As 2016 was hailed the year of disruptive political change at the heart of the Anglo-Saxon world, many expected the political storm to sweep the European continent in 2017 due to the elections in several key countries.
But election results in The Netherlands, Germany and France provided a certain level of relief and continuity for the EU in a fast-changing world. Although uncertainty created by the Brexit process still looms over businesses and law firms alike, a good number of European firms’ London offices have reported an uptick in workload and activity.
Spanish firm Cuatrecasas Gonçalves Pereira is a case in point. London partner Ignacio Buil says the firm’s London office has had an excellent year and beat records in business generation and revenues. This is a result of “the strong year for our finance and restructuring and corporate and private equity practices”, according to Buil.
“Our London office is the spearhead for developing our international offices” he claims.
A busy year
Hengeler Mueller’s London-based partner Daniel Kress also says 2017 has been one of the busiest year he has had since moving to London in 2010. Among a long list of matters he has handled in the first three quarters of the year representing Lufthansa in the restructuring of insolvent airline Air Berlin – which has recently agreed a €40m (£46m) deal with UK budget airline easyJet – and advice to Goldman Sachs on purchasing a European real estate portfolio of 42 properties from Savills Immobilien stand out.
“Our London office is the spearhead for developing our international offices” Ignacio Buil, Cuatrecasas
While no other firm boasts of a record-breaking year as Cuatrecasas and Hengeler Mueller do, many have seen a steady growth in workflow.
“The overall workflow has grown – the activities of our London office have increased in the past year and this can be seen by the number of fee-earners working in our London office,” says Marco Zaccagnini, London head of Italian firm Gianni Origoni Grippo Cappelli & Partners.
With 10 fee-earners, including two partners, in London, Gianni maintains its position as the fourth-largest European firm in London by headcount.
“Large Italian clients are probably more reluctant about long-term investments in the UK, but this has been partly offset by smaller, opportunistic deals taking advantage of the weak currency,” Zaccagnini adds. “After Brexit we see more careful evaluations by clients before investing in the UK. On the other hand, investment from the UK to Europe has strongly increased.”
There have been many media reports over the past year about financial services
institutions and multinational corporations leasing office space and relocating teams to Frankfurt, Paris, Dublin, Amsterdam and other EU financial centres as part of Brexit contingency plans.
Recent examples include Goldman Sachs signing a new lease in Frankfurt to expand its office space to accommodate additional 800 staff in the German financial capital, Ryanair’s $300m investment plans in Frankfurt, Citi’s application for a Paris broker-dealer licence and Japan’s MUFC picking Amsterdam as its EU investment banking base.
“The overall workflow has grown, as can be seen by the number of fee-earners working in our London office” Marco Zaccagnini, Gianni Origoni Grippo Cappelli
“We’ve seen a lot of interest in Ireland from companies considering their position in London in light of Brexit,” says Niamh Ryan, London managing partner of Dublin-headquartered A&L Goodbody. “This interest is primarily coming from financial services institutions and Ireland is very much seen as an option for an EU base.
“We’ve been involved in a number of Brexit projects, with the most active being in the insurance sector – we are currently supporting XL and Standard Life among others.”
Irish rival William Fry has also seen more interest from clients on Brexit-related matters.
“There have been more enquiries from clients considering their options and therefore we’ve seen increased activity,” says Ivor Banim, William Fry head of London office. “Beasley and Chaucer are examples of banks’ and insurance companies’ redomiciliation.”
In June this year specialist insurance group Chaucer formed a Dublin-based company to write international specialty insurance and reinsurance business.
“As organisations look outside the UK for their EU headquarters post-Brexit the governments and inward investment agencies in key locations have been promoting themselves,” adds Banim. “We’ve also been working with companies and law firms in the UK to help clients looking outside the UK for a location for their EU headquarters.”
Dutch firm Loyens & Loeff reports a similar experience, having been involved in several Brexit-related projects.
“Many organisations based in England have started preliminary discussions involving our colleagues in Amsterdam, Luxembourg and Brussels,” says Peter Adriaansen, tax partner of Loyens & Loeff based in London. “Certain parties have already transferred parts of their business to one of the Benelux countries. In particular, there has been an increase in funds-related work in Luxembourg, with fund managers moving more and more activities there.”
The Netherlands is not only an attractive option for the financial services industry but also for other corporations, due to its lower corporate tax rates.
De Brauw Blackstone Westbroek’s London partner Niek Biegman says his firm has seen some activity around non-financial services companies that would otherwise automatically go to London to set up their European headquarters, considering The Netherlands as an option.
