5 March 2012 | By Joanne Harris
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Restructuring is up and M&A is down in Italy, but despite the country’s ratings downgrade many lawyers are upbeat about the prospects for 2012 and beyond
Interviews for this special report occurred in the week ratings agency Moody’s followed the lead of Standard & Poor’s and downgraded Italy’s credit rating, while news broke that the country was officially in a recession after the economy shrank for two successive quarters.
Despite the economic bad news, Italy’s lawyers remain hopeful that signs of an uptick in activity seen in the past few weeks will bear fruit and produce a strong second half to 2012.
Among mid-sized domestic firms the mood is particularly positive, with a shared belief that cost pressure from clients will only benefit those with lower overheads.
Italy’s has always been an extremely fragmented legal market. Its biggest three firms – Bonelli Erede Pappalardo, Chiomenti Studio Legale and Gianni Origoni Grippo Cappelli & Partners – continue to dominate the domestic scene, picking up the lion’s share of deals in 2011, according to Thomson Reuters data. However, some of the smaller players believe their time is coming.
Legance Studio Legale, which advised on 10 M&A transactions worth a combined $23bn (£14.5bn) in 2011, reported stable turnover for the year and is pleased with the growth in its market share. Meanwhile, Pedersoli e Associati picked up instructions on 13 deals last year, putting it in one of its strongest positions ever.
The results for firms such as Legance and Pedersoli come despite a drop in M&A activity, as reported by all firms. In common with other European jurisdictions 2011 started fairly well, but the level of activity tailed off sharply in the second half of the year. Turnover for Italian firms was driven instead by an increase in restructuring instructions, litigation, bankruptcy and energy work – again, in common with many other countries.
This year, however, has begun well.
“The beginning of 2012 has been extremely interesting,” reports Legance managing partner Giovanni Nardulli. “We haven’t seen such an active start to a year for ages, and are confident 2012 will be a growth year. If we look at the big picture it seems like the Italian economy’s doing much better in terms of keeping our government debt under control. Italy as a market has much greater credibility now than it had a few months back.”
Nardulli and his peers at other firms credit Prime Minister Mario Monti, who was sworn in last November following the resignation of Silvio Berlusconi, with pulling Italy back into a slightly stronger economic position. Bond spreads have fallen recently and a sovereign debt auction in February went well, although the markets reacted a couple of days later to the Moody’s downgrade.
While government debt rose by 4 per cent in 2011 to a massive €1.9tr (£1.6tr), the deficit fell, and this should keep Italy on target for a borrowing level within 120 per cent of GDP.
“Everybody’s appreciating what Monti and his government are doing,” says d’Urso Gatti e Bianchi partner Andrea Giardino. “We must rely on them. And now I have a strong hope that the future will be better than the past.”
Francesco Portolano, founder of TMT boutique Portolano Colella Cavallo, agrees that the market has improved since the early autumn.
“We were really scared for a couple of months, but now there’s a lot more confidence,” reports Portolano, adding that 2012 has started spectacularly well.
Nardulli points out that Italian companies “have never been so cheap”, prompting potential investment from those investors who do have capital at the moment.
Although M&A was quiet in 2011 there was a handful of big deals, such as the $18.5bn spin-off by Fiat of its non-automotive units, completed early in the year, and the €3.4bn takeover of dairy group Parmalat by French company Lactalis.
The optimism among mid-sized firms is reflected in their growth activity in 2011. A number of firms bulked up through some significant lateral hiring or by bolting on boutiques.
Pedersoli was one of the fastest-growing. In February 2011 the firm opened in Turin by hiring a team from local firm Grande Stevens and followed up in July by merging with Milan banking boutique Marena D’Angelo & Fagotto.
The Marena merger itself followed the poaching of a six-lawyer team from the firm by d’Urso Gatti in February, which included name partner Giancarlo Castorino, and ended a troubled couple of years for Marena D’Angelo. The firm was previously known as MBL & Partners, but the loss of five partners in 2010 to spin-off BLF Studio Legale reduced its size dramatically.
Pedersoli partner Ascanio Cibrario admits that the two mergers were a brave move in a shaky economic climate, but believes both were good fits for the firm. Cibrario says the Turin office, now a year old, is picking up plenty of business in the Italian industrial heartland as the city continues its transformation into a services centre.
Meanwhile in Milan, adding the team from Marena D’Angelo has, Cibrabrio thinks, helped to diversify the firm’s client base.
“Our client base is mainly banking groups, primary listed companies and big international sophisticated funds,” he explains. “Marena has strong goodwill at the level of private companies and medium- to small-cap private equity at a mainly local level. We’ve increased the quality and the experience to sell to our clients.”
Diversification was also key to Labruna Mazziotti Segni’s double hire of competition lawyers Barry Hawk and Renato Nazzini from Skadden Arps Slate Meagher & Flom and Bonelli respectively last summer. Managing partner Fabio Labruna declares himself “extremely satisfied” with the duo’s integration.
“We’ve been able to work with Barry and Renato on our existing client base and expand our client relationships through the addition of their skills,” Labruna says.
He adds that the firm is happy with the investment in developing the competition team and plans to continue building its practice groups rather than adding new ones.
