What a difference a few hundred miles can make: an election not resulting in a clear majority; a government polling much worse than expected; a leader weakened; and complicated negotiations ahead. In London, such headlines spell uncertainty, prudence, even panic.
While any poll in the UK fills its legal community with trepidation, the Germans reacted to the results of the federal election on 24 September by either stressing that no-one should overestimate the impact of politics on business or by saying it was good news. Says Georg Seyfarth, veteran corporate partner of German blueblood Hengeler Mueller: ‘Building the coalition will be difficult and it will take time. However, eventually we will see a “Jamaica coalition”, which will be good for businesses. The M&A market will not be affected.’
And, as the country is not leaving the EU any time soon, City financial institutions are advised to follow the example of Morgan Stanley, Goldman Sachs and Standard Chartered Bank: look at Frankfurt should a bad deal/no deal emerge from the Brexit negotiations.
Little wonder global firms are investing. Ten offices have been opened in the country since the beginning of 2016 by firms including Eversheds Sutherland, Dentons and Gibson, Dunn & Crutcher. More than 20 laterals have moved firms in the last year, most notably when Sidley Austin recruited seven partners from Kirkland & Ellis in Munich in February.
And while Freshfields Bruckhaus Deringer and – to a lesser extent – Linklaters have provided the most potent challenge to domestic stalwarts such as Hengeler in Germany, it is US firms now bringing real impetus to the market. On the back of a series of headline-grabbing hires in the last couple of years, Latham & Watkins has also launched its bid to join the leading pack.
Yet it is striking that the market for international firms is nowhere near as competitive as the favourable conditions would suggest. With a few exceptions – such as Hogan Lovells – many of the global firms in Germany depend more on a few superstars and their ties with global clients than on substantial long-term plans. They typically launch and recruit in Munich and Frankfurt, where many of the global corporates and private equity houses sit, but seldom elsewhere.
The case of Freshfields in particular, which is introducing discounted equity points for the German partnership and planning to reduce partner headcount in Germany from around 100 to as few as 80 by 2020 after closing down its Cologne office, says a great deal. It has taken well over a decade since the union of Freshfields and Bruckhaus Westrick Heller Löber for the combined firm to be in a position to look at a sprawling German operation and decide it is time to streamline.
Seriously competing in Germany is expensive and, for international firms, not always profitable. Germany’s economic strength is spread across a handful of locations. That means multiple office costs, staffed by some of the most expensive lawyers in Europe. Very few firms in Germany turn over more than €200m in revenue, which would only just get you inside the top 25 of the Legal Business 100. It may be only a few hundred miles away, but a different world altogether.
For our Global 100 overview, please read: Atlas shrugged