“To a degree those moves are tax-driven, but in relation to global conglomerates, such as financial services institutions, passporting is a more urgent issue for their European headquarters and The Netherlands is seeing its fair share of interest from conglomerates,” says Biegman.
English law recognition in doubt
Germany, the largest and the most stable economy in the EU, is another strong contender for global companies and financial services institutions to shift their investments and business to in anticipation of higher trade barriers after Brexit.
Morgan Stanley, for example, has picked Frankfurt as its new trading headquarters inside the EU after Brexit. It has secured 8,000sq m of office space in the city. Citigroup is also understood to be planning to add up to 200 roles in its 350-strong Frankfurt office as part of Brexit contingency plans. Other banks, such as Standard Chartered, Japan’s Daiwa and Sumitomo Mitsui Financial Group, and South Korea’s Woori Bank have also confirmed plans to set up subsidiaries in Frankfurt.
“Many investors who previously turned away from the UK due to the high price are finding the market attractive again” Daniel Kress, Hengeler Mueller
“We’ve seen a lot of interest from banks to come to Frankfurt and global investors to invest in our home jurisdiction,” says Kress. “Our Frankfurt office has been busy with Brexit-related work, particularly on the regulatory side, as English law recognition may be an issue after Brexit.
“With the Brexit process becoming harder and harder people have realised that things may have to change. Clients have started to prepare for that more seriously.”
The likely move of the London-based European Banking Authority and the lucrative euro clearing business to Frankfurt after Brexit will give the German financial capital another boost. This will inevitably increase the demand for Germany and EU regulatory advice. German firms with a strong presence in London, such as Hengeler Mueller and Noerr, have been the beneficiaries.
“There’s been a lot of interest from law firms and financial services clients in understanding the process involving the German regulator Bafin,” says Schulz. “We’ve had discussions with several international banks regarding EU passporting rights. We’ve also provided advice for companies planning to relocate to Germany as a result of Brexit on regulatory, corporate, tax, employment, immigration and real estate issues.”
Apart from Irish, German and Dutch legal advisers, firms from other EU jurisdictions are also gearing up to seize opportunities and better service clients in a period of market uncertainty in the UK.
Spanish firm Uría Menéndez set up its UM Brexit Group, co-ordinated from its London office, to follow and analyse developments on Brexit to guide clients in their decision-making process in the spring of 2016. Its effort is starting to bear fruit.
According to Uría Menéndez London resident partner Juan Carlos Machuca, since the announcement of the referendum, the firm has been advising clients (including Iberian companies with a strong presence in the UK and investors from the UK with interests in Spain and Portugal) on all types of Brexit-related queries and matters.
For example, the firm has been advising an international airline company on the potential implications of Brexit and the loss of access to the ‘open sky’ across the 27 EU countries, the relocation of the headquarters of a global asset manager and handling
0regular queries on licensing and passporting requirements .
“The first nine months of 2017 have been very busy with a steady workflow, and we estimate that we will end the year surpassing our projections,” says Machuca optimistically.
However, he is less bullish about inbound investment to the UK.
“In relation to the attitude of European clients on investment or doing business in the UK we have observed rising concern and, as a result, clients are adopting a more conservative approach towards increasing their exposure in the UK until there is more clarity over Brexit,” he says.
Shaky inbound investment
While companies and banks are considering their options in moving parts of their businesses to other parts of Europe in preparation for Brexit, European firms have not seen any big changes in European investments into the UK or impacts on their London offices. But concerns among clients over plans in the UK are mounting.
“There hasn’t been as major a shift away from UK as might have been expected. Mid-market deals are still going fairly strong, though mostly in ‘moveable’ assets such as IP and software businesses,” observes Icelandic firm Logos’ head of London office Gudmundur Oddsson. Corporate and M&A are the two main areas of focus for Logos’ London office. For example, earlier this year the firm acted for Icelandic Group in the £80m sale of its UK operations – Seachill, and advised fintech banking services provider Valitor on its acquisition of UK-based International Payment Services.
For Irish firm A&L Goodbody, clients’ businesses, for now, are still going as usual in the UK.
“European clients are considering their UK operations and the options available to them post-Brexit,” says Ryan. “Their attitude, as well as the issues they are considering, very much depends on the nature of their business. Given that there is still quite a lot of uncertainty in respect of Brexit many clients are still getting on with the day-to-day work,”
Some opportunistic investors see this as a good time to invest in the UK because the pricing is cheaper due to the depreciation of the pound.
“Many investors who previously turned away from the UK due to the high price are finding the market attractive again,” says Kress. “And opportunistic investors see volatility in the market an opportunity.”
