The downturn in Portugal’s economy means that overseas markets, including Africa and Brazil, have become an even more valuable source of work for the country’s law firms
Since Portuguese sailors began exploring the West Coast of Africa almost 600 years ago, the country has forged a reputation for venturing into new, overseas territories. Today, the countries of lusophone Africa and Brazil provide manifold investment opportunities for Portugal’s major corporates and their advisers.
With financing scarce and investors wary of volatility in the domestic market, many Portuguese lawyers fear the prospect of an empty transactional pipeline. ‘The international banks and funds have retreated to their home markets,’ says Pedro Siza Vieira, managing partner of Linklaters’ Lisbon office, ‘and are putting more effort into managing their portfolios than in expanding their business.’ Such challenging conditions are likely to continue, with Portugal’s economy impacted by the eurozone’s sovereign debt crisis. ‘Because of the openness of Portugal’s economy,’ comments Manuel Santos Vítor, co-managing partner at PLMJ, ‘it was inevitably going to be affected by the global downturn.’
In response to the tough economic conditions, Portugal’s government has postponed the building of a new international airport in Lisbon, a third bridge over the River Tagus estuary and several motorway projects. Overseas markets are, therefore, even more important for Portuguese companies, which believe that they need to look abroad for investment opportunities in Latin America and Africa. Their lawyers have increasingly followed, prompting a significant change in the dynamic of the local market.
Traditionally, Portuguese law firms have predominantly sustained their growth on the back of the local economy. In recent years, many firms have grown through expansion abroad, looking to other markets for what the domestic market has failed to deliver. But now the sense of urgency in seeking out overseas deals is more pronounced.
Letting go
‘Most large law firms in Portugal have let lawyers go during the crisis,’ says Alexandre Mendes, a recently-arrived partner at Barrocas Advogados, ‘even if they are not admitting to it.’
By stark contrast, earlier this year Linklaters went public with its own departures. Pedro Siza Vieira, the Lisbon office’s managing partner, tells LB: ‘Regrettably, we asked six associates, from four different practices areas, to leave the Lisbon office. This is not a decision we have taken lightly, but we believe it is necessary, given the continuing challenging market conditions in Portugal and the anticipated slow economic recovery.’ Such measures are expected to enable the office to continue to develop long term.
Former Linklaters lawyer António Payan Martins, now a partner at Rui Pena, Arnaut & Associados (RPA), points out that the firm’s overwhelming focus on transactional work meant that downsizing was inevitable.
What really surprised the market was not the layoffs themselves but the level of transparency. ‘What happened is unprecedented,’ says Manuel Santos Vítor, co-managing partner at PLMJ, ‘and I think they should be commended for having been so transparent.’
Some believe this could set a precedent for other law firms forced to adapt to new realities. As in Spain, making lawyers redundant is a cultural taboo. ‘It is difficult for them to admit that they need to let people go,’ says Duarte Garin, Uría Menéndez’s Portugal managing partner.
But it’s not just about saving face. It is also in the Portuguese law firms’ interest to keep hold of their lawyers. Because many law firms have grown over the last ten years, they have made considerable efforts over the last 18 months to retain fee-earners. Benjamim Mendes, a partner at ABBC, believes that some large firms are reducing rates, probably below cost, simply to keep associates occupied.
The market is expected to stay competitive, but nobody expects other UK law firms to be opening up any time soon. Having split with Sociedade Rebelo de Sousa & Advogados Associades, Simmons & Simmons has already left Portugal. And other than Linklaters, UK firms are expected to carry on using Spain as the hub through which they access Portugal. ‘The market is simply too small,’ Santos Vítor says.
The home front
Putting the new Tagus bridge, new airport and motorway construction all on hold looks set to have a dramatic impact on Portugal’s projects market. The total bill had been predicted to exceed €60bn, with the projects handing out work to a string of local firms. Vieira de Almeida & Associados and PLMJ, for instance, have both picked up prime mandates advising the Asterion consortium, the group behind the proposed construction of Lisbon’s new airport. Other advisers include Rui Pena, Arnaut & Associados (RPA), adviser to Singapore’s Changi International Airports – a member of the consortium alongside the likes of Portuguese banks Millennium bcp and Banco Espírito Santo.
