Three's company in Sweden

At times, the Swedish legal market looks like the story of three firms: Mannheimer Swartling, Lagerlof & Leman and Advokatfirman Vinge.

The three were formed six years ago as a result of domestic mergers. In the process, they created a huge gulf between themselves – at the time each had over 100 lawyers – and the rest, which are small practices with at best 30 lawyers.

Until recently, this state of affairs remained unchallenged. In fact, as Hans Bagner, London resident partner at Vinge, notes, the trend over recent years has been towards demerger with lawyers defecting from larger practices to set up on their own.

Between 1990 and 1995, in the recession, insolvency work was an important practice area for many firms – and lucrative because lawyers, not auditors, acted as liquidators. However, the number of liquidations has decreased and the work is drying up. “A lot of medium-sized firms are looking around, saying, 'what do we do now?',” says one lawyer.

“The most important development over the past year,” reports Per Runeland, Lagerlof's resident partner in London, “has been the further growth of second-tier firms. This is a worrying prospect for us.”

Recent mergers – between Advokatfirman Lindahl and Advokatfirman Chrysander, and Advokatfirman Landahl and Wistrand & Hedborg – have upset the balance. In particular, Advokatfirman Lindahl, which, prior to its merger was the fourth largest firm in the country, now has 90 lawyers. “We're closing the gap,” says partner Magnus Ramberg.

The mergers highlight some of the pressure points in the Swedish market today. Ramberg notes that one of the main reasons for the merger was the need to have critical mass to provide a better service to clients. So, when Chrysander, one of the oldest and most respected practices in Uppsala, approached it, the firm jumped at the opportunity.

Anne-Marie Pouteaux, a partner at Wistrand, echoes the view that size has become increasingly important. “The main reason for wanting to gain in size was to become even more specialised,” she says.

The need to specialise has become acute for most commercial practices as a result of Sweden's entry into the EU and the increasing demands of clients and transactions.

Wistrand considered other options such as lateral hiring, but merger was seen as the quickest way of achieving the result. For both Wistrand and Chrysander, growth had to be outside their respective cities. As Pouteaux observes: “There is a limit as to how much you can grow in your local market without running into conflict-of-interest problems.”

More importantly, for these regional firms, having a strong Stockholm presence had become crucial. “It was increasingly essential to be represented in the capital,” Pouteaux says. In particular, with the increase in inward investment experienced by Sweden in recent years, foreign companies see Stockholm as first port of call.

Ramberg argues that a strong geographical presence is important. Many of the mergers that took place at the start of the decade brought together firms from Gothenburg and Stockholm, the country's two most important commercial centres. And the Wistrand-Landahl link-up continues this tradition, but also brings in an Uppsala office.

The Lindahl model goes one step further. Lindahl was the result of a merger between five firms in different cities six years ago, and its recent merger added Uppsala to the list.

Other developments within the market suggests that some small firms are looking at geographical spread as a way of enhancing their market profile.

Advokatfirman Glimstedt, a Gothenburg-based firm, has set up a national network of small firms in about 10 cities. Although not a full-blown merger, the firms will operate under the Glimstedt name.

The continuing growth of medium-sized and regional firms in Sweden will increase the competitive pressures on the big three firms, but they may find it difficult to grow much further. They have already run into conflict of interest problems, suggesting that they may have reached an optimum size.

“Further developments will involve international connections,” Runeland predicts. “That is where we are spending money as it gets us involved in the international arena.”

On this point, there is little consensus on the best way forward. Each of the three main players have taken sharply different routes. Mannheimers has eschewed alliances, but has opened up foreign offices with some success, notably its Moscow office which is staffed largely by Russian lawyers.

Vinge has opted for a Scandinavian solution, although its early talk of creating a Scandinavian law firm has disappeared. Lagerlof, meanwhile, has taken the European route, and has joined the Alliance of European Lawyers.