Rage Against the Machines: European firm financials 2012

With financial results stagnant across Europe, only the strongest independent firms will survive the continuing onslaught of the inter national behemoths

Robin Saphra
Robin Saphra

Globalisation has been a watchword in the legal profession for some time, but the past few years have seen an increasing number of firms turn their hands to new markets in the hope of tapping into revenue streams that have been lost at home.

Several recent panel reviews have favoured international firms over single-jurisdiction practices. BNP Paribas picked only one firm not headquartered in the US or UK for its new panel – Gide Loyrette Nouel – while the world’s largest firm Baker & McKenzie saw off 45 competitors in Colt’s review. Although Colt general counsel Robin Saphra set out to evaluate tenders on a country-by-country basis, he found Bakers, with its pan-jurisdiction reach, scored highest in each market.

The question that arises naturally as a result of this activity is: what is happening to the independent, local firms in each jurisdiction – those featured in The European 100 rankings? As clients turn to the Bakers, DLA Pipers and magic circle practices of this world, the next few years will see a squeezing of those independent firms that have not yet been wooed by the charms of their Anglo-Saxon cousins.

Vive la resistance

Independent firms defend themselves vigorously against the theory that they are on their way out.

“I can remember clearly someone asking me this question 10 years ago and my reply was more or less the same as it is now – independent firms will, of course, continue to exist in the market 10 years from now, not only because there will be a gap for them, but also because their strength in many jurisdictions guarantees it,” says Fernando Vives, managing partner of Europe’s largest independent firm Garrigues.

Vives speaks from a country where independent firms have done well. Spain’s big three – Garrigues, Cuatrecasas Gonçalves Pereira and Uría Menéndez – are among the most financially successful firms in Europe, even in a year of general stagnation, and routinely feature in the top tier of qualitative rankings. The three topped Thomson Reuters’ M&A deals tables by volume last year, while Uría headed the M&A table by value (see graph).

In Italy, local firms also dominated the deals tables, with Chiomenti, Gianni Origoni Grippo Cappelli & Partners and Bonelli Erede Pappalardo topping the volume league. While Sullivan & Cromwell headed up the table by value, it was followed by Legance, Chiomenti, Bonelli and Gianni Origoni.

Local firms are not so dominant in other jurisdictions. In France, Gide and Bredin Prat were fourth and fifth in the volume table and the latter firm was fourth on the value table, amid the UK’s magic circle. Hengeler Mueller topped Germany’s value table and was fourth on the volume table, with the remaining spots in the top five taken again by the magic circle and US firms.

In the Netherlands, De Brauw Blackstone Westbroek and NautaDutilh were second and third in the volume table, but the top five firms ranked by value of deals were all international. This was despite the fact that few international firms have a significant presence in the Dutch market, and shows the increasingly cross-border nature of the work being carried out across Europe.

De Brauw managing partner Martijn Snoep believes Dutch firms had to address the question of internationalisation earlier than in other jurisdictions.

“We were probably faced with competition from the magic circle firms at an earlier stage than Germany and France,” Snoep says. “As a result, the competition was earlier in the race and quite fierce. That means that in terms of client service we stepped up a number of years ago.”

Clifford Chance has been in the Netherlands since the 1970s, while Freshfields Bruckhaus Deringer opened there in 1999 with a handful of hires. But Snoep points to Allen & Overy (A&O) as his firm’s major competitor in the Dutch market. A&O entered the Netherlands and Belgium through a merger with the bulk of Benelux independent Loeff Claeys Verbeke in 2000 and 2001. The size of the merger, which effectively took out what was, at that point, one of the largest independents in the Benelux region, was key to the way it was perceived in the local market.

“I think the truth of the matter is that they’ve always – even before they were Allen & Overy – been our strongest competitor in M&A,” Snoep says. “It’s the same group of people we’ve always been competitors with and, under a different brand name, are continuing to compete with. I wouldn’t say that their new brand name has given them more inroads with corporate in the Netherlands than they already had.”

