As Portuguese firms face liberalisation in a post-bailout world and the home market remains tough, many are setting their sights overseas
As Portugal welcomed in 2013 the country’s lawyers were no doubt wondering whether the new year would bring a change in fortune for a country that has been hard hit by the eurozone crisis. While most lawyers are realistic that dramatic improvement is far from just around the corner, longer term growth is keeping them hanging on.
“The Portuguese domestic market is flat at best,” admits Rui Amendoeira, managing partner at Miranda Correia Amendoeira & Associados. “It’s been like this for the past four years or so, and things are obviously not going to pick up this year. The consensus is that 2013 is not yet the recovery year.”
“Last year was more than challenging,” adds Manuel Santos Vitor, managing partner and head of corporate and M&A at PLMJ. “It was very much the mark of the way Portugal will go on until at least 2014, including big cuts in the public sector, while public investment stopped almost altogether.”
Certain parts of the market continue to struggle more than others, according to Nelson Raposo Bernardo, managing partner of Raposo Bernardo.
“There’s no doubt that many firms are suffering the effects of this crisis,” he notes. “The firms that have suffered most are those that have no foreign offices and are therefore exposed to the Portuguese economy, those that have traditionally concentrated on a few select clients or that were just too big or too small.”
Amendoeira stresses that the austerity cuts have continued to take their toll on all parts of the market.
“There are a few niche firms focused on real estate work and the public sector that have been badly affected, but bigger firms have also had to cut overheads and streamline operations as the market is not profitable enough,” he comments. “Even with the same amount of work, in economic terms things are radically different.”
Pressures on pricing are also a bone of contention, remarks Maria João Ricou, co-managing partner of Cuatrecasas Gonçalves Pereira in Lisbon.
“Clients are putting great pressure on firms and if our competitors start to be flexible, that can be a problem, for obvious reasons,” she says. “We’ve been adjusting to circumstances and if our clients are going through tough times we need to share the burden with them, but as with everything in life there’s a limit. Sometimes it seems that some of our competitors don’t have such a limit and we believe this is creating a problem for everyone in the future. We don’t feel we can have fees at a ‘normal’ level again after years of them being at such low levels. This worries us a lot.”
“We don’t feel we can have fees at a ‘normal’ level again after years of them being so low. This worries us a lot”
Maria João Ricou
That said, there are signs that things are starting to improve.
“Real estate is in a severe crisis in Portugal and Spain, and this will go on for some time,” admits Santos Vitor. “However, in areas such as M&A, although there have not been a lot of large-scale operations, we’ve seen quite an interesting flow of small- to medium-sized transactions so globally the level of work stayed pretty much stable in 2012.”
Tax in particular is experiencing a resurgence, he adds.
“We’ve seen some interesting growth in our tax practice as a result of two main factors: first, pressure from the country’s tax administration and second, difficulties for tax payers in terms of being able to pay higher taxes. All this has generated more work for firms.”
What’s more, although 2013 may not be the year of great change for Portugal, the country kicked off the year with a good sign of things to come: on 23 January it made a triumphant return to the debt markets for the first time since the 2011 bailout by performing a ‘syndicated tap’ to effectively increase the size of an existing bond due to expire in 2017. The deal, which echoed a similar move made by fellow bailout economy Ireland earlier that month, attracted so much interest from investors that more than €12bn (£10.5bn) was put forward to buy the €2.5bn bonds.
“There are signs of recovery,” notes Santos Vitor. “The economy will probably not grow this year, but things are improving and 2013 will be better than last year.”
A wider view
Although things are starting to look up at home, naturally firms are still focusing on succeeding further afield, particularly in lusophone and francophone Africa.
“The crisis has caused some Portuguese firms to push ahead with their international plans,” comments Amendoeira. “Many of these plans probably already existed but the difficulties in the domestic market have made internationalisation plans more urgent.”
Miranda, which became the first major Portuguese law firm to open an office in London in 2012 and bolstered its presence in the Democratic Republic of Congo (DRC) via an association with local firm MBM-Conseil in January, has ploughed ahead with its international strategy regardless of the economy back home.
“We don’t need a crisis to convince us to invest overseas – we’ve been doing this consistently for the past 25 years,” Amendoeira says. “London and the DRC are just parts of our plan and we hope to proceed this year with new offices in francophone, central and western Africa.”
