Two ton test
13 October 2008
17 September 2013
3 February 2014
4 November 2013
17 April 2014
10 February 2014
The trends of the Italian legal market over the past decade are well-established. International firms struggle with rows and defections, while elite local firms remain untouched with a grip on the high-end work.
However, 2008 has proved that things are rarely as straightforward as they seem.
This year has seen the establishment of two sizeable Italian law firms, both attempting to shake up the domestic hierarchy, as well as a major international merger. In the international arena, Chiomenti snapped up a law firm in Asia, while in the local market Pirola Pennuto Zei & Agnoli Bernardi (Pirola Agnoli) and Legance launched.
Even so, neither of these two 100-plus lawyer firms can be ignored, as both are set to appear as new entries in the 2008 list of top 10 Italian practices by turnover.
For most of this decade, Bonelli Erede Pappalardo, Chiomenti and Gianni Origoni Grippo & Partners have been at the top of the Italian market. Judging from the 2007 turnover figures (see table, page 29), the top three combined pulled in e260m (£202.18m) in fees. There was a e33m (£25.66m) gap between the highest-placed international ;firm, ;Freshfields Bruckhaus Deringer, in fifth, and third-placed Gianni Origoni, with revenue of e95m (£73.87m).
Numerous factors are suggested as to why these three firms ;have cemented themselves at the top of the market, including charismatic and ;high-quality leading partners, ;the adoption of sophisticated structures and the practice of encouraging younger talent.
Bonelli managing partner Alberto Saravalle explains his firm’s success as follows: “I suppose the difference stems – at least as far as we’re concerned – first of all from the fact that we’re a large institutional firm with a complete offering of legal services in all business practice areas. Moreover, we have a truly international vocation and longstanding relationships with the best independent firms in each jurisdiction. Last, but not least, we’re reputed for being always at the forefront of cases of major importance, and clients rely on our experience for their most complex matters.”
This domestic strength continues outside the top three firms and throughout the market as a whole. According to data compiled by TopLegal, only eight of the top 25 practices in Italy are foreign, of which four – Freshfields, Clifford Chance, Allen & Overy and Cleary Gottlieb Steen & Hamilton – are in the top 10.
Outside this group are Baker & McKenzie (12th), Simmons & Simmons (14th), DLA Piper (20th) and Lovells (21st). There is, perhaps surprisingly, no place in the top 25 for established players such as Norton Rose, Linklaters, Ashurst, Bird & Bird, Dewey & LeBoeuf and Paul Hastings Janofsky & Walker. These firms were out-billed in Italy last year by the likes of Sutti, Maisto e Associati and d’Urso Gatti e Associati.
It would seem that, especially in the midmarket, the Italian firms are maintaining the upper hand.
“For sure, local firms have a better chance to crack the midmarket work than international firms,” says Roberto Casati, senior partner at Cleary Gottlieb’s Italian practice. “Some reasons I can think of to explain the situation include the flexibility in partner compensation systems, which may allow firms to have a flag on the map at a reasonable or no cost. Certain firms may have come into Italy when the markets were rosier and now don’t want to write off the investment. And other firms may still be at a stage where they haven’t yet completed their lateral entries strategies.”
However, one factor for the international practices has been the general stability in recent years. The days of disputes with the management in the UK or US and mass partner splits seem to be over. If anything, while the international firms may not all be high profile, they are enjoying a period of steadiness. The same cannot be said for all local firms, though.
A new contender
In September 2008 a law firm was created that, at least in terms of revenue, breaks up the trinity of Bonelli, Chiomenti and Gianni Origoni: Pirola Agnoli. The firm has around 150 lawyers and revenue of more than e100m (£77.76m), which pushes Pirola Pennuto from fourth in the 2007 revenue table to third ahead of Gianni Origoni.
Pirola Pennuto Zei e Associati and Agnoli Bernardi e Associati had undertaken a turbulent journey before reaching the merger pact. Pirola Pennuto had been an independent practice, mainly focusing on tax, since 2003. It was previously a longstanding member of PricewaterhouseCoopers’ (PwC) legal network before going independent.