Accents and sensibilities

The magic circle moved into Germany at about the same time as it entered the Netherlands, but the development of the market there did not follow the same pattern. International firms, including several US outfits, are far stronger in Germany and the larger size of the market has led to a greater diversity of local firms, most of which do not attempt to compete for the same type of work.

A similar picture can be seen in France, with the Paris market saturated with prominent US and UK players. Many have been in France so long that even the independent firms do not really see them as foreign.

“If you were to look at many of these offices they’re pretty much French organisations with funny American or English names,” comments Heidrick & Struggles consultant Marc Bartel – himself previously involved with building Lovells’ international practice.

The foreigners have swallowed up a number of formerly strong French independents, for example Moquet Borde and Rambaud Martel, which merged with Paul Hastings Janofsky & Walker and Orrick Herrington & Sutcliffe respectively in 2004 and 2005. Some of the mid-tier domestic firms were the source of lateral hires during the incredibly busy recruitment season of 2011.

While those at the top – such as Bredin Prat, Darrois Villey Maillot Brochier and De Pardieu Brocas Maffei – feel comfortable in their positioning and their ability to
compete, others are finding themselves left behind.

A significant change in both France and Italy is the declining power of old-school contacts. In the past, many French lawyers built their reputations on relationships forged at the great French universities. These remain important, but are far less significant than in the past.

Bartel says the balance has shifted, partly as a result of the more institutional methods of working employed by the incoming internationals. He thinks this has led to problems for some of France’s larger independents, such as Gide.

“The old system is disappearing,” says Bartel. “Gide has been complacent because they felt their brand and their relationships would ensure a flow of work. I think what they’ve missed is that you have to work to ensure a flow of clients and offer them value for money. The pressure on lawyers involved in the UK firms to be better at marketing and be closer to their clients has put pressure on the French firms to show that brand isn’t enough.

“The relationship with a person remains extremely important but that doesn’t have a negative or positive impact on a niche firm.”

De Pardieu co-founder Thierry Brocas agrees. “I think personal relationships have greater importance in Italy than in France now,” he says, adding that ensuring the younger generation of lawyers are fully invested in the firm has become of paramount importance.

No buddy way

Chiomenti managing partner Francesco Tedeschini does not believe such personal connections play a role in the positioning of firms in Italy. Instead, he maintains that Chiomenti’s independence is its major draw for clients. “Generally, we’re selected because we’re independent,” he asserts.

Tedeschini refuses to be drawn on the well-known difficulties many international firms have had setting up in his jurisdiction, such as the failure of both Clifford Chance and Linklaters to really capitalise on their relationships with Grimaldi e Associati and Gianni Origoni.

“Italy is more their problem than ours,” he says, adding that US firms with a “pragmatic approach” have more chance of succeeding in Italy.

The fragmented nature of the Italian legal market, however, concerns UK lawyers, with one calling it “chaos”. Others note that academic skills and theory are still valued more highly in Italy – and, to an extent in France and Spain – than in northern Europe.

Pressure points

This does not mean that Italy is immune from the internationalisation theme, particularly from a client perspective. The increase in cross-border work and the impact on the market is something that is occupying minds across the Continent.

“There’s no question that coming down the track is a trend whereby Fortune 500 and FTSE250 companies are looking to compress their panels,” Travers Smith senior partner Chris Carroll comments. “That’s an aspiration of international corporations and therefore it’s an aspiration of international law firms to be big enough and have the widest possible bandwidth to get on these panels. The extent to which that trend affects you depends on which country you’re in and how many clients you’ve got that fall into that category.”

Addleshaw Goddard partner Andrew Carpenter says he has spotted a rise in the number of companies taking the responsibility for choosing legal advisers away from general counsel and giving it to procurement teams.

“I think they’re more predisposed to one-size-fits-all,” Carpenter says of these teams. “As that increases, your ability to push back on their presumption against independents becomes more important. You can only push back on it if you can demonstrate that you know senior management, you know partners on the ground and you have the ability to pitch together on common ground.”