He also notes that private equity investors and capital markets deals are less affected by the Brexit uncertainty in London.
However, many firms report a different experience.
“We’ve seen some deals, especially on the UK real estate investment side, being put on hold,” says Camille Bourke, head of London at Luxembourg-based Arendt & Medernach. “The investment teams of some clients are now focusing more on
targets in EU countries other than the UK. That’s without completely disregarding the UK, but just limiting the focus.”
Italian firm Italian firm NCTM’s London partner Andrea De Tomas confirms this.
“Most EU investors are sceptical about investing in an uncertain legal and economic environment and it seems to be worsening” Andrea De Tomas, NCTM
“Brexit is having an impact,” he says. “Most EU investors are sceptical about investing in an uncertain legal and economic environment and unfortunately this negative pattern seems to be worsening.”
Belgian firm Liedekerke’s London head Kristien Carbonez agrees that European clients have become more cautious when analysing investment opportunities in the UK, but she says: “Our workload in London has not been affected much as our London outpost focuses more on facilitating inbound work as opposed to outbound work, which is more limited out of Belgium.”
Noerr also shrugs off any negative impact of the slowing inbound dealflow.
“Brexit uncertainty is affecting dealflow for everyone but there has not been any material effect on our London office or Noerr as a whole,” says Schulz.
With their clients becoming more wary, some European law firms have started adopting a more cautious approach to expanding in the City.
“Brexit has clearly placed a question mark over future activities of our clients in the UK” Massimiliano Danusso, BonelliErede
“Brexit has clearly placed a question mark over future activities of our clients in the UK,” says BonelliErede London managing partner Massimiliano Danusso. “We are also taking a short- to medium-term view on our plans for expansion in the UK.
“Having said this, we’ve assisted Italian transportation company Trenitalia in the acquisition of the C2C franchise in London this year.”
A partner of another European firm in London tells The Lawyer that his firm is in the process of renewing its office lease in London.
“Pre-Brexit the deal would have been a straightforward 10-year renewal but now we are considering adding a five-year break clause,” he says.
Uría Menéndez’s Juan Carlos Machuca explains further the potential regulatory implications for European lawyers working in the UK.
“London is an extremely demanding legal market and in the coming years will be
subject to a number of tensions, namely Brexit, technological change and consolidation, to which we will have to adapt,” says Machuca. “The UK leaving the EU will prove a challenge both from a business and a regulatory point of view. Much like the other European firms based in London we wonder if there may be some changes in how European lawyers are registered with the SRA that may affect our work in the future.”
Small but important
With many corporations and clients weighing up their options for a post-Brexit Britain, global law firms have been building up their presence and networks across the Channel.
In contrast, existing European firms’ London offices have remained largely stable with only slight fluctuations in headcount. There has been no notable new entrant to the market over the past 12 months.
The importance of London to European firms has not been dampened by recent events. The possibility of a London closure is minimal, but expansion in the market has been extremely cautious.
“Some European clients are a little wary about doing business in the UK or making plans too far ahead,” says Arthur Cox’s newly appointed London chief David Molloy. “Also, many clients are frustrated by the lack of clarity around the nature of Brexit and what that will mean for the UK and international businesses operating in or from the UK.
“In terms of our plans for London, the reality is that London is and will continue to be a significant financial centre in the world and our commitment to the UK and our London office has not changed.”
Despite London’s unwavering importance, European firms’ London offices continue to be small outposts with a significant focus on relationship-building and referrals. Only a handful of European firms offer English law capability, including Chiomenti, Gide Loyrette Nouel, Wikborg Rein and Logos.
“The London office is vital for managing the international businesses of our clients and our international relationships with independent firms,” says Ignacio Corbera Dale, managing partner of Garrigues’ London office, which has four fee-earners. “It is a fact that companies are increasing investment and participating more in global and multi-jurisdictional projects, and the London and New York offices are essential to lead this activity.”
Among the 32 firms that provided headcount figures for this article, the average number of staff based in London is 9.5, while average resident fee-earner and partner numbers are 6.9 and 1.9 respectively.
As the only French firm with a base in London, Gide Loyrette Nouel has the largest London presence among the European firms and is one of a small number of firms with an English law capability. It has increased its headcount over the past 12 months. Its number of fee-earners grew by seven from 28 in 2016 to 35, while its number of partners stayed at six. This represents the highest fee-earner headcount increase of all European firms in London.
Gide’s London managing partner Rupert Reece notes that dispute resolution is the most active practice in London, followed by banking and finance.