If the airport and bridge projects are suspended for longer than 18 months, and replacement projects do not materialise, some Portuguese law firms may need to redeploy their public projects practices. ‘Such suspensions will be a major loss for the firms involved,’ says Gonçalo Capela Godinho, a corporate partner at Cardigos e Associados. A public consensus is already emerging that the airport is needed and could even go ahead privately, without public money. Unfortunately, ‘contradictory messages have been issued by the market, the government and the opposition over the future of the public works,’ says Duarte Garin, managing partner of Uría Menéndez – Proença de Carvalho, clouding them in considerable uncertainty.
‘In the Angolan market, competition from international law firms simply does not exist.’
Abel Sequeira Ferreira, Raposo Bernardo
So far the government has appeared fully committed only to the high-speed train link between Lisbon and Madrid. Like the airport, the rail project has handed out prime mandates to the likes of the newly-formed practice Campos Ferreira, Sá Carneiro & Associados (CS Associados) and Uría, advisers to the commercial lenders on the financing of the Poceirão-Caia stretch of the high-speed line.
Despite the bleak outlook, Diogo Perestrelo, a partner at Cuatrecasas, Gonçalves Pereira, believes that smaller projects directly related to Portugal’s immediate needs, such as schools and hospitals, are still likely to proceed through public private partnerships. The same may also be true of renewable energy projects, which are usually heavily subsidised. RPA, for instance, is instructed on three dam projects, as well as renewable energy deals on the sponsor’s side. ‘Energy infrastructure matters will keep us busy for the next few years,’ says Francisco Xavier de Almeida, a partner at RPA.
New horizons
As firms have been forced to reassess their domestic outlook, the international expansion made by many over the last decade has looked a particularly shrewd bet. Through a mixture of strategic alliances and office openings, Portuguese firms have been undergoing their own brand of globalisation. Raposo Bernardo & Associados and Miranda Correia Amendoeira & Associados have been among the most expansive, with a presence in all five lusophone African jurisdictions. Market-leader Morais, Leitão, Galvão Teles, Soares Da Silva & Associados boasts outposts in Angola and Mozambique, alongside a Brazilian office, which it opened in 2006.
Identified as one of the fast-developing BRIC countries, Brazil is perhaps the most obvious country to expand into. There are obvious historical advantages for the Portuguese firms to exploit, such as a judicial system that bears many similarities to Portugal’s.
‘Because of the openness of Portugal’s economy, it was inevitably going to be affected by the downturn.’
Manuel Santos Vítor, PLMJ
But it’s not all plain sailing. The competition is increasingly intense, with a mix of US and UK law firms such as Linklaters, Simpson Thacher & Bartlett and, most recently, Milbank, Tweed, Hadley & McCloy, all vying for work alongside the domestic firms. Spanish giant Garrigues, which has a significant operation in Portugal, announced in early June plans to open two offices in Brazil while also entering into an alliance with a local practice. Like their international counterparts, Portuguese firms are prohibited from practising Brazilian law, meaning that they can only offer local advice through alliances with domestic firms.
Fernando Campos Ferreira, a name partner at CS Associados, claims that not only is there Portuguese investment in Brazil, but that Brazilian investors are increasingly looking at business opportunities in Portugal. ‘Our view is that some Portuguese law firms are targeting participation in those deals,’ he says. With the fragile state of the Portuguese economy and Brazil’s ongoing economic growth, the balance has shifted. Brazilian corporates, such as oil and mining companies, are seeking out investments in Portugal. CS Associados, for example, recently represented Votorantim Cement, Brazil’s biggest cement producer, in the acquisition of a 17% stake in Portugal’s Cimpor. This was Portugal’s largest deal so far this year.
In Brazil, one of the deal highlights of the summer has been Telefónica’s attempts to buy Portugal Telecom’s stake in the companies’ Brazilian mobile phone joint venture, Vivo. Portugal Telecom has turned to regular adviser Garrigues, while Telefónica is represented by Cuatrecasas, Gonçalves Pereira. Several other firms are also likely to be retained in the immediate future to act for, inter alia, the shareholders and banks involved. Neither of the two lead firms would comment on the €6.5bn deal, but António Payan Martins, a partner at RPA, which is not involved, commented: ‘Vivo is significant to Portugal Telecom because approximately half of its revenues come from Vivo. Without Vivo and the Brazilian market, Portugal Telecom will become a regional company and will be more likely to find itself the target of a hostile takeover bid.’
