International Brief

The Frankfurt stockmarket had never seen anything like it. Germany's best known soft porn pin-ups promoting the initial public offering of the country's biggest sex store chain Beate Uhse.

In Germany's exploding capital markets, the leading firms have all been scrabbling for their fair share of the work. The banking clients are carved up by the top six banking firms, but the issuers themselves – especially in the Mittelstand – tend to pay little attention to suggestions as to who should advise them.

Beate Uhse's lawyers are seven-lawyer firm Witt & Mueller in the sex queen's home town of Flensburg, up on the Danish border. And this week the same firm announced its merger with two other firms in Schleswig-Holstein, Germany's northernmost state – Petersen Becker Ziegenbein (PBZ) in Kiel and Hohnsbein Brock in Luebeck.

Not that the news made great waves in the national market. Most lawyers in Dusseldorf or Munich would never have heard of the firms, despite PBZ's leading role in broadcasting in the new states of eastern Germany, or Hohnsbein Brock's strong client base in health care.

The big firms in Germany – which are the ones best known in the UK – are fond of saying that the market is diverging. Peering over the Channel, they claim to see a similar emergence in their home country of a top tier of 15 to 20 firms, leaving the regional firms behind to pick up the scraps. In the future, they confidently claim, there will be big international full-service firms, boutiques, and those squeezed in the middle.

But it isn't that simple. All German firms are regional firms. The gap between those in the Frankfurt skyscrapers and the modest town villas is not so great as UK lawyers think (and certain German lawyers like to believe).

The reason for this is clear. A much larger proportion of law firms' advice is directed at the Mittelstand – the real engine room of the German economy – which is also that section of clients which is most aggressive about tapping the international capital markets. And these companies are spread around Germany, be it Flensburg or Freiburg, Aachen or Augsburg, on the doorstep of those law firms which are being written off by their colleagues.

Had these firms stayed where they were, the desperate predictions about their demise might have some substance. As it is, provincial firms have long since followed the path of specialisation, extending their client base throughout the country. Some have found that they need a geographical spread which covers those areas where their clients are expanding, others find that 30 or more lawyers with a nearby airport is completely sufficient.

This is what is happening now in Germany, firms are being formed with 50 or more lawyers with a client base, depth of international experience and, thanks to the deep roots of the MDP in Germany, a track record in financial transactions that the so-called regional firms in the UK could only have dreamt of when they started their rapid expansion a decade ago.

Instead of looking for link-ups with the ever dwindling circle of Frankfurt firms, UK practices would be well advised to examine precisely whom they want to advise in Germany. If the name of the game is PR, Frankfurt may well be the key. If it is practice development, then they should feel for the quality.

In two years' time the provincial firms will be challenging the big names for the top line domestic work in Europe's biggest market. Now is the time for UK firms to find such a partner. Advising Beate Uhse would just be the bonus.

Aled Griffiths is editor of German legal news magazine Juve Rechtsmarkt.