In the case of Agnoli Bernardi, the firm was born in 2005 after a messy split from Pavia e Ansaldo. Name partner Marcello Agnoli – Pavia’s managing partner until just before the split – led a 45-lawyer team away from the Italian stalwart. The split was sparked by a dispute regarding strategy, including international and internal matters.
In three years Agnoli Bernardi established a brand for itself in the corporate and banking sector that, while not as illustrious as the larger firms, was well regarded for midmarket transactional and private equity issues. With that combination, the idea is to follow some Dutch and German examples and bring an integrated, high-quality legal and tax practice to the Italian market.
“The combination of tax and legal skills is certainly something for the future,” Agnoli says. “Most firms have concentrated on one or the other rather than offering a strong, united service. I see this becoming more important in Italy, as it is in some other Continental European jurisdictions.”
The merger happened quickly, with talks starting in May and the deal going live in September. Both name partners have known each other for more than 30 years. In fact, Pavia entertained merger talks with Pirola Pennuto back in 1993. Although the discussions ultimately failed, the landscape of the Italian market could have been very different had it been successful.
For many Italian firms, including Agnoli Bernardi, having a tax capacity is an important service for clients. Traditionally there has been more of an ‘alliance’ approach to such matters, with law firms forming relationships with tax boutiques rather than a wholesale merger. Agnoli Bernardi had initially adopted this strategy.
“When we split from Pavia in 2005, we entered into an arrangement with tax boutique Di Tanno,” Agnoli says. “However, that firm is based in Rome and as time went on we needed more focus on Milan and this meant a bigger firm. Earlier this year, we started the discussions with Pirola.”
While size and practice is important, another bold move is the international strategy. The bulk of Italian law firms have been modest when it comes to investing in offices abroad, but one noticeable exception stands out this year: Chiomenti. The firm’s total of nine global offices is ahead of any other in the market – Sutti is the next largest, with six branches outside Italy – and it was April’s deal with 25-lawyer Birindelli e Associati, the first Italian firm to open in China, that underlined its Asia credentials. The merger added to Chiomenti’s Beijing base with offices in Shanghai, Hong Kong, Singapore, Hanoi and Pyongyang.
Filippo Modulo, the Chiomenti partner heading the China practice from Italy, says: “We only opened in Beijing in 2007 and we were looking at expansion. The deal with Birindelli was an ideal match for us because it gave us a large foothold in Asia, but also with lawyers who have a strong Italian background. Now we have grown to 40 lawyers in Asia, which is, in fact, much bigger than our London, Brussels and New York offices combined.”
Pirola Agnoli is arguably aiming for an even bolder internationalisation. The first goal is new offices in New York, Paris and Frankfurt to add to the London and Beijing branches. This could be followed by entries into Russia and the Middle East, as well as developing a referral network of legal and tax best friends that could evolve into an alliance.
“The international market is very important to us,” says Agnoli. “As a former member of PwC’s international legal network, Pirola Pennuto has experience of operating with colleagues in different countries. Our firm has a very international approach, with French, Spanish and Asian desks, for example, as well as our previous experience at Pavia with its offices and the BBLP alliance.”
A Legance legacy?
While Pirola Agnoli may be aiming at one part of the market, the other new Italian legal entity, Legance, is operating in a different section. Indeed, few spin-off practices have shown the same potential to compete with the established leaders as Legance has.
Legance was created by a breakaway group from Gianni Origoni. A hefty 85 lawyers – representing around 25 per cent of the firm’s staff and including 17 partners – left after a number of disputes, preferring to go it alone.
Bruno Bartocci, Alberto Giampieri, Giovanni Nardulli and Filippo Troisi – the partners heading the new venture – were clear on the type of practice they wanted to build.
“For us, it was vital that we operated as an institutional firm from day one,” says Troisi. “This was reflected by selecting a brand name that didn’t exist. The easy option would have been to use the founding partners’ names as they are reasonably well known. However, we didn’t want to be linked to one or two people. The ethos is about teamwork.”
