Anyone making a business trip to Tirana 20 years ago was in for a surprise if they ventured outside the comfort of the city’s hotels to see what was on offer. There was plenty of interest in the obvious sights – the derelict Piramida, built to honour Albania’s dictator, Enver Hoxha, or Skanderbeg Square, with its stately neo-Renaissance buildings – but there was something else, too. There was colour. And lots of it.
Albania had recently emerged from Hoxha’s repressive, quasi-Stalinist regime and Tirana’s mayor, Edi Rama – now the country’s 33rd prime minister – had celebrated by painting the town pink. And yellow. And lime-green. And, seemingly, just about any other bright colour that was available. Tirana’s buildings were making a statement. The millennium had dawned and the post- Soviet era was over.
But there was still a long way to go. Albania was for many years a country that did not treat its legal profession well. The majority of Albania’s avocats and notares were to be found on a rubble-strewn road called Gjergj Fishta. They practised inside dilapidated buildings featuring just a table and chairs, focusing rather less on securitisation and M&A and a lot more on helping people write official letters or visa applications. In 1999, Allen & Overy became the first premier international law firm to establish a presence in Albania (when it merged with Italian practice Brosio, Casati e Associati) but the jury was out on whether they were blazing a trail or ploughing what would remain a lonely furrow.
For Albania, read Southern and Eastern Europe (SEE) at the turn of the Millennium. Would the legal market develop apace in the countries that emerged after the break-up of Yugoslavia? How would it fare in the more sophisticated jurisdictions in the region – the likes of Cyprus, Romania and Hungary? What of Greece, the birthplace of western civilisation and yet flirting with ideas of Grexit? And other territories, often war-torn – Bosnia and Herzegovina, and Kosovo – or relatively peaceable, such as Bulgaria? And how today are countries in SEE responding to global political and economic upheaval, not to mention pressure from the Eurozone?
Culture of entrepreneurship
Western law firms spotted a big new market after the Berlin Wall fell in November 1989 and the 1990s saw offices sprouting up offices all over central, southern and eastern Europe. It was an era of large privatisations, capital markets maturing, western companies seeing new opportunities and acquisitions. Major firms started popping up all over the map. But there were always challenges, and once the western firms analysed the operating figures they began to see the regional offices as not as profitable as they would like. They began to pull back, focusing on one or two particular offices, spinning-off SEE work or pulling out completely.
‘Demands from the new generation of clients will be so innovative that lawyers will learn to acquire new skillsets tailored to their needs.’
Ion Nestor, Nestor Nestor Diculescu Kingston Petersen
Such activity led to some independent operations springing up – like Linklaters spin-off Kinstellar – and in recent years this trend has led to an opportunity for large domestic firms. Says Mark Harrison, founder of English law practice Harrisons in Belgrade: ‘If they had initially been slow to grasp the nettle, that is not the case now. They’ve acquired big-deal experience and can rely on referrals as well as the domestic market.’
And while Harrison is unsure any managing partner would describe the current market as vibrant, he says: ‘There are growth areas. Serbia is the IT start-up capital of Europe, with low wages, huge talent and a culture of entrepreneurship. Renewable energy is on the up, with plenty of wind farms as well as solar and hydro power developments. Work is flowing from Middle Eastern investment in agriculture and tourism is generating investment across the region, too.’
Entrepreneurship is also key in Romania, according to Ion Nestor, co-managing partner of Nestor Nestor Diculescu Kingston Petersen (NNDKP). ‘There is a new generation of entrepreneurs that have shaken the traditional type of business that we were all used to. The changes are encouraging for the legal market in Romania and will lead to a major transformation in the traditional practice of law. Demands from the new generation of clients will be so innovative that lawyers will learn to acquire new skillsets tailored to the needs of this generation.’
Nestor believes Romania generally is on the up, too. In 2019 it was assigned secondary emerging market status by global index provider FTSE Russell, a signal for foreign investors that the Romanian business environment is more mature and ready for new, challenging and innovative projects. ‘Paired with good legal advice, foreign investors will find sufficient support in the current Romanian legal system for any projects they may be interested in, regardless of their complexity,’ he says.
Says Gabriel Sidere, managing partner of CMS in Bucharest: ‘Despite a slowdown in the rapid development registered in recent years, Romania remains one of the fastest-evolving economies, according to recent IMF data. This is supported by the significant increase in the value of mergers and acquisitions (+73%) in 2018, thanks mostly to an increase in activity in the telecommunications sector. We expect this upward trend to continue.’
