‘An earthquake’; ‘very shocking’; ‘difficult to understand’; ‘one of the most relevant moves in the market over the last few years’: if you want members of the Spanish legal elite to come up with the most melodramatic expressions they can find, mention Juan Picón and Latham & Watkins.
You can easily see why. The news in November that DLA Piper’s senior partner and global co-chair was joining the US giant as Spain managing partner alongside fellow DLA corporate partners Ignacio Gómez-Sancha and José Antonio Sánchez-Dafos put Spain in the headlines of the global legal press. That does not happen every week.
But while attention focused on why Picón left DLA and the subsequent leadership race at his former shop, what has been perhaps less discussed are the implications for the Spanish legal market. As a local partner at a Magic Circle firm puts it: ‘What we ended up with is a new competitor in banking and corporate, not just for our clients but also for our people.’
But this is not just about Latham gearing up to compete at the top end of yet another European legal market. Picón’s headline-grabbing move says something more profound about a market that has not traditionally received the same attention as its European neighbours.
Established hierarchies
The difference Picón’s hire might make for Latham’s Spanish arm is obvious: what used to be a barely noticeable operation with 20 lawyers now counts as one of its number one of the most renowned professionals in the country. However, some question whether he will be able to be as competitive on fees at Latham, which typically does not need to be as flexible as DLA.
With CVC Capital Partners and Oaktree Capital Management already clients of the US firm’s global network, it is hard to imagine that Picón will not be able to bring his key relationships across. With him at the helm, the office has already almost doubled its headcount to 38 and aims at finishing the year around the 50-lawyer mark. Says Picón: ‘Everybody is looking at Latham now. We are clearly an exciting professional opportunity in the market.’
As for DLA, the situation in the local market gets obviously tougher. Spain managing partner Pilar Menor insists that on the M&A side ‘we are market leaders and will continue to be market leaders’. She points to corporate partner Iñigo Gomez-Jordana’s ongoing mandate advising Italian toll road operator Atlantia in its bid for Spanish competitor Abertis. But it is hard to see how losing one of its biggest billers could not leave a lasting mark on a firm that was generally recognised to be doing well in the local mid-market. And yet the ramifications may go well beyond the fate of the two firms involved in the move.
To the external observer, one of the most striking features of the Spanish legal industry is its traditionally quiet lateral market. While some point to a high turnover among young associates, moving senior people across has long been difficult in a country with well-established hierarchies and a tradition of partners’ loyalty to national shops.
Local highest-grossing firm Garrigues – at over 1,400 lawyers the largest player in continental Europe – did not make a single lateral partner hire in Spain in 2017. Even among foreign players, there are very few that can boast more than one or two senior hires last year.
Needless to say, a slow-moving lateral market has made it more difficult for hierarchies to change. The enduring impact of the financial crisis did the rest: international firms have generally thought twice before investing in Spain. Very few of them have a significant presence in the market compared to other western European economies.
‘Everybody is looking at Latham now.’
Juan Picón, Latham & Watkins
The case of Freshfields Bruckhaus Deringer is telling: the firm has scaled down to 70 lawyers today compared to more than 100 pre-crisis, with one partner at a rival firm observing: ‘It is transforming into more of an elite M&A boutique.’
Freshfields’ local corporate head José Armando Albarrán says: ‘Our goal is to advise on big-ticket M&A transactions, very often with an international element; difficult litigation; capital markets; and financing.’ While most of the 13-strong partnership focuses on deals, the firm has two partners in disputes.
Beyond London’s big four, Spanish lawyers struggle to come up with names of foreign firms they consider relevant.
Herbert Smith Freehills’ local practice, launched in 2009 with five partners from Linklaters, is regarded as relatively successful although seldom seen on big transactions. Beyond Latham, the only US firm that gets a mention is White & Case, which launched in Madrid in 2013.
Meanwhile, the big three local champions – Garrigues, Cuatrecasas and Uría Menéndez – remain by far the largest operators in Spain, have a significant presence in Portugal (see box below) and have been busy expanding into Latin America, helped by the common language and pushed by the mounting interest of Spanish companies for developing economies on the continent.
Garrigues broke the €350m mark in 2017 after growing its top line 2% to €357m. Revenue coming from Latin America was up 30% to €23.5m. ‘It was a good year, we saw a lot of movement in the market,’ says executive chair Fernando Vives.
Slaughter and May best friend Uría has cemented its position as the country’s top firm. It acted on two of the main M&A mandates in recent months: advising Abertis on the two competing takeover bids from Atlantia and German construction company Hochtief, and acting for Repsol as it sold its stake in Gas Natural to CVC for €3.8bn.