For Gianni Origoni, the departures were a blow. The firm was often subject to speculation over relations between the top partners and the younger ones, often regarding succession issues. Like its two main rivals, partners come and go, but it is rare to see such a large team quit one of the three stalwarts which, unlike most of the market, has a reputation for retaining talent.
Although not as drastic, Bonelli saw a five-partner team leave in November 2007 to head up Latham & Watkins’ Italian launch. Esteemed banking and finance partner Andrea Novarese, together with Maria Cristina Storchi (M&A, corporate finance), Fabio Coppola (M&A), Tommaso Amirante (M&A) and Simone Monesi (capital markets) all joined Latham. They were followed in August by Gianni Origoni partner Antonio Coletti.
The Latham team may not have been as high-profile as Sergio Erede or many of the other senior partners, but they were deemed rising stars. On a general level, many law firms, especially international ones, are also targeting younger partners within local practices. Often there can be tension between the founders or senior partners within a firm who are not keen on sharing power or profit. This inevitably leads to departures, either for a rival or a standalone practice.
Even so, Legance is one of the largest splits ever seen in Italy. The size of the new practice should not be underestimated. As with Pirola Agnoli, the 2007 table would also see another change to the top 10 with Legance easing out Cleary Gottlieb to take 10th place. The team that established Legance had 2007 revenue of around e35m (£27.22m), which tops Cleary Gottlieb’s e31m (£24.11m). Indeed, at the halfway point of 2008, Legance was said to be close to passing its 2007 total.
Of course, it will not be until the next financial year that the proof is available, but Legance has undoubtedly hit the ground running and already attracted numerous merger proposals from international and local rivals. In terms of core M&A work, it is clearly challenging the established order.
According to Thomson Reuters’ H1 M&A tables for 2008, Legance was the fifth-placed Italian law firm. Discounting Spain’s Uría Menéndez, which was second, it came behind Bonelli in first, Gianni Origoni in third and Linklaters in fourth. As such, Legance was ahead of Freshfields, Chiomenti, Grimaldi e Associati and Clifford Chance.
By all accounts, Legance has taken some clients with it. Deals so far for the firm include advising UniCredit Group on the e213.8m (£166.25m) sale of 39 bank branches to Banca Popolare di Milano; working for the banks financing the $5.2bn (£2.97bn) purchase of US-based DRS Technologies by Italian defence company Finmeccanica; representing Air France-KLM on its failed e1.24bn (£964.24m) takeover bid for Alitalia; and the sellers of investment company Speed, which was sold for e835.5m (£649.7m) to Pirelli.
“Even being extremely optimistic, we never expected that Legance would be in the position it is for headcount and rankings,” says Troisi. “We started with 85 lawyers and have grown to 125 since the launch.”
Although ;Legance’s ;institutional approach and deal flow has provided a bumper start for the firm, cracking the top of the market is no easy feat. The fact that it has just two offices, in Milan and Rome, means that the cost base is substantially lower than that of its rivals spread across Italy or the world. The firm is looking at a potential London launch, as well as opportunities in the Middle East, but is committed to independence. All of these factors combined could help Legance maintain a charge to the higher end of the tables.
“Our aim is to compete with the very best firms and break into the top three, which I think we’ve managed to do if you look at the quality of our transactions and our position in the rankings,” Troisi concludes. “The work we’re doing feels no different to what we were doing before and with our size and performance so far, there’s every chance we can continue to build.”
For the upper echelons of the Italian market, 2008 has been a year of upheaval. The creation of two new top 10 practices, each boasting more than 100 lawyers, in the shape of Pirola Agnoli and Legance, coupled with Chiomenti’s attempt to corner the Asian market, has set a new agenda.
The Italian legal sector has been used to splits and spats for generations.
However, for the first time in recent years the winds of change are reaching the higher end of the market as local lawyers prepare for the next step of competition.
If Pirola Agnoli does build a credible international tax and legal network, if Legance continues to build on its impressive start and if Chiomenti can leverage off its new Asian network, then the face of the local legal market is set to change radically once more.
Antony Collins is senior reporter at TopLegal International