In common with Travers, Chiomenti and De Pardieu, Addleshaws works with a network of ’preferred firms’ around the world. Carpenter is reluctant to reveal the names of those firms, although he points to Germany’s Noerr or France’s Jeantet Associés and Franklin as examples of the types of independents involved.

“The benefits are that I don’t have to maintain my own offices overseas,” he says. “I know I can get best in class advice. I’ve come across enough feedback to convince me that you’re not always going to get the best service for your client if you’re hidebound to go to your own office.”

Carroll, who names firms such as Noerr, Oppenhoff & Partner and P+P Pöllath & Partners as examples of strong independents, says the preferred-firms model also gives firms more flexibility than a more exclusive alliance relationship.

“We believe that being independent doesn’t mean you can’t provide the client with a global service,” adds Tedeschini.

Formal alliances have taken a battering recently, following the collapse of the three-way relationship between Herbert Smith, Gleiss Lutz and Stibbe. Bartel says that such a collapse was inevitable.

“The alliance model is a temporary state,” says Bartel. “It’s a bit like an engagement – at some point you get married or you break up,” he says. “It’s a good situation for a few years, but you’ve got to move forward and integrate or you’ve got to break up.”

However, at least one similar alliance – which, like the Herbert Smith grouping, is essentially exclusive – has no plans to either marry or break up. In fact Nabarro, August & Debouzy, GSK Stockmann & Kollegen and Nunziante Magrone, which work together as ’the European Alliance Network’, recently added Spain’s RocaJunyent to their number.

Nabarro’s international committee chair Michael Hales says the search for a new Spanish firm had been ongoing for two years, since previous alliance member Rodés y Sala split up, with most of the firm joining larger rival Gómez-Acebo & Pombo. Roca Junyent brings the alliance to more than 1,000 lawyers worldwide, as well as adding a Shanghai office.

“My feeling about it has always been that if we wanted to merge it would be a natural solution that gelled over a period of time,” says Hales. “None of the firms in our alliance have plans to merge. They all enjoy being independent and I think that sometimes, from a London perspective, you can overlook the pride that people on the Continent have in being independent.”

Hales believes the trick to persuading clients that they are better off turning to a grouping of independent firms across a number of jurisdictions rather than a one-stop-shop firm is to convince them they will get the same seamless service of the highest quality across the board.

Seams to me…

But, ask others, what does ’seamless’ really mean?

“Seamless is a magic word,” says Hengeler partner Rainer Krause. “International legal work involves the engagement of different people with different [types of] education, different languages and different types of entrenchment in their legal culture. We have the same challenges whether we work as Slaughter and May London and Hengeler Mueller Germany, or with one-stop shops in London and a foreign office like Hamburg.”

Hengeler, of course, is part of what could be said to be the most successful alliance of independent firms around at the moment – the ’best friends’ grouping led by the German firm and including Slaughters, Bredin Prat in France, Italy’s Bonelli, De Brauw in the Netherlands, and Spain’s Uría.

“I think we’re in a group of our own,” says Krause. “Clients choose us because of our international footprint and because of our entrenchment in the national markets. This is because they know we’re not only international – we also have a global footprint.”

Being a ’best friend’ does not require any of the firms to refer work exclusively to others in the group. Krause sees this as a plus compared with the more exclusive alliances and international firms alike, as Hengeler does not have to “impose” branch offices or other firms on clients.

The ability to give clients true ’best in class’ service around the world while avoiding conflict of interest situations is a key advantage of their model, argue independent firms. Axel Bödefeld, a partner at Oppenhoff & Partner, says referral networks permit him to go elsewhere should there be even a “glimmer” of a conflict on a deal.

“There’s not the pressure to use this firm abroad, because others are available,” notes Bödefeld.

He also thinks non-exclusive relationships give a better guarantee of service to clients. “If I pick a partner in an independent firm abroad they will perform,” he adds. “Otherwise I won’t return to them. How international a firm or a lawyer is doesn’t depend on how many offices you have around the world.”