Nestor’s recent deal list includes assisting Globalworth on a 136,000m2 logistics project that will be built on an investment of €35.5m and acting for a syndicate of banks in a €324m senior secured multicurrency revolving credit facility granted to Ameropa.
‘The prospects for Cyprus are good, with a universal will to continue Cyprus’s economic revival.’
Elias Neocleous, Elias Neocleous & Co
As well as Globalworth, the firm advised Edenred in the acquisition of Benefit Online, an extended platform for flexible extra-wage benefits in Romania. It also acted for Smithfield Foods, a subsidiary of WH Group of China, in the acquisition of Maier Com and for CTP, the largest developer and long-term manager of industrial and logistics parks in Romania and Central and Eastern Europe in its €40m acquisition of A1 Bucharest Park from Vabeld Group.
Good tech, good practice
Further south in the Cyprus offices of Elias Neocleous & Co, managing partner Elias Neocleous says that effective harnessing of tech is crucial for securing the future of the legal profession. The firm is putting its money where its mouth is, in developing Neolaw.ai, an artificial intelligence product offering legal document templates, document review, appointment schedules as well as knowledge sharing platforms.
Neocleous wants Neolaw.ai to ‘revolutionise the legal industry in Cyprus’, a jurisdiction he says is continuing its economic recovery. Government policy remains focused on attracting inward investment and promoting Cyprus as a bone fide modern international financial centre. He believes Cyprus, as an ‘oasis of stability’ compared with neighbouring countries such as Lebanon and Syria, is ideally placed to assist the cross-border and international, as well as local, market, not least thanks to its government’s efforts to promote the country’s legitimacy.
Recent mandates have seen the firm advise The Blackstone Group on a number of investments made through Cyprus, including its investment in Superbet, a Cyprus holding entity with subsidiaries licensed in a number of countries. The firm also advised the Zarenkov family on Cyprus corporate law issues in its disposal to Sistema PJSFC of their 25% shareholding interest in Etalon Group.
‘Cyprus is secure,’ says Neocleous. ‘The country continues to support international efforts to tackle tax avoidance and, in 2019, updated Cyprus legislation to implement the EU anti-tax avoidance directive.’ However, Neocleous cautions that the European Central Bank’s negative interest rate policy has created challenges for the banking sector, which has one of the highest liquidity levels in Europe. Following the 2013 crash, levels of commercial and domestic debt remain high, as do non-performing loans. Consequently, banks are having difficulty in reducing their deposits via the traditional route of making loans, and the strain of these negative interest rates is showing with banks starting to pass on the negative interest to corporate depositors. But he is, overall, optimistic: ‘Despite these challenges, the prospects for Cyprus are good, with the government and the business sector committed to offering a competitive and fully-regulated business and tax environment and a universal will to continue Cyprus’s economic revival.’
Staying competitive
Regional heavyweight Schoenherr shares the view that SEE will yield more opportunities in coming years. The Austrian firm’s 300 lawyers work across the territory, with offices in Bulgaria, Croatia, Czech Republic, Hungary, Moldova, Montenegro, Poland, Romania, Serbia, Slovakia, Slovenia, Turkey, and country desks in Albania, Bosnia & Herzegovina, North Macedonia and Ukraine. ‘Around one third of Schoenherr’s overall revenue is generated in the CEE region,’ say co-managing partners Michael Lagler and Gudrun Stangl. ‘We gain by being entrenched in the local culture of each jurisdiction, and our international expertise gives us a distinct advantage too.’
They cite environmental and data protection law as having seen the most activity in the past 12 months. ‘Companies around the world are dealing with legal questions arising from issues such as climate change, increasing numbers of investments in environment-friendly infrastructure or green financing. These are hot topics for law firms. Also, advising on how to best perform within the legal and regulatory framework provided for data protection has become a key legal service for us.’
Likewise, for Iliya Grozdanov of Bulgarian firm Dinova Rusev & Partners: ‘GDPR and anti-money laundering are the two developments that affect almost all businesses in Bulgaria,’ says Grozdanov. ‘There have also been material changes to energy regulations affecting renewable energy producers. Overall, the market has been dynamic in recent years, with the main and biggest investors coming from Germany, Greece, Canada, USA, Japan and Italy.’
For Grozdanov, whose firm has worked on transactions like the concession of Sofia Airport and the opening of Bulgaria’s first gold mine in 40 years, the market is still dominated by several old local firms with a strong presence and a few international firms, such as CMS, Wolf Theiss and Kinstellar. ‘None of the Magic Circle firms seem interested in opening offices, so work is handled in joint ventures with local firms acting as trusted partners to the UK and US firms.’ He notes an upsurge of new mandates for M&A work in almost all economic sectors, a trend also observed in Hungary by János Tamás Varga, managing partner of VJT & Partners.