Miranda is not the only firm reaping the benefits of its international strategy. Raposo Bernardo points to his firm’s international practice, which now comprises offices in Spain, Poland, Romania and five countries in Africa.
“The African countries are showing growth rates of between 3 and 7 per cent, and even Poland is going well in these hard times of crisis in Europe,” he stresses.
International work is already having a positive impact on many Portuguese firms’ turnover.
“International work makes up approximately a third of our turnover,” enthuses Fernanda Matoso, a partner at Morais Leitão Galvão Teles Soares da Silva (MLGTS). “We have several multinational companies in our client base and we’re constantly being recommended by foreign law firms to help their clients in Portugal,” she adds.
“The president of the Portuguese Bar Association has made it clear he’s not happy with this liberalisation”
Manuel Santos Vitor
Meanwhile, Santos Vitor, whose firm now has 12 fee-earners in its Mozambique office and eight fee-earners based in Angola plus a further 12 on the firm’s Angolan desk in Lisbon, has great expectations for the firm’s international practice.
“We’ve just completed our first full year in Mozambique and our second year in Angola, and there’s a commitment from partners to grow internationally,” he notes. “At the moment we’re seeing our international work generate a single-digit contribution to global turnover but we expect this to grow to double digits in the next few years.”
Following Cuatrecasas Gonçalves Pereira’s success in Mozambique and Angola, and the demand for oil and gas expertise there, the firm is taking the novel step of establishing a practice dedicated to this sector, reveals co-managing partner Diogo Perestrelo.
“Most firms working in these countries have these kinds of specialised departments but because of how successful our practice has been there we’ve decided to open an oil and gas department, starting with a small group that we will build up over time,” he says.
“The idea is to expand to other regions as there’s not much room to develop expertise [in Portugal],” adds Ricou. “This comes from the fact that we have a local presence in Mozambique and Angola, and these jurisdictions have similar legal systems, lots of natural resources and legal markets that are not very strong. They are a natural opportunity for our firm.”
Free and uneasy
While international expansion has long been a hot topic in Portugal – and all the more so in the current climate – the decision to liberalise the legal market has stirred up a whirlwind of controversy.
“There’s been a big push by the government to liberalise legal services in Portugal and around a month ago there was a call to the Portuguese Bar Association to amend its charter to allow for multi-disciplinary practices and for non-lawyers to participate in the equity of law firms,” says Amendoeira. “All these measures are aimed at liberalising the market but the local bar is against it and has threatened to sue the government and refused to make any changes to the bar regulations. Everybody is up in arms because of these measures and this is making the local bar more conservative.”
“The president of the Portuguese Bar Association has made it clear he’s not happy with this liberalisation and the prospect of law firms opening themselves up to non-lawyers,” adds Santos Vitor.
At this stage most lawyers are divided on whether liberalisation will be good or bad for the local market.
“In general terms, the equity of a firm should stay with the professionals who work in the firm,” affirms Perestrelo. “However, given the times we’re living in, opening up [law firms’] equity could be an opportunity, but it could also create a risk.”
Matoso agrees there are both potential benefits and problems with liberalising the legal market.
“The main issue is the knowledge and training involved in dealing with Portuguese law and language,” she says. “Competition will have a negative effect in the sense that Portugal is a small market and lawyers are currently struggling to maintain their clients, occupation levels and working standards.
“The positive effect could be greater efficiency to minimise the effect of competition, although Portuguese firms are experienced in working with foreign law firms and in international networks.”
“I have mixed feelings,” admits Amendoeira. “I don’t think lawyers are a special breed and need to be protected from the market, and would welcome outside capital. And as long as law firms maintain their independence and have appropriate safeguards, why not?”
For Amendoeira, the potential risks are a big concern.
“Multi-disciplinary practices may present more conflicts of interest,” he says. “How do you reconcile different legislation that applies to accounting firms, lawyers and so on? How do you manage risk and manage confidentiality? There have been examples over the years that suggest we need to be careful. The president of the local bar would tell you it would be the end of the profession as we know it, but to me the big problem is risk. Every day you read about auditors being sued. I don’t want to be involved in that, it’s too much of a risk.”
