Time to play the field in euroland
1 November 1999
Chris Bates, Clifford Chance
Haydn Puleston Jones, Linklaters
Bill Richards, Lawrence Graham
Much has been said about the potential strengths and pitfalls of the euro, now the world's second-biggest currency. But the creation of euroland, an 11-nation bloc with a population of 290 million and an economic output equivalent to that of the US, is set to alter the business landscape of Europe.
So how will the birth of the euro affect the UK's corporate law firms in the long term? Some in the biggest City firms say its introduction will trigger changes in companies' work that will benefit the big five at the expense of the rest.
Chris Bates, finance partner in charge of the euro conversion team at Clifford Chance, the world's second-biggest law firm, says: "It's absolutely clear that [the euro], coupled with many other factors, will increase competition in Europe which will lead to increasing cross-border M&A activity in euroland.
"Another key issue for business is price transparency. It's a very, very important issue for business - we hear of 30 to 40 per cent differences in pricing for some clients across euroland. Transparency will be an issue for international law firms too, though perhaps to a lesser extent.
"Rounding of prices will have to be done carefully. If you have a round chargeout rate in France, say of x francs an hour, when you convert to euro the client won't want a figure to decimal places. So firms will have to decide whether to round up or down. In a low-inflation environment, the opportunity for rounding up is going to be limited."
Bates suggests that firms which have already determined their European expansion strategies may find the advent of the euro will stimulate them into pushing ahead with their plans for offices or mergers in euroland.
"The euro regime has validated our strategy, which we will pursue even more vigorously than before. If you want to be a leading international player for the main global markets, then a single country focus is not the right solution.
"Clients' transactions and problems are global, so working with them in key jurisdictions is going to be even more important."
Haydn Puleston Jones, head of banking at Linklaters and the partner who is heading the firm's euro team, agrees that euroland M&As will continue to increase this year, while competition will be tighter generally.
"The euro is no doubt a factor in this. We think it's going to be very good for the City and its law firms, which is one reason why we founded Linklaters & Alliance last year," he says. "I can't see any negative aspects for law firms."
But he adds: "There will be a gap opening up between the top five and the rest. There are lots of very good firms below the top five, but because they lack their broad spread, the advent of the euro won't do them any good."
However, Bill Richards, managing partner at London practice Lawrence Graham, isn't going to let that argument worry him. He rejects the idea that medium-sized firms will turn out to be the losers under the euro's shadow.
"We're geared up to doing business in euro, so I don't think the new currency itself is a problem.
"But in terms of creating euroland, that's a much wider matter, encompassing globalisation as an issue. We have alliances in Europe but not our own offices. Clearly, with euroland, we are having to look much more closely at the development of our practice beyond the UK into Europe and the US as well. Quite a lot of our business comes from outside the UK."
But on this upbeat note of forging stronger international links, Richards sounds a note of caution: "Traditionally, we have eschewed the opening of foreign offices because for many of our peers it's proved very expensive, if not disastrous.
"'Even some of the largest firms would say they have not made significant returns from their foreign offices."