Angola has also become part of several Portuguese law firms’ international networks. The country’s vast oil reserves are the greatest draw, but when Angola’s civil war ended in 2002, international investment poured into a diverse range of sectors, from financial services to agriculture and construction. Similar to Brazil, Angola’s shared language and similar legal system appeal to Portuguese lawyers and give Portuguese firms the edge over international outfits. PLMJ maintains a significant focus on the Angolan market, and, since 2009, RPA has been in a ‘best friends’ arrangement with ten-lawyer practice Maria Manuela Morais Cunha Advogados. The work has followed, with RPA advising Overseas Private Investment Corporation, an independent US government agency, in the funding of an industrial cement project in Angola. Miranda has also become an established part of the local market, recently advising an oil and gas service provider on a $2bn offshore construction project.
Because the Angolan legal market remains relatively undeveloped, it is easy for Portuguese firms to penetrate. But Angola presents its own difficulties. To practise law in Angola, foreign firms need to enter into a joint venture with a domestic law firm, and that does not suit everybody. Uría, for one, would prefer its own presence rather than operating through a local practice. Some expect the legal restrictions to be relaxed in the foreseeable future but, for the moment, external lawyers have been left to lobby for liberalisation while the local Bar continues to object.
Like Uría, RPA is also uninterested in being in a country like Angola just for the sake of presence if it cannot offer clients a sense of security. ‘There is a difference,’ Payan Martins says, ‘between those Portuguese law firms who ally themselves with Angolan legal practices fronting for them and those firms that partner with a local law practice through a true best friends arrangement.’ Payan Martins asserts that RPA represents the latter and believes that this strategy will work long term.
Because they are familiar with its economic environment and legal framework, Mozambique also appeals to Portuguese law firms. It boasts abundant natural resources and investment opportunities are up for grabs in banking, energy and infrastructure. The opening of the Mozal aluminium smelter marked the country’s largest foreign investment project to date, backed by BHP Billiton, Mitsubishi Corporation and the International Development Corporation of South Africa. The Mozambique government is especially keen to encourage further outside investment. In Mozambique, PLMJ has allied itself to MGA – Advogados e Consultores and has picked up work on road and bridge projects. Like Angola, because the development of the legal market is at an early stage, ‘competition from international law firms simply does not exist’, says Abel Sequeira Ferreira, a partner at Raposo Bernardo.
Elsewhere, Cape Verde’s hotels and tourism sector has generated some mandates. To date, work volumes are not high, but Cape Verde is a fairly unproblematic environment in which to conduct business and it is extremely friendly to investors from the EU. Raposo Bernardo has operated in Cape Verde since 2005 and advised on Banco Espírito Santo’s establishment there. ‘Some Portuguese and Spanish law firms have tried to enter Cape Verde,’ Sequeira Ferreira says, ‘but the market is very closed and wedon’t usually see them on significant deals.’
‘It makes sense to be part of a firm that can offer a seamless service across the Iberian peninsula.’ Jorge Santiago Neves, Gómez-Acebo & Pombo
Another jurisdiction on some law firms’ list is Macau, a former Portuguese colony that was only handed over to the Chinese government in 1999. Many regard Macau as a revolving door for entry into and out of China, and it interests Portuguese law firms because of its mix of Portuguese and Chinese law. PLMJ is present in Macau through a joint venture that functions as a gateway to the Asian market. CCA – Carlos Cruz & Associados, meanwhile, has taken the bold step and opened in Shanghai under Fernanda Lomenso, a Chinese and international law specialist.
Some practices are also venturing into markets with little apparent connection to Portugal. Raposo Bernardo’s full-service Warsaw and Bucharest offices opened early last year – the first offices opened by a Portuguese firm in Poland and Romania. Mandates for the firm in Romania have included privatisation work and litigation for the Awdi Group. In Poland, the Polish Hotel Company has been added to the client base.
Full-service ahead
Despite the tough conditions in the local market, big-ticket work has not completely disappeared.