‘The key to success is to always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.’
Joe Andrew, Dentons
‘M&A is the most active area in SEE,’ says Tamás. ‘Thanks to the huge available funds at venture capital and private equity players, the number of investments in technology start-ups and established technology companies is still growing. Exits are also more frequent compared to last year.’ And, as with Schoenherr and Dinova Rusev, the GDPR has been a boon – compliance work is also increasing due to the efforts of primarily medium and large companies to comply with GDPR requirements.
But there is talk of a new source of work in Budapest, too. The Hungarian parliament has enacted legislation to provide for private foundations to be a new family asset management vehicle in Hungary. The government’s expectation is that, as in western European countries such as the UK and Netherlands, private foundations and trusts will be popular among high-net-worth individuals and families. Its potential in Hungary, as well as the kinds of M&A, tech and transactional work being undertaken throughout SEE, will mean that an age-old dynamic continues to play out: tension between domestic and international firms.
Grozdanov speaks for many other territories as well as Bulgaria when he says: ‘The biggest challenge is retaining talent and people. Like all other businesses in the country, shortage of qualified employees has proven to be the biggest challenge for law firms. We see many talent moves between firms. And young lawyers have different goals than the older generation; remuneration is no longer their top priority, but rather a positive attitude and friendly relations in the office, plus interesting and challenging projects.’
Dentons can lay claim to being one of the longest-established international firms in SEE, given the role of legacy firm Salans in its history. Salans was one of the first western law firms to enter Russia, in 1991, and went on to carve out a significant presence in many SEE territories before its tripartite merger in March 2013 to form Dentons. ‘We’ve seen many western firms come and go,’ says global chair Joe Andrew. ‘Throughout, we’ve had a policy of hiring and developing local talent. That talent has got significantly better, thanks to the democratisation of information, the end of restrictions on practising and by dint of local lawyers having been exposed to western firms. The region remains very varied, with differing notions of the rule of law in each jurisdiction, and there will always be bumps in the road. The key to success in SEE – to channel Bill Gates – is to always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.’ LB
From White Hart Lane to Belgrade – a case study
‘One thing led to another, and over the next five or six years I became the trusted lawyer for two out of every three Yugoslav companies in London.’
Mark Harrison, Harrisons
One man with experience at the coalface in the Southern and Eastern European region is Mark Harrison who, in February 1998, became the first English solicitor to set up an English law firm in Serbia and Montenegro. Twenty years later and Harrison is still there, happy to call Belgrade home and looking forward to the opportunities that continue to flow into what has, historically, been a tumultuous region.
‘As a young solicitor with Linklaters, fate played its hand,’ says Harrison. ‘One of the firm’s clients was Beogradska Banka and it agreed a lawyer from Belgrade could be seconded to the London office for six months to see how an English law firm works. I was working late one night and saw this guy in a nearby room. Being a Yorkshireman, I invited him out for a drink. The next night I was at Tottenham Hotspur’s football ground with a group of Yugoslavs cheering on Hadjuk Split.’ From football, came friendship – and then business. ‘One thing led to another, and over the next five or six years I became the trusted lawyer for two out of every three Yugoslav companies in London.’
Harrison took his contacts to Eversheds, where he became head of its Central and Eastern Europe practice and persuaded the firm to open an office in Belgrade in 1991. ‘It was bad timing,’ he recalls, and no wonder: on 5 June 1991, Croatia and Slovenia declared their independence from Yugoslavia, and by May 1992 sanctions were in place. Yugoslavia’s fracture would not be complete until 2006 (by which time it had settled into the independent states of Serbia, Montenegro, Kosovo, Croatia, Bosnia and Herzegovina, Slovenia
and Macedonia), with the Yugoslav Wars dominating the area from 1991 to 1999.
Harrison’s commitment saw him lead actions in the UK, US and EU courts to help protect his clients’ assets, as well as lead deals on the ground such as the sale of the Pivara Skopje brewery to Heineken/Coca-Cola, followed by the sale of Nikšić Brewery in Montenegro to Interbrew. ‘This made me consider whether to stay in a big law firm, where I was one of 300 partners, or to work for myself,’ recalls Harrison. The die was cast in February 1998, when, having decided to ‘abandon the comfort zone’, he sold up in England and rented an office in Belgrade.