For the rest of the 32 European firms that submitted their headcount figures in London, only 11 have more fee-earners than last year. Eight maintain the same number of fee-earners, while the rest see a small reduction.
In terms of partner number, seven firms have fewer partners based in London compared to 2016, and only three have added partners in the City. In a rare move, Hengeler Mueller’s London-based corporate partner Steffen Oppenlaender left the firm to join US firm Milbank Tweed Hadley & McCloy in August 2017. He has relocated from London to join Milbank’s Munich office. As a result, Hengeler Mueller’s London office is left with one partner.
Logos is one of the three firms that have grown their partner ranks in London, up by two from three in 2016 to five. It is also one of a small number of European firms that offers English law advice. Eight of its nine fee-earners in London are qualified in England and Wales.
Logos London boss Oddsson notes that although the firm had a slow start in the first quarter of the year, it moved to a very busy summer followed with a good dealflow continuing into Q4.
“Our London presence – and improved international awareness as a result – is seen as very helpful to the firm’s business,” says Oddsson.
Under certain firms’ strategies a small presence in London is sufficient. Swiss firm Froriep, for example, has a five-fee-earner office in London led by partner Dunja Koch. The office is instrumental in maintaining referral relationships with UK, US and other European firms in the City. Froriep works with a large number of firms and frequently receives referrals via London from firms such as Allen & Overy, Berwin Leighton Paisner, Clifford Chance, Dentons, Herbert Smith Freehills, Hogan Lovells, Norton Rose Fulbright, Proskauer Rose, Shoosmiths, Sidley Austin, Sullivan & Worcester and White & Case.
We have a relatively small set-up which enables us to be agile” Dunja Koch, Froriep
“We have a relatively small set-up which enables us to be agile,” says Koch. “We can always rely on our home offices for support so there is no downside to keeping our current set-up.”
Many London managing partners of foreign firms will agree that building a successful and sizeable business in London is a challenge and that Brexit only adds another layer of complexity. But firms are making progress, albeit gradual and incremental.
For example, BonelliErede has recently brought in a team of lawyers previously at Allen & Overy specialised in capital markets to its London office, Arendt has hired a business development manager in London and NCTM has made investments in IT and in its London office’s facilities after renewing its London lease for a long term, which confirms London as important in its long-term international strategy. Noerr has recently promoted a London-based lawyer to associate partner as a demonstration of its investment in talent in London.
According to Uría Menéndez, London is likely to remain an important financial hub, although there is uncertainty regarding the position of the UK as the main business and financial centre in Europe due to the possibility that some clients may move from London with Brexit. However, it has reinforced its team in London by having senior lawyers with longer stays and increasing the overall number of lawyers seconded to London regularly from a broader range of practice groups such as tax, infrastructure and public law.
European firms’ work in London – a focus on finance
As part of the research for this article The Lawyer surveyed over 30 firms on their main practice areas in London. Based on 20 firms’ responses, The Lawyer finds that these firms’ practices in the City have a distinctly financial focus.
Corporate and M&A are listed by the largest number of firms as one of their key practices in London. But capital markets – including both debt and equity capital markets – and finance are close behind. Restructuring is mentioned as another major focus among the firms.
“London is an important market for our firm because, due to the high concentration of firms and people active in the financial services industry, many high-profile deals are originated in London,” says Dutch firm NautaDutilh’s London partner Walter Schellekens.
“We do not expect London to lose its leading role in the financial services industry in the next five years but if parts of that industry shift to Continental Europe or Ireland we may have to adapt our staffing in London to a lower level of activity.”
NautaDutilh provided a list of 17 deals involving major work by the firm’s London office. Of these, 16 are finance-related, such as advising Aegon Bank and NIBC Bank in relation to multibillion-euro structured finance transactions alongside its Amsterdam head office.
Dutch rival De Brauw Blackstone Westbroek also highlights six deals handled by its London office in 2017, five being debt capital markets transactions. Enel Finance International’s $5bn (£3.8bn) bond issuance is the largest by deal value. London -based partner Niek Biegman led the firm’s team on the deal and worked alongside issuer international counsel Sullivan & Cromwell and underwriters’ counsel Latham & Watkins.
In total, 12 firms submitted 80 deals in which their London teams have either played a lead role or been an integral part. Below is a list of the deal highlights.
For more news and analysis on Europe, see: www.thelawyer.com/europe
This article is taken from The Lawyer’s monthly magazine. The December issue contains proprietary data and analysis on private equity in UK and US firms, plus in-house interviews and key findings from the UK 200: Financial Management report. To subscribe please click here.
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