24 February 2003
Vienna, city of symphonies, opera and Freud. Not to mention exquisite Hapsburg palaces and a café culture as chic as any in the world. Ideally placed, in the hub of Central Europe with easy access to the West and, in particular, the developing Eastern European economies. With so much going for it, surely Vienna is brimming with Western law firms, with others clamouring to join them?
Not so. Whereas virtually every other European city hosts numerous international firms, Vienna's legal marketplace has remained hermetically sealed from overseas legal players.
Ivo Deskovic, a partner with Vienna firm Weiss-Tessbach, says that although "merger mania" swept across Germany two to three years ago, it stopped at the Austrian border, just as the world economy nosedived. Talks between another leading Austrian firm Wolf Theiss & Partner and Clifford Chance subsequently foundered, and Vienna remains home to only two firms with UK bases - Freshfields Bruckhaus Deringer and CMS member firm Strommer Reich-Rohrwig Karasek Hainz.
Deskovic says that, with the impending accession of the next wave of EU member states, the time could be ripe for a renewed consideration of mergers.
"Vienna is very important regionally in the enlargement of the EU," says Deskovic. Weiss-Tessbach, founded in 1878, is the largest legal practice with its headquarters in Austria. It now has offices in Budapest, Prague, Bratislava, Zagreb, Salzburg and, for only the past few months, Sarajevo.
Deskovic points out that the experience of Austrian lawyers of their country's accession to the EU in 1995 will be invaluable to the emerging Eastern European economies. "We can advise on how territories adjust to EU law," he says. "For example, merger control in accordance with standards set in Brussels."
Weiss-Tessbach itself has handled some heavyweight cross-border work. The firm represented Deutsche Telekom in the privatisation of Hrvatski Telekom, the largest privatisation in Croatia to date, with a total value of around e1.5bn (£1bn), as well as Austria Tabak in its acquisition of the cigarettes division of Swedish Match, a deal with a volume of e103.2bn (£69bn).
Vying for the accolade of being Vienna's largest firm (depending on the criteria used) is Wolf Theiss. Originally a relatively small practice, Wolf Theiss has grown exponentially over the last decade and now claims to be the largest firm in Austria in terms of overall headcount. It has a total of 100 lawyers in its offices in Vienna, Prague, Bratislava and Belgrade.
Horst Ebhardt, a partner in Wolf Theiss's corporate and M&A department, agrees with Deskovic about the strategic importance of Vienna. "We benefit hugely from general economic trends in the area," he says. "Austria has the highest level of investment flowing into Eastern Europe."
Ebhardt is certainly looking east. Wolf Theiss recently handled the privatisation of CB Biochim, the third-largest bank in Bulgaria, as well as a host of other high-volume deals in Eastern Europe. "We're positioning ourselves as a Central European firm, but looking to expand further in Eastern Europe," he says, adding that "the United States and British firms don't seem to share this vision".
Ebhardt confirms that merger talks were actively pursued some two to three years ago, but that now "this isn't an issue", the firm having subsequently made a decision to retain its independence. Perhaps Clifford Chance, one magic circle suitor, now rues the collapse of the talks, as Ebhardt says that last year Wolf Theiss hit "record levels" of revenue.
One international firm with a major presence in the Austrian legal marketplace is Freshfields, which arrived via a merger on 1 August 2000 with Austrian-German firm Bruckhaus Westrick Heller Lober, itself the product of an earlier merger in Austria. Managing partner Günther Horvath estimates that the firm's work is split 50:50 between international and domestic clients, which are handled by a total of 60 lawyers in the Vienna office, of whom 13 are partners.
Again, a lot of the work has an Eastern European focus. Freshfields acted for a consortium in the privatisation of Slovakian gas company SPP (the largest to date in Slovakia), and Horvath agrees that it is ideally placed to pick up privatisation work in the developing Eastern European economies as well as EU compliance and competition law advice for the next tranche of member states.
Horvath also insists that Freshfields is unique in Vienna, being "the only firm that is fully integrated and not run on a satellite basis". An engaging man, his views on the disappearance of 'merger mania' echo those of many other lawyers in Vienna. "There was a time when the economic conditions suited expansion by British and American firms," he says. "But even then they focused on the larger territories. The overall economic downturn has slowed up the process dramatically."
Michael Kutschera, one of two managing partners in 40-lawyer Vienna firm Binder Grösswang, agrees. "It's difficult to say to what extent it makes sense for big players to have an Austrian office - there's a limit to what a territory with a population of eight million can produce in terms of legal work," he says. Nevertheless, he confirms that his firm was also involved in merger talks some two to three years ago, a time "when it seemed as if there'd be a series of mergers".
Kutschera's firm has gone against the Eastern European grain. It did have an office in Prague, but concluded that it wanted to achieve pre-eminence in its core fields of M&A, corporate finance and litigation in Austria. The partnership felt that to expand into Eastern Europe was to risk losing ground on its own doorstep. Hence its impressive transaction list, which reveals a concentration on domestic utilities and energy work, for example on behalf of purchasers such as TIWAG and ESTAG in their high-volume acquisitions of stakes in utilities companies in the cities of Innsbruck and Graz respectively, as well as a large amount of substantial domestic real estate and litigation work. Like the other major players in Austria, leverage ratios are comparable to UK practices, at around 1:4.
But of the larger firms, Binder Grösswang is very much the exception when it comes to Eastern Europe. Strommer became part of Cameron McKenna's CMS network in July 1999, and now has what partner Peter Huber describes as an "international client base that mirrors investment in developing territories by foreign conglomerates".
Huber goes on to say that Strommer was the first Western European law firm to set up an office in Belgrade in 2001, and that it is currently in the midst of setting up an office in Zagreb. Indeed, one of the firm's largest recent deals has been advising global system for mobile communication (GSM) operator VIPnet of Croatia on its e150m (£100.4m) project refinancing.
Strommer has 45 lawyers in its Vienna office, with a leverage ratio (taking account of only equity partners) of around 1:4. Huber agrees with his fellow Austrian lawyers that interest in mergers has, for the time being, disappeared.
But with the next wave of EU enlargement on the horizon, ever-increasing opportunities in Eastern Europe and the ongoing liberalisation of the Austrian economy, it may not be long before the headcount of international firms goes up. Vienna has a lot going for it - and not just for connoisseurs of coffee.