Raposo Bernardo, for instance, advised on Banif Mais’s €1bn acquisition by Banco Banif, the largest Portuguese banking transaction of 2009. Linklaters and Garrigues meanwhile both acted on a €1.2bn rights issue by Banco Espírito Santo, one of the largest banks in Portugal. RPA can also point to some notable highlights, including advising Ongoing Strategy Investments on its proposed but ultimately aborted acquisition of Media Capital, the holding company for Portugal’s leading free-to-view TV channel.
Diogo Leónidas Rocha, a partner in Garrigues’ Lisbon office, believes that the crisis has hit the small and mid-sized deals the hardest. Yet, compensating for a dearth of M&A, capital markets and real estate transactions, several firms have enjoyed growth in litigation, labour and restructuring work. Tax advice has also flourished because the government is increasingly focused on collecting tax revenues. Other areas have grown as a general market trend in spite of the downturn, including public law, renewable energy, health and technology.
‘It is not a return to “small is beautiful”, but the Portuguese market must re-adapt to real dimensions.’ Pedro Pinto, Pedro Pinto, Reis & Associados
Together with stronger international practices, those Portuguese firms able to advise on a range of disciplines for a diversified portfolio of clients believe they can overcome the difficult times. ‘Our lawyers are versatile,’ says RPA’s Xavier de Almeida. ‘They are capable of switching from M&A to debt capital markets, adding extra value to a deal because they approach it from varying angles.’ RPA’s own journey has been interesting. It started out as a niche practice focused on energy, public law, litigation and IP, before developing into a full-service firm.
Perfect storm
Full-service may be the answer, but the crisis has also prompted questions over the size of the ideal law firm in Portugal. Consolidation is no longer the rage. ‘Where law firms had grown inadequately, they tended to merge with larger outfits,’ says Carlos Cruz, a name partner at CCA. ‘They believed they had to be big to be beautiful.’ Clients’ attitudes to large firms are also changing. ‘Clients used to feel that being advised by the largest law firms equated with quality,’ de Almeida says, ‘but now they understand that because of cost constraints they are sometimes advised by junior lawyers. This leaves them feeling dissatisfied.’
The slowdown has provoked a reality check, with many convinced that the Portuguese law firm model will not suit the times ahead. ‘It is not a return to “small is beautiful”,’ says Pedro Pinto, founding partner of Pedro Pinto, Reis & Associados, ‘but the market must re-adapt to real dimensions.’ Indeed, many believe that the Portuguese legal market grew in a way that was not sustainable and that Portuguese law firms must downsize. The days of Portuguese law firms with more than 200 lawyers, or even six law firms with more than 150 lawyers, may be over, in the short term at least. Some observers believe that the successful law firms of the future are likely to be between 40 and 60 lawyers, but with more strength in seniority and fewer junior fee-earners.
‘Many people in the market used to think that the small law firms would die off or be taken over through mergers,’ says Garrigues’ Leónidas Rocha. But this has not been the case. Recent spin-offs prove that there is room for small law practices with around 20 lawyers to compete with larger firms. However, some are predicting tough times ahead for the smaller practices. There may be space for new boutiques with talented lawyers, but Nuno Galvão Teles, a partner at Morais, Leitão, believes that they cannot compete with the resource-rich large firms in big-ticket deals. ‘The market will probably impose some consolidation on certain practices, resulting in further mergers in order to survive,’ he says.
Setting sail
Benjamim Mendes, a partner at ABBC, believes that the market has evolved to a secondary stage, where post-consolidation issues have provoked spin-offs. In January this year, Spanish firm Gómez-Acebo & Pombo (see box, page 104) launched a 25-strong Lisbon office after poaching finance specialist Jorge Santiago Neves and public law expert Albano Sarmento from Barrocas Sarmento Neves, now known as Barrocas Advogados.
