1. It's about the domestic market. US and London firms often judge German firms by their own yardsticks of how international the M&A practices are. But considering the potential in the German market, no leading corporate firm would do itself justice by simply chasing instructions for deals outside Germany.
The relevant strength for German lawyers is their domestic industry. The relevant problem is the degree of reorganisation and refinancing that industry will need over the next few years. The relevant market dynamic is the degree to which the client bases of mid-sized regional firms can provide rich pickings for the more sophisticated legal practices.
2. Leading firms have industry conflicts. There is considerable blockage at the top of the corporate market. There is hardly an auction in which leading firms are not advising parallel bidders. Until recently only Hengeler Mueller and CMS Hasche Sigle were the exceptions, but even these firms made limited exceptions on the recent KKR-Siemens and Viterra deals respectively.
In the corporate market, much will depend on how clients react to industry conflicts, rather than legal conflicts. Most clients surveyed by Juve are, at the least, uneasy about the situation, even if they see themselves as having little choice in the matter. The private equity market, however, is an excellent example of clients trying out new firms and discovering that there are more than just a few players.
3. M&A is not the only fruit. Attention in Germany has all too often been concentrated on the purely transactional market. But the secret of Hengeler and, to a certain extent, Freshfields Bruckhaus Deringer, has been the extent to which their top lawyers have the ear of the board at Germany's leading corporates.
The outstanding success story of the 1990s in this regard was Shearman & Sterling. Firms glued to the management board have been involved at an early stage in strategic decisions; in the present climate they are the first choice for bet-your-company restructurings and they end up running the acquisitions as well. Other leading practices (Clifford Chance, Gleiss Lutz, Linklaters) have had a different role in the market,
in the case of Clifford Chance and Linklaters advising foreign investors. Now everybody has seen the benefits of a strong group of non-transactional corporate lawyers with contacts to the top. This arena will provide the stiffest competition in the corporate market over the next few years.
4. The delegation of deal management out of London is beginning to happen. One of the most important objections to a best-friends/ standalone policy (ie the likes of Gleiss, Hengeler or Haarmann Hemmelrath) is that practices which are not financially integrated do not hand over transaction management instructions to each other. In other words, Hengeler might do a German deal for a key Slaughter and May client, but the latter cannot see Hengeler being instructed as transaction manager on a deal outside Germany as being in its interest (the best example being in Eastern Europe, where German firms have a more natural affinity).
The independent firms counter that this delegation of key clients does not happen in integrated firms either, but the past year has seen notable examples, just one being Linklaters Oppenhoff & Rädler's work for BP and the Royal Bank of Scotland on M&A work.
5. Corporate practices need Munich. Foreign firms tend to focus on the Bavarian capital for the wrong reason: that it is the centre for technology and intellectual property clients. Nonsense. Like all industries in Germany, this one is federally spread and the most important patent courts are in Düsseldorf and Mannheim.
However, the past couple of years have seen Munich transform itself into a vital base for corporate lawyers, partly because of the opportunities that were going begging: most of the Munich bluechips were being served from Düsseldorf, Frankfurt or Berlin. Baker & McKenzie, Freshfields, Gleiss, Shearman, Clifford Chance, as well as a group of US firms, are now all there; and Linklaters Oppenhoff & Rädler has finally got its act together. Over the next few years Hengeler will have to decide whether it can afford to stay away, and whether its existing contacts (eg to HypoVereinsbank) are good enough to withstand the invitations to clients from competitors to a table at the Oktoberfest.
6. Mid-sized firms can theoretically withstand the onslaught. Large firms see the mid-cap (Mittelstand) corporate market as particularly lucrative and a good target because of the relative lack of sophistication of regional mid-sized firms.
First, unlike in the UK, there is a far higher proportion of mid-sized (or even boutique) firms involved in the headline deals. Just two examples are Pöllath + Partners and Hölters & Elsing. In addition, leading corporate firms underestimate the regional practices at their peril. The longstanding contacts to the Mittelstand (once again, think federal), the lower cost bases and the closure of equity at the larger firms are all helpful to the mid-sizers. The primary test will be the extent to which mid-sized firms can help their clients with equity restructuring in the wake of Basel II. It is their biggest opportunity for years and it will be the making (and breaking) for firms in this sector.
7. In-house departments are becoming more powerful. The in-house community is on the cusp of considerable change in Germany. First, it is beginning to see itself as precisely that: a community with shared interests which is interested (albeit in a discreet manner) in exchanging information about its service providers.
Second, historical accident has determined that the first decade of the 21st century will see the handover of the reins of power at a number of important in-house departments. This new generation is, as a rule, decidedly different from its predecessors: the in-house path has been chosen for career reasons rather than a lifestyle choice (a remarkable proportion of board members in DAX 30 companies are legally trained) and they are ambitious. Expect growth and more self-assertiveness.
Aled Griffiths is the editor of Juve Rechtsmarkt