Managing partner Luis de Carlos describes the investment in organic growth as one of the core strengths of the firm: ‘We are a very cohesive firm, investing in our people from day one. Most of our partners come from internal promotions. We want to keep our model, adapting it to the needs of the market.’
Outside the top three, Gómez-Acebo & Pombo – which has a top line at around a quarter of Uría’s – has returned to growth after a tricky 2016, while Pérez-Llorca is frequently cited as a good domestic operator.
The Catalan question
To make matters worse for international players, strategic issues have emerged recently in the wake of the Catalan government’s unilateral declaration of independence following an unconstitutional referendum in October 2017. With many of the Barcelona-based businesses relocating their legal domicile for fear of suddenly finding themselves out of the EU, some question how much legal work there will be in the region moving forward.
While they deny any specific impact from the independence talks as yet, international firms have long been wondering whether it still makes sense to have an office outside Madrid when lawyers can reach Barcelona from the capital in a short train journey. Linklaters never opened in the city, while Freshfields closed its Barcelona outpost in 2014 when its two local partners moved across to Allen & Overy (A&O) and Osborne Clarke (OC). ‘With improvements in IT, we can provide a better service to all our clients from a single hub,’ says Albarrán.
For its part, A&O will only keep one partner in the city, although Spain co-managing partner Antonio Vazquez-Guillen denies rumours that the firm is about to close there. Latham itself shut its small local base at the beginning of 2018 when its lease expired, again referring to the fact that the firm can service its local clients from Madrid.
The exception is Clifford Chance (CC) – at 140 lawyers, the largest Magic Circle firm in Spain – which retains 24 lawyers including two partners in the city. ‘For us it makes perfect sense,’ says Spain managing partner Jaime Velázquez. ‘It’s a very profitable office – our litigation and IP team is second to none, and there is a lot of M&A and financing in the tech and innovation space.’
Winds of change
On this basis, it would be easy to conclude that the Spanish market is poised to remain in the hands of the local independents and one or two Magic Circle firms. Yet there are strong signs that the situation is no longer as static as it seems.
‘Most of our partners come from internal promotions. We want to keep our model, adapting it to the needs of the market.’
Luis de Carlos, Uría Menéndez
Growing in Spain and Latin America was presented as one of the priorities for 2018 at Latham’s latest global partner conference. But the US giant is not the only international player looking at Spain with mounting interest.
Spain’s economic outlook has radically changed lately. The country’s GDP has been growing at a rate of over 3% for three consecutive years now – in 2017 it was one of Europe’s fastest-growing economies.
Sectors such as real estate, energy, infrastructure and life sciences are buoyant. Foreign investors and private equity houses, including Cinven and CVC, are bringing in their money again. Although fees remain well below Germany and France, the mood among the local legal elite is upbeat to say the least. ‘The Spanish legal market is going through a fantastic time. In the last three years we have seen a lot of activity,’ says Linklaters’ Spain managing partner Iñigo Berricano. ‘All firms are growing.’
Take A&O for example. The firm moved into larger premises in Madrid in February, and Vazquez-Guillen talks of a target to grow the team from 100 to 130 lawyers, and from 14 to 18 partners over the next three to four years (the plan includes a mixture of internal promotions and one or two laterals). It may not be a massive increase for those who are used to the City, but it is a significant change of direction compared to a few years back.
Meanwhile, since its 1999 launch, Linklaters has established itself as the country’s top international firm and one of the strongest players in M&A, capital markets and banking. CC’s long history in the market, dating back to 1980, has given it an established presence in corporate and litigation.
But interest in Spain is also growing among the UK mid-tier pack.
OC’s Madrid and Barcelona offices make up the second-largest foreign source of income for the firm after Germany. Pinsent Masons opened in Madrid in May 2017 with seven partners, five of them joining from local firm Ramón y Cajal, and has since grown its partnership to ten.
At the time of writing, Fieldfisher was in talks with a local firm ahead of launching in both Madrid and Barcelona. Managing partner Michael Chissick describes Spain as Europe’s ‘hidden gem’. ‘What surprises me is that it’s not the biggest economy in Europe. It is very big in energy and life sciences. It has great infrastructure, lots of industries and good natural resources. It is a big gateway to Latin America.’
In this context, Latham’s ‘earthquake’ hire acquires even more significance. If the move of one of the country’s top lawyers manages to really shift dynamics in the market, international firms may feel more inclined to invest on big-ticket hires in future and lawyers more likely to disregard loyalty for a big-money move.
Picón concludes: ‘Things are changing; Spain is becoming more aligned with other markets. We are going to see more moves.’
