finnish firm. Even so, managing partner Ulf-Henrik Kull admits the next year could be tough.

“Of course, there are lower activity levels overall in the region - maybe 15 to 20 per cent,” he says. “But so far that hasn’t meant we’ve had to make any dramatic changes like some of our competitors. It’s more of a ‘wait and see’ approach.”

When the companies surveyed in the ­Linklaters survey were asked what needed to change in the market for them to start making investments again, they answered that there needed to be stabilisation in the market, access to liquidity or a market upturn with increased demand.

For the law firms in the Nordic region, they, too, will have to wait and see.