Gleiss ceiling

Gleiss Lutz emerges from the sluggish German market as the top domestic performer, but the international firms still lead the way. Husnara Begum and Helen Power report

The leading domestic German firms posted marginal increases in turnover for 2004 after a year of difficult market conditions.

But Herbert Smith’s German alliance partner Gleiss Lutz bucked the trend after recording a whopping 20 per cent hike in both revenue and profit in 2004.

The firm’s stellar performance last year was very much down to its M&A practice, which is gradually starting to emerge from the shadows of Hengeler Mueller and Freshfields Bruckhaus Deringer, arguably Germany’s leading corporate firms.

Gleiss played a lead role in Procter & Gamble’s e6.6bn (£4.4bn) acquisition of Wella in what was easily the most high-profile deal completed last year. Gleiss represented long-term client Procter & Gamble, Shearman & Sterling and Heuking Kühn Lüer Wotjek advised Wella’s main shareholder the Stroher family, while Allen & Overy and Freshfields landed the role advising Wella itself.

Last year Gleiss also completed Germany’s largest-ever public-to-private deal, advising Celanese, the chemical company acquired by Blackstone Group for e3.1bn (£2.1bn). Thanks to conflicts at Freshfields and a referral from Bredin Prat senior partner Jean-Francois Prat, Gleiss acted for Air Liquide for the first time after advising the French gas giant on its buyout of Messer Griesheim.

In contrast to Gleiss, Hengeler’s turnover rose by just 5 per cent in 2004, from £107.1m to £112m. Meanwhile, average profit per equity partner (PEP) increased by just 3 per cent, from £834,000 to £859,000. Hengeler’s modest increase in revenue and profit is down to a lacklustre performance in the first half of the firm’s financial year although it bounced back in the second half.

Hengeler’s UK best friend Slaughter and May advised rival bidder Euronext on this very hostile ghost auction, demonstrating just how loose the alliance is when it comes to commercial conflicts.

The German end of Taylor Wessing has seen tremendous fee-earner growth in the last two years, resulting in a hefty rise in turnover to e95m (64.5m). Average profits rose less spectacularly as the large group of ‘special status’ partners, on one-year salaried partner deals, entered the equity last year.

Meanwhile, following a year and a half of turmoil for the accountancy-tied firms in Germany and the dawn of the Sarbanes-Oxley era, Haarmann Hemmelrath, which ranks second behind Hengeler (see table), decided to split its legal and tax division from audit to comply with the US and German legislation.

The drastic move follows a decision by the independent firm earlier in the year to move away from an ‘eat what you kill’ remuneration system. Although a large majority of partners voted for the change, it led to the departure of a number of Haarmann’s biggest billers, including highly rated corporate partner Markus Wenserski, who quit to join the Frankfurt office of US firm Willkie Farr & Gallagher.

Office politics aside, Haarmann was a notable performer in the M&A league tables: the firm jumped nearly 20 places in both tables, coming sixth and eighth in the Thomson and Mergermarket tables respectively for announced deals by value ranking.

Meanwhile, Beiten Burkhardt, the former German KLegal member, has underlined its newly found independent status by touting itself to new referral members in the UK. However, at the end of last year the German firm ended its tug of love between Berwin Leighton Paisner and Eversheds by choosing an informal network of best friends rather than the formal alliance favoured by both UK firms.

Beiten’s 2004 results are slightly skewed, because the firm recently changed its fiscal year to run from January to December and this is its first full-year results since the change.

Domestic German firms’ finances 2004

  European turnover Revenue per equity partner  
  €m £m €m £m
Hengeler Mueller 165.0 112.0 2.17 1.47
Haarmann Hemmelrath 130.0 88.2 2.03 1.37
CMS Hasche Sigle 110.0 74.6 0.79 0.54
Nörr Steinhofer Lutz 89.9 61.0 1.38 0.94
Beiten Burkhardt 65.0 44.1 1.27 0.86
Taylor Wessing 95.0 64.5 1.28 0.87
Gleiss Lutz 54.5 80.4 0.76 1.12
Source: The Lawyer

Bigger is better?

The German market is, of course, dominated by international firms. The turnover of even the largest German independent firm, Hengeler Mueller, is dwarfed by the operations of the biggest international firms in Germany – namely Clifford Chance, Freshfields Bruckhaus Deringer and Linklaters.

Add in the other UK firms such as Lovells and Allen & Overy, as well as the Americans, and the domestic firms are now only a small part of the story of Germany’s legal landscape.

For quality, the only rival to Hengeler is still the Bruckhaus Deringer megalith, but the Anglo-German firms showed the first signs of post-merger fallout last year.

A key (and highly profitable) Munich private equity team quit Freshfields, with US newcomer Milbank Tweed Hadley & McCloy picking up the prize. This was much more than the loss of a talented team – it shattered the illusion of Freshfields’ teutonic cultural supremacy. Worse, it hinted at tensions between London and Germany. However, Freshfields has suffered no further losses since and, unlike the other big UK firms, has not retrenched. Clifford Chance, Linklaters and Lovells have all culled German partners, with Clifford Chance pulling out of Berlin completely.

The process was most painful at Linklaters, where some of the partners concerned threatened to dissolve the firm’s global partnership, so unhappy were they with the terms of their de-equitisation.

Of the other UK outfits, Norton Rose also had a troubled year, spinning its entire 17-partner Cologne office to CMS Hasche Sigle, which had been central to the UK firm’s German strategy.

Conversely, it was full steam ahead for the Americans. Aside from the Freshfields team, Milbank captured a rated team from Baker & McKenzie (B&M), with which the US firm opened a Frankfurt office. B&M also lost a further four partners to Skadden Arps Slate Meagher & Flom.