With a fast-growing economy, mounting interest from international investors and a privileged connection to South America’s developing countries, the global legal profession may well want to keep a closer eye on what the next few years will bring for Spain. LB
marco.cillario@legalease.co.uk
Portugal: still life
‘It would be difficult for many international firms to maintain an office in Portugal.’
Filipe Lowndes Marques, MLGTS
If Spain could be the next frontier in the European expansion of UK and US law firms, its smaller Iberian neighbour Portugal remains largely untouched. A smaller market compared to Spain, many local partners point to Portugal’s ‘incredibly low’ fees.
‘Considering what the average rates are, it would be difficult for many international firms to manage to maintain an office in Portugal,’ observes Filipe Lowndes Marques, head of banking at 250-lawyer local independent Morais Leitão, Galvão Teles, Soares da Silva & Associados (MLGTS). ‘One of the benefits is that we don’t have much international competition.’
The only Magic Circle firm in the country is Linklaters, which launched in Lisbon in 2002 with a five-partner team that quit MLGTS with the initial intention of setting up their own firm.
‘We started negotiating with Linklaters because we believed to provide the service we wanted it was important to be part of an international network,’ recalls António Soares, one of the original five hires and now managing partner of the Magic Circle firm’s local practice. For its part, Linklaters saw the country as a platform to operate in Portugal’s former African colonies. As a matter of fact, local partner Francisco Ferraz de Carvalho was part of the team advising the lenders in last year’s $2.73bn refinancing of the Nacala corridor project – a 912km railway to transport coal from a mine in western Mozambique to a port on the eastern coast of the country across Malawi.
In Portugal, the firm is well regarded for capital markets and finance work, but at 45 lawyers, including seven partners, it remains rather small. ‘Linklaters’ office has managed to survive over the years because they do a lot of Africa work,’ says a partner at a local firm.
CMS and DLA’s Portugal-based verein members get some mentions too. But when you ask about foreign firms in the market, local lawyers would rather point to Spain’s big three. With all the main Spanish banks having operations in Portugal and many Madrid-based international companies interested in the neighbouring Iberian market, Uría Menéndez, Garrigues and Cuatrecasas have long been in the market and are seen as competitors by the nationals.
As in Spain, Uría Menéndez is rated as the best performer of the trio after its 2010 merger with Proença de Carvalho & Associados – an arrangement that gave the combined operation a certain independence from the Spanish headquarters.
But while regarded as among the top ten players in the local market, all three Spanish champions remain torn between the need to follow their clients into Portugal and the fee pressure that Portuguese rates create.
‘People are reconciled that this is a small market. It is pretty much a relationship market so it’s tough to come into.’
João Vieira de Almeida, VdA
It is the domestic firms that keep dominating the market. ‘Whatever line of product you look at, Portuguese firms come out on top,’ notes VdA managing partner João Vieira de Almeida. ‘People are reconciled that this is a small market. It is pretty much a relationship market so it’s tough to come into.’
Like Spain, Portugal has three local champions: along with MLGTS and VdA, 300-lawyer PLMJ is part of the trio. While all remain coy about revenues they generate, a reasonable estimate puts each of them around the €50m mark – hardly an impressive figure, although with GDP growth of 2.7% in 2017, their leaders all speak of a fast growth in recent years and a positive outlook for the near future.
‘All the big three are doing fine because the economy is doing well – tourism, real estate – it’s amazing,’ says Vieira de Almeida, who claims his 280-lawyer firm is the first to have ever posted revenue above €50m in 2017.
But even in the case of the three national independents, it is their non-Portuguese business that accounts for a key part of their growth – mainly the former Portuguese colonies of Angola and Mozambique.
VdA recruited a 28-strong team from traditionally Africa-focused rival Miranda & Associados in 2015 to boost its previously niche African operations, which now account for around a third of the firm’s turnover.
Miranda itself, which at the time lost a third of its partnership, has reacted by expanding its international operations through the Miranda Alliance. Launched in 1992 to bring together independent firms in Portuguese-speaking countries across the world, it has since expanded to include Francophone states and now counts 26 offices, 18 of them in Africa. ‘It has been a very interesting time in terms of diversifying our business,’ says managing partner Diogo Xavier da Cunha. ‘We very much depend on the African markets and the offices outside Portugal have been doing quite well.’
Again as in Spain, there is a lot to be said for the recovery of the Portuguese economy – tourism, real estate, tech and Chinese investment are the main factors behind it – and its connections to developing countries. But unlike its Iberian neighbour, Portugal is unlikely to turn heads in the international legal community any time soon.