Dutch courage

With profit down and market share under attack from the UK firms, Nauta Dutilh is at a crossroads. Matt Byrne asks: can this Continental giant turn itself around?

“It’s definitely from next year that we expect the rise in profit.” This bold statement will come back to haunt Nauta Dutilh board member and Brussels office head Benoît Strowel if that rise does not materialise. The firm’s future depends on it.

Ever since last autumn, when Nauta’s plans to shake up its Dutch powerbase by downsizing its Rotterdam office in favour of beefing up Amsterdam became public, the firm has been under intense scrutiny. The key question was whether the Benelux giant should have bitten the bullet and closed down in Rotterdam altogether.

But its strategy, derided by many close to the Dutch market as a halfway house, also raises questions about whether Nauta’s partnership is ruthless enough to take the painful decisions necessary to get its average profit per equity partner (PEP) up to competitive levels. And whether, in the long term, Nauta will be able to cling on to its dearly held strategy of Benelux independence in the face of unstintingly fierce Anglo-Saxon competition.

Profit drive

The significant rise in profit that Strowel promises would go a long way to answering those questions. But as he himself admits, it is not there yet. Nauta posted a healthy enough increase for 2005, with PEP up 10 per cent from e403,000 (£276,000) in 2004 to e440,000 (£302,000). But it will take more than that if the firm is to convince its remaining star partners that Nauta is where they want to be for the rest of their careers and attract future laterals of the quality it demands.

The effects of Nauta’s strategic rethink will not be felt in their entirety until 2007, so in a sense the firm is in a holding pattern for this year. The management – and crucially its four-strong board of Strowel, chairman Marc Blom, HR head Tjitske Cieremans and, since August 2005, the non-lawyer managing director Peter van der Meij – need to convince the partnership that, financially, better times are around the corner. They need to convince the partnership that downsizing, but maintaining Rotterdam while ramping up the focus on Amsterdam, will produce tangible benefits next year.

For the moment Nauta is focused on efficiencies. “There are still a number of costs that we have to write off,” says Strowel of Rotterdam. “For example, there’s the fact that the Rotterdam office has shrunk, partly naturally, but also as a result of a certain number of decisions and measures that have been taken. They have involved redundancies and a more focused transfer to Amsterdam. That means we have office space with which we’re currently stuck, and which we expect to get rid of in the course of 2006, or at the very latest the beginning of 2007.”

Nauta has shrunk by 19 partners since 2003 (see box, opposite). The most recent departures came in January, with the exits of litigation and arbitration chief Bart van Tongeren, employment specialists Jennifer Willemsen and Simon Tan, shipping partner Arnold van Steenderen and tax partner Roderick Bouwman. Among those 18 are partners whose practice areas no longer fit with Nauta’s strategy of focusing on the top 25 per cent of the market by work type. So, for example, in September 2005 the firm’s private client team, headed by Carla Smeets and Loes Gijbels, was spun off to form the imaginatively named SmeetsGijbels.

It is rare in the Dutch market for any partner to leave a firm without some form of compensation, so these exits have generated additional costs that Nauta is also looking to write off over the shortest possible amount of time. Throw in the cost of the review that Nauta stumped up for in 2004, which included calling in management consultants McKinsey, and it is clear why Strowel is predicting that this basket of measures will result in what he calls “a big surge” in profit from next year.

PEP discrepancy

Simply put, it has to. The exit of private equity star Peter Goes in October last year for Linklaters (average PEP E1.23m (£843,000)), highlighted the gulf between Nauta’s PEP and that of at least one of its aggressively hiring competitors. Goes’s exit was a catalyst for Nauta’s current shake-up, but what really got the firm moving was archrival De Brauw Blackstone Westbroek’s decision to consolidate all of its resources in Amsterdam. The move will see De Brauw jettison Rotterdam altogether as well as its signature Supreme Court-centred office in The Hague by 2008.

De Brauw had, in fact, begun to transfer its corporate group to Amsterdam around two years ago, keeping only litigation and the Supreme Court practice in The Hague. Strowel uses De Brauw’s experience to highlight the differences between that firm’s situation and Nauta’s.

“An office in The Hague is justified for a certain type of practice,” Strowel points out. “Litigation and Supreme Court litigation primarily, and also IP, because there’s one court in the Netherlands for IP, which is in the Hague. But there isn’t an economic justification for having an office [there]. It’s not an important thriving economic area in the Netherlands.”

Whereas, Strowel argues, Rotterdam is. “The entire region around Rotterdam is the second-largest and most dynamic region in the Netherlands. So, as far as we’re concerned, that was already a major difference [with De Brauw]. The second difference is that our office in Rotterdam was, and is, bigger than what De Brauw has in Rotterdam and The Hague.”