Milan was the focus for Tonucci & Partners in early 2012 as the firm announced the hire of former Grimaldi e Associati partner Annalisa Pescatori. Pescatori is joining as head of the Milan office, a newly created position that reflects the importance of the city to Tonucci’s development.
“We believe Milan should have the same weight as Rome,” explains Tonucci partner Livio Esposizione.
The firm now has 14 lawyers dedicated to Milan, but Esposizione reveals that it is planning further hires to continue building the office.
Another Italian firm that spent 2011 expanding rapidly was employment boutique Lablaw. The firm added offices in Padua and Pescara by bolting on smaller outfits, a strategy it is likely to pursue in the future as it continues to grow, according to managing partner Luca Failla.
Like Pedersoli’s move into Turin, Lablaw’s forays into Padua and Pescara represent an attempt to take advantage of the changing environment as well as the growing need
for employment advice in Italy. Proposed changes to the country’s employment laws, changing the rules on the dismissal of employees, could lead to a significant amount of work, Failla believes.
Portolano agrees, saying that new laws in a variety of areas will create work for lawyers.
“They’re simplifying and creating new ways of doing things,” he says. “There’s work that indirectly derives from that,” He adds that investing in people or systems at a time of crisis can pay off later and that this is essential in a market that looks prone to further fragmentation.
Indeed, the most significant development recently among Italian mid-sized firms was undoubtedly the sudden dissolution of Grimaldi, announced in mid-December and implemented at the end of the year.
Lawyers say they were surprised that the firm dissolved so quickly, although the fact of it came as less of a shock. Less than a month earlier Grimaldi co-founder Roberto Cappelli joined Gianni Origoni, which promptly added him to its masthead as a name partner.
Cappelli, it is universally agreed, was a crucial rainmaker for Grimaldi and his loss, along with that of 10 associates, was a blow to the firm. Observers say it had failed to establish itself as a brand and the issue of succession, in the event of name partner Vittorio Grimaldi’s retirement, had not been dealt with.
Quite where Grimaldi’s lawyers will end up is yet to be determined. Rumours are circulating that a group are planning to set up a new independent firm. Such a move is hardly rare in Italy – Giardino estimates that at least 20 small firms spun off from larger players last year.
Daniele Bonvicini, senior partner at MBL spin-off BLF, says the firm’s first two years have met all expectations, with “one huge transaction” and a number of smaller ones last year.
“I feel there’s a good chance for boutique law firms if your practice is transactional and you dedicate a lot of care and attention to clients,” Bonvicini says.
A more recent move saw a team of partners and lawyers from Bonelli and smaller independent LCA Studio Legale team up to form Hi-Lex. Just over six months after the launch, founder Pierfrancesco Giustiani says things have gone better than expected.
“The flow of business is pretty good, both in terms of clients we’ve had for a long time and in terms of new clients – beyond our expectations,” Giustiani says. “This is a confirmation of the fact that, especially in hard times, structures that are slightly lighter are quite appreciated by clients.”
Giustiani adds that he and his fellow Hi-Lex partners believe that a firm with lower overheads and a leaner model is right for the current environment, provided it can continue to offer high-quality services.
New models also have potential in Italy, some believe. Cristiano Cominotto, president of AL Assistenza Legale, the franchise-style firm founded in 2007 that now has offices all over Italy, thinks there is scope for growth of the business.
“There’s a strong relationship between all our law firms,” Cominotto says. “There are now a lot of lawyers in Italy who keep calling us to become part of AL.”
Cominotto is targeting plans to take AL international by finding alliance partners in jurisdictions such as the UK. He sees enormous potential for the franchise or alliance model for Italian firms.
Further innovation in the legal market could well be driven by proposals to allow investment in law firms, similar to the UK’s Legal Services Act.
The next 12 months could prove important for many firms. Increasing competition for work is predicted by most, with some smaller players noting that larger firms and the Italian offices of international firms are increasingly pitching for lower-value deals.
The outlook among lawyers is mixed. Some believe that the economic situation will continue to improve, while others are more pessimistic. However, as Labruna points out, law firms have the capacity to thrive in difficult times. The trend towards boutiques and spin-offs is an indication of the Italian market’s flexibility.
But as the case of Grimaldi has shown, not everyone will survive. One thing is for sure – Italy’s lawyers will go through more change in the years to come.
Adapting to change
This year has begun well for Italian lawyers, but less well for their country as a whole. Credit rating downgrades and news of a recession have failed to dent the legal market’s confidence, although firms accept that the world they work in has changed and will continue to do so.
Where to eat in Milan
“These are a couple of very good restaurants at the heart of Milan, known only to Milanese inhabitants. Ristorante Il Consolare serves typical Italian cuisine and seafood, while Armandola is a brand new eatery in the fashion district. It serves typical Italian high-quality food at reasonable prices.”
Ascanio Cibrario, Pedersoli
Where to eat in Rome
“Imàgo at the Hassler Hotel has the best view, while the best chef is at La Pergola at the Rome Cavalieri Hotel, and Piperno serves the best traditional Roman cuisine.”
Giovanni Nardulli, Legance
“Da Babette on Via Margutta is charming and provides excellent value for money.
“Meanwhile, La Pergola at the Cavalieri is one of the most highly regarded restaurants, with good reason, while Il Bolognese on the Piazza del Popolo serves great Italian dishes in a pleasant atmosphere.”
Livio Esposizione, Tonucci
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