For Santiago Neves and Sarmento, the move was prompted by a difference in perception as to how the market would develop. ‘We believe that we will see more Iberian integration,’ Santiago Neves says, ‘and that it makes sense to be part of a firm that can offer a seamless service across the Iberian Peninsula.’ As for Gómez-Acebo, it was never a question of whether it would open up in Portugal but when it would find the right team of professionals to launch an office. Since becoming operational, the Lisbon office has benefited from a constant work flow from Gómez-Acebo’s clients in Portugal, while the Spanish practice has gained wider geographical reach because of Santiago Neves’ and Sarmento’s experience in Angola and Mozambique. Some lawyers in the market claim it is bold for a Spanish firm to be opening up in a new jurisdiction right now. But Gómez-Acebo setting up in Portugal during such a difficult period is intended to show that the move is strategic, rather than opportunistic, and that the commitment is long term.
Meanwhile, Barrocas Advogados has internally restructured to focus on its core business; namely, corporate and commercial, finance, litigation and arbitration work. To strengthen its public lawpractice, lawyers from José Drago & Associados, known for its construction and aviation expertise, have joined the firm.
Cultural ties
Given the strong cultural, social and geographical relationship between Spain and Portugal, it is not surprising that several Spanish firms have entered the Portuguese market. Garrigues, Cuatrecasas, Gonçalves Pereira and Uría Menéndez are all well established in the country, with Gómez-Acebo & Pombo the latest Spanish firm to take the plunge. Diogo Leónidas Rocha, a partner in Garrigues’ Lisbon office, believes Spanish firms still hold certain advantages. They benefit from a large referral network, a wealth of knowledge and IT expertise, as well as a career path that presents international opportunities for their lawyers. ‘The already-established Spanish firms have been successful,’ says Pedro Pinto, Reis & Associados’ founding partner Pedro Pinto, ‘and certainly made the market more competitive.’
Others are not as convinced that the Spanish have been successful. ‘I don’t think the Spanish firms are doing as well as they claim,’ says Nuno Galvão Teles, a partner at Morais, Leitão, Galvão Teles, Soares Da Silva & Associados. ‘They haven’t invested in the domestic market and heavily depend on foreign referrals that are no longer coming in.’
Spanish law firms, like their domestic rivals, have also been hit by the departure of key partners. Last year, Uría saw the walkout of its Lisbon co-managing partner Francisco Sá Carneiro, who departed with two other partners, five years after Uría merged with Portuguese firm Vasconcelos F Sá Carneiro Fontes & Associados (VSCF). Because it was a small group of partners who left the firm, Duarte Garin, Uría’s Portugal managing partner, maintains that the firm was not heavily impacted and that it has retained strong corporate and finance teams in the ten-partner practice.
Uría has also added to its Portuguese ranks by merging in March with local practice Proença de Carvalho & Associados after Sá Carneiro’s team left. Seven lawyers joined the practice, now known as Uría Menéndez – Proença de Carvalho, including three partners, providing a significant boost to the firm’s litigation capabilities. Rival lawyers in the market believe that what happened at Uría was a blow, but recognise that it has signed up with a well-regarded lawyer in Daniel Proença de Carvalho.
But the merger also begs the question: why does Proença de Carvalho have his name on the door when the VSCF triumvirate did not after the original merger? ‘This recognises Daniel Proença de Carvalho’s second-to-none reputation in the legal community,’ Garin says, ‘and consolidates the common goals and values that both integrated teams share.’ As for past history, partner Tito Fontes confirms that the decision to adopt Uría’s name was reached unanimously by VSCF’s partners. ‘It was seen as a natural part of the process of integrating VSCF within Uría Menéndez,’ he says.
The other headline start-up involved Uría’s former local managing partner, Francisco Sá Carneiro. He left the Spanish giant with finance partner Duarte Brito de Goes and corporate partner Bernardo Abreu Mota, to found 21-strong CS Associados at the end of December 2009. Also joining the new breakaway was PLMJ’s former managing partner Fernando Campos Ferreira, who brought corporate co-heads Maria Castelos and Martim Morgado with him. ‘We were all ready to embrace a new project,’ partner Maria Castelos says, ‘based on principles such as increased partner involvement in deals, more supervision and training of junior lawyers, and a lower leverage of one partner for every two to three associates.’
‘The world is changing, but law firms with the ability to adapt will survive.’
Diogo Perestrelo, Cuatrecasas, Gonçalves Pereira
Some believe that CS Associados will struggle, because its partners’ principal disciplines are M&A and private equity, capital markets, and banking and finance, areas that are suffering. Litigation, public and labour law are presently outsourced. But Campos Ferreira does not believe that all of the firm’s core areas are necessarily struggling and certainly not to the same degree. M&A may have hit hard times, but CS Associados had a major role in the Cimpor deal and is presently advising on debt restructuring work and fresh debt issues for clients.