However, Santos Vitor warns that political issues have the potential to get in the way of a rational discussion about liberalisation.
“Unfortunately, rather than an effort from the legal community to adjust to this model it has become a struggle between the president of the Portuguese Bar Association and a few lawyers vying to become candidates when elections take place next year for the new bar president,” he says.
Time to change
Despite this, Santos Vitor welcomes the prospect of increased choice in the market.
“Portugal should look at the law and adjust, knowing it will bring more competition not only between Portuguese firms but with Spanish and global firms too,” he says. “I see this law as giving more options and maybe even advantages. Whether a firm chooses to have those elements or not, [at least they have] the option. Opening up the capital of law firms to third parties is another option. It could help us provide a better service to our clients.”
Regardless of the political issues and concerns over risk it is worth noting that neighbouring Spain already allows law firms to accept up to 25 per cent of outside capital from third parties so, while new to Portugal, the prospect of liberalisation is not wholly new to the Iberian peninsular.
In this vein, and given that the new legislation comes as other sectors in Portugal are being liberalised as part of the conditions of the bailout, Amendoeira admits the time may have come for the legal profession to accept its fate.
“Ultimately, these measures have been agreed between the Portuguese government, the EU and the IMF as part of the bailout,” he says. “The medicine for everything is seen to be liberalisation. There are many measures to liberalise markets across Portugal – now it’s happening to the legal profession.”
The recruiter’s view
“The problems in the economy have had both positive and negative influences on the legal market,” notes Vasco Salgueiro, manager at Michael Page Legal in Lisbon. “The positives have been in terms of growth in demand for lawyers in employment law, litigation, insolvency and tax. You have areas that grow in a crisis, and overall there has been a high demand for recruitment in areas such as employment. But in M&A, banking and commercial work, demand has been much lower.”
However, Salgueiro admits that the pressure to squeeze fees and cut wages across the sector is making things difficult.
“The negatives have been the pressure to lower fees and the downward pressure on wages,” he says. “My impression is that fees are going down by around 10 per cent.”
And has this been a problem for most firms? Yes, he says. “Some firms are able to keep clients by charging lower fees but some don’t have the structure to do this and so lose jobs to smaller firms that can be more flexible.
“We’re at an interesting juncture, with opportunities in some areas and problems in others – recruitment is very different from a few years ago. We’ve seen lawyers moving from large firms to small ones since some of the big firms just don’t have enough ‘food’ to feed all of their lawyers. Meanwhile medium-sized firms are in a better position and are recruiting .”
As in other countries, the lower end of the Portuguese legal market has changed, particularly in relation to trainees.
“Large firms are still taking on trainees as they cost less, have lower salaries and there’s a lot of work for them to do,” he comments. “However, at the moment, just like in other sectors such as finance and HR, you see a lot of young lawyers trying their luck in countries such as the UK, Brazil, Angola and Latin America generally.”
While the market is in danger of being saturated, talent is still a big issue, adds Solgueiro.
“In our market there are more lawyers than necessary but we do not have as many good lawyers as we need,” he says. “By good, I mean experienced, and you only get experienced lawyers if younger ones are given the chance to develop. Some firms don’t have the chance to develop young lawyers at the moment and that’s a problem.”
Lack of talent is also an issue in the in-house sector.
“The difficulty for companies is finding candidates with the best profiles and they don’t have time to manage the recruitment process, so that’s why they turn to us,” says Solgueiro.
But generally, recruitment levels in the in-house market are relatively high.
“Although some companies are restructuring, at the same time they are recruiting lawyers for their legal departments,” he notes. “Many legal departments have experienced changes in relation to how they use external legal counsel and a number have decided to internalise more work to make things less expensive. There’s been some increase in in-house market activity as a result.”
As for the prospect of liberalisation, Salgueiro envisages a difficult road ahead as the relatively conservative market struggles to adapt.
“It will be difficult for law firms and inevitably a number of firms will fight it,” he says. “However, in terms of recruitment it could be an interesting move and make the market more global. Whether firms like it or not, they need to adapt to new ways of doing business.”
Key figures: Portugal
Inflation (Jan 2013)
Life expectancy at birth
Unemployment (Q4 2012)
Source: World Bank, Statistics Portugal