The argument is plausible, but the perception in the Netherlands remains that, while De Brauw is ruthlessly focusing its energies in Amsterdam, Nauta had a similar discussion and stepped back from the brink. Yes, the firm has a far larger base in Rotterdam, but even so, has its new board missed an opportunity? Strowel believes not.

“You don’t automatically enter a different league by focusing on Amsterdam,” he argues. “Look at our counterpart in Germany, Hengeler Mueller. It has two offices, Düsseldorf and Frankfurt. Certain practices are in both locations, others are larger in one than the other. Does that prevent them from being highly successful? No.

“If you look at even English firms in a country closer to the Netherlands, Belgium: Linklaters has two offices, Brussels and Antwerp, and the Antwerp office is the most successful. The same for Allen & Overy. The two managing partners are from the Antwerp office and not from Brussels. It might be a concept that’s alien to the centralised English system, where everything is happening in London, but it’s not the only way. And it doesn’t reflect the economic reality of countries such as the Netherlands or Belgium. That’s an important difference.”

Deal performance

The issues facing Nauta should be put into context. It is undoubtedly still one of the leading firms in the Benelux region, but in the Netherlands corporate market it lags behind De Brauw and Stibbe. Although it appears regularly on some of the highest-profile transactions (see box, left opposite) and, as Strowel puts it, “we had a good year in big-ticket deals,” the deals tables tell a different story.

According to Mergermarket’s tables for deals by value in the Benelux region for 2005, Nauta, with e17.72bn (£12bn), lagged behind De Brauw (e22.59bn (£15.36bn)) and Stibbe (e30.81bn (£20.94bn), together with alliance members Herbert Smith and Gleiss Lutz). In the Netherlands, Nauta pips both firms on value (e16.53bn (£11.24bn) to De Brauw’s e16.16bn (£11bn) and Stibbe’s e11.78bn (£8bn)), but is trounced on number of deals (17 to 57 and 21 respectively).

However, the measures Nauta has begun to take regarding its strategy suggest that, although it is rarely the most nimble of firms, it is at last waking up to the less traditional steps it needs to take to keep pace with its rivals, both on the domestic and international fronts. Fundamentally, Nauta has begun to tinker with the Holy Grail of old-school firms – the lockstep.

“We recognise the importance in the modern world of having very attractive top profit for top people,” says Strowel. “We’ve always had an extremely equitable lockstep equity system; you couldn’t find a stricter [one]. Now we’re tackling the issue of a number of points reductions for people who are underperforming in a number of ways in a much more straightforward manner. And we’re also discussing the possibility of including a bonus.”

As The Lawyer exclusively reported late last year (5 December), Nauta has voted in a system by which underperforming partners can be docked equity points. The firm is still to vote on whether or not to introduce a bonus element to its remuneration system, but sources suggest it is unlikely that Nauta, in its current mood, will pass up this opportunity to introduce some flexibility into its pay structure.

Strowel will be hoping it is not too little, too late.

Nauta Dutilh’s headline matters 2005
Client Deal description Value € Value £ Nauta team leader(s)
ABN Amro Share issue for acquisition of Banca Antonveneta 2.5bn 1.7bn Petra Zip, Gaike Dalenoord

Mitsui & Co, Sumitomo

Mitsui Banking


Financing for Indonesia’s Tuban


535.9m 366.1m Elizabeth Van Schilfgaarde,

Leo Groothius

Dexia Bank

Settlement of claims relating to alleged mis-selling 4bn 2.72bn Pim Rank,

of retail investment products (share leasing) Daan Lunsingh Scheurleer

ABN Amro

Establishing Netherland’s first covered 25bn 17bn Willem Ruys, Arjan Scheltema

bonds programme

Telfort Beheer

Sale of Telfort to KPN 1.15bn 782m Teska Van Vuren, Jeroen Preller

Endemol IPO on Euronext 281m 191m Jaap Jan Trommel, Jan Paul Franx

Amtel Vredestein

IPO on London Stock Exchange 201m 136.6m Gaike Dalenoord, Marc Anker

Mittal Steel

Acquisition of LNM Holdings 14.7bn 10.04bn Gerard Carriere, Petra Zijp

Royal P&O Nedlloyd

Share offer by Maerk 2.3bn 1.56bn Erik Hammerstein, Bob Jonker

TXU Corp

Restructuring 1bn 680m Joost Vrancken Peeters,

Joost Den Englesman

Source: Nauta Dutilh

Nauta Dutilh partner numbers 2003-05
Office 2003 2004 2005
Amsterdam 52 51 42
Brussels 18 17 20
London 4 4 3
Luxembourg 2 2 1
New York 3 3 3
Rotterdam 41 42 32
Total 120 119 101

Source: Nauta Dutilh