Adventure capital
Most Portuguese law firms approach future growth with caution. Those who believe they now have strong teams in all relevant practice areas are likely to grow organically unless the market demands otherwise. But some established firms continue to grow, particularly in counter-cyclical areas. ABBC recently recruited new tax associates, and Garrigues has been investing in its public law department.
RPA’s own growth strategy has continued since 2007, when it hired energy partner Mónica Carneiro Pacheco from Uría and three managing associates from Linklaters, including Payan Martins, who believes that the departures had a big impact on Linklaters at the time (see box, page 96). ‘They followed the departure of two other senior lawyers,’ he says, ‘and left a large gap between the partners and the associates, who were mainly junior lawyers.’ More recently, Joaquim Shearman de Macedo joined from PLMJ to boost the firm’s arbitration and restructuring and insolvency capabilities, and former Simmons & Simmons partner Susana Costa joined to head employment. Previously, the firm did not have a partner focused on developing the labour law group and increases in work are already notable. Both hires mean that ‘the firm is now better equipped to service its clients and meet their needs,’ says Payan Martins.
Client relations
‘With every crisis,’ says Carlos Cruz, a partner at CCA – Carlos Cruz & Associados, ‘clients seize the opportunity to cut down legal costs. That’s their job.’ Consequently, this has necessitated the introduction of alternative fee structures. Portuguese lawyers insist that this phenomenon is no more evident in one client than in another, although clients from the banking, real estate, infrastructure and projects sectors are seen as being especially tough on their legal advisers.
Unsurprisingly, there is also talk of firms chasing mandates they would normally not pursue. Drastic fee slashing is likewise occurring. Pedro Cardigos, managing partner at Cardigos e Associados, believes that niche firms can resist this pressure. ‘Bespoke services are less prone to dumping strategies,’ he says, ‘which find favourable grounds in more commoditised practice areas.’
With less overheads and more competitive costs structures, smaller outfits are hoping to lure clients away from more expensive law firms. But Raposo Bernardo’s experience has been the opposite. ‘We picked up new clients from other practices,’ says partner Abel Sequeira Ferreira, ‘because they were disappointed with the quality of work and service levels.’
Indeed, clients are increasingly scrutinising the quality of advice. In response, firms are making huge efforts to maintain and promote client relations. Raposo Bernardo implemented a strategy of innovation in relation to how it deals with clients during the crisis. The firm is even more focused on the work’s technical quality and what clients’ strategic needs really are. ‘When they see the value the law firm has added,’ Sequeira Ferreira says, ‘they never complain about the bills.’
Raposo Bernardo has also been out poaching, recruiting José Pedroso de Melo, also from PLMJ, to lead the firm’s tax department in Portugal, while José Carvalhosa joined from his own firm to head restructuring and insolvency. These arrivals represent a significant step up for Raposo Bernardo. ‘José Pedroso de Melo’s tax group cross-sells with almost every other department,’ says Sequeira Ferreira, ‘and José Carvalhosa’s practice is now a reference point for Portugal.’
The continued growth seen by firms like Raposo Bernado and RPA, coupled with new practices such as CS Associados, is symptomatic of the state of flux in the local market. ‘The world is changing,’ says Cuatrecasas’s Perestrelo, ‘but law firms with the ability to adapt will survive.’ Portugal’s legal market, historically known for its conservative nature, has changed dramatically in recent years. Once perceived as content to remain at the same firm for most of their careers, Portuguese associates, as well as partners, now move around freely. And because of factors such as the influx of Spanish law firms (see box, page 104), they now have alternative options to consider.
‘With every crisis, clients seize the opportunity to cut down legal costs. That’s their job.’
Carlos Cruz, CCA – Carlos Cruz& Associados
If Portugal’s open economy was a catalyst for its troubles, then by the same reckoning Portugal should recover as Europe’s major economies start to pick up. To hold on to what they spent the last decade building, Portugal’s law firms are braced, like their forefathers before them, to ride the waves both at home and abroad. LB