Vives is in full agreement. “A firm with an international presence is not merely a firm with a host of international offices, but rather a firm that can boast professionals who have extensive experience of international deals and have collaborated with other local firms,” he argues.

“It’s a firm’s professionals who must have international capacity.”

We will survive

Independent firms believe that despite increasing internationalisation, which they acknowledge as a fact of life, there is still a place for them in the legal market.

“Only the best will survive,” predicts Brocas, looking forward 10 years. “Also, there’ll be a greater number of small French firms started by senior associates of the biggest firms or the international firms who haven’t been able to become partners. Probably what we’ll see is a greater number of these so-called small firms serving clients at a more reasonable cost, not on bigger transactions but at the smaller end of mid-cap transactions.”

“If you look at clients I think the Dutch market is going to internationalise even further,” says De Brauw’s Snoep. “Dutch corporates are going to be active abroad even more than they are. The challenge for lawyers in the Netherlands is to follow the clients. We’re increasingly looking at ways to help our clients in the markets where they see growth.”

Hales thinks consolidation will help the stronger independent firms to thrive. “This is a challenging economic time and that forces every firm to consolidate,” says Hales. “I think that, as the economic climate improves, it’ll swing back a bit. I suspect that many firms will become bigger and more consolidated, but whether they’ll do that by merger or alliance is up for grabs. As more firms consolidate there are advantages in being independent.”

What happens to the economy will, says Tedeschini, play a key role. In particular, he points to the fact that independent firms often run with lower overheads, which in times of cost-cutting and squeezed fees could be an advantage. But this is also likely to force those international firms wanting to open in new jurisdictions down the merger, rather than the greenfield, route – and mid-tier independents will be their first targets. Chances are that when it comes to the crunch, few will be able to resist the approach.

Long walk to independence

Of all the independents in Europe today, one of the most interesting stories is that of Germany’s Oppenhoff & Partner.

The firm started out as a domestic practice in Cologne back in 1908. By 1966 the firm, then called Boden Oppenhoff & Schneider, was a full-service outfit and became a founder member of European network ’Club de Abogados’.

In 1989 it expanded into Frankfurt through a merger – the first in a series of domestic acquisitions.

In 1998 Oppenhoff & Rädler joined Linklaters & Alliance, and in 2001 it merged with the magic circle firm.

However, Linklaters’ strategy did not always find favour with the Germans. In 2007 the firm’s decision to close its office in Cologne in favour of Düsseldorf resulted in a spin-off of 38 lawyers, led by Michael Oppenhoff.

Oppenhoff now has 55 lawyers, including 25 partners, making it not quite big enough to get into the European 100 this year.

Partner Axel Bödefeld, who joined Oppenhoff & Rädler as its 39th lawyer in the 1980s, says that while
it may look like the firm has come full-circle, it has learned from its international experience.

He believes Oppenhoff’s lawyers have proved they can work both in an alliance and integrated
into an international firm, and can use that experience to make the best of being independent again.

“We went through all the options that you have for international cooperation,” Bödefeld explains. “We made the experience work in all its forms, but nevertheless decided to start as an independent firm again because we strongly believe it has a brilliant future.”

Swing to international 2006-11

The graphics show the change between 2006 and 2011 in the composition of qualitative rankings for corporate and finance work in five jurisdictions, based on the percentage of domestic and international firms in the top tier. A swing towards international shows that more international firms were top-ranked in 2011 than 2006, and vice-versa.

Top tier 2011


Bredin Prat
Cleary Gottlieb
Darrois Villey

Banking & finance
Gide Loyrette Nouel
Source: Chambers & Partners


Hengeler Mueller

Banking & finance
Allen & Overy
Clifford Chance
Hengeler Mueller
Source: Juve


Corporate top
Allen & Overy
De Brauw

Banking & finance
Allen & Overy
Clifford Chance
Source: Chambers & Partners


Clifford Chance
Uría Menéndez

Banking & finance
Clifford Chance
Uría Menéndez
Source: Chambers & Partners


Bonelli Erede

Banking & finance
Clifford Chance
Source: Chambers & Partners