It first appeared that cautious optimism would characterise the Iberian legal market in 2023 but no-one predicted quite how turbulent the year would turn out to be. Rising interest rates, mounting geopolitical tensions in Europe, and a risk-averse investment environment created arduous conditions for deal-making across the continent. Portugal and Spain were no exception.

In 2022, both countries exhibited signs of a robust recovery following the relaxation of pandemic restrictions and a surge in investment in the infrastructure and energy sectors. The year that followed proved to be more challenging. ‘2023 was not the year for M&A,’ says Paula Gomes Freire, managing partner of VdA.

Tougher financing conditions and a mismatch in expectations between buyers and sellers have given rise to prolonged transactional processes and a stark drop in the number of mega deals being negotiated in the peninsula. Already central to both Portugal and Spain’s economy, the middle-market became the key driver of M&A activity.

‘TMT and real estate were the most active sectors during these past 12 months,’ comments Salvador Sánchez-Terán, managing partner of Uría Menéndez. ‘As was renewable energy, albeit to a lesser degree than in 2022.’

These trends have been mirrored across the border. According to Nuno Galvão Teles, managing partner of Morais Leitão, the insurance, renewables, real estate, healthcare and technology sectors drove most foreign and domestic investment activity in Portugal. While M&A experienced a slowdown, other more countercyclical practices – namely litigation, restructuring and employment – continued to perform well.

This deceleration in M&A activity dovetailed with a stagnant period for capital markets. The drought of IPOs was particularly acute in Spain. The country experienced its lowest volume of aggregate ECM activity in ten years, failing to attract a single stock market debut in 2023.

Faced with growing uncertainty, and accompanying pressure from shareholders and investors, more and more companies are choosing to delist from the domestic exchange. At the time of writing, at least two Spanish companies are in the process of bailing: Opdenergy, whose IPO took place in July 2022, is to be bought by Antin Infrastructure Partners, while Applus Services has drawn takeover interest from several investors over the past year. With their delisting, they will soon join several other long-established and valuable companies who have exited since 2020, including Zardoya Otis, Mediaset España, Ferrovial, Siemens Gamesa and even Spain’s own stock exchange operator, Bolsas y Mercados Españoles (BME).

‘What keeps me up at night is the devaluation and the impoverishment of the Spanish market as a whole,’ says Pedro Pérez-Llorca, senior partner at Pérez-Llorca. ‘We had a dream that this was going to be an important European country with large multinationals conquering the world, and that Madrid would be a decision-making centre. For the last 15 years, that is not what’s been going on.’

As alarming as Pérez-Llorca’s words sound, he is not without resolve. When asked about how independent firms in Iberia can better prepare for a possible downturn, he proposes two strategies: focus on the core practices or look for growth opportunities. As of late, it is this second strategy that has been a key focus for the firm. The last of the major Spanish independent firms to enter the Portuguese market, Pérez-Llorca opened its Lisbon office in 2023 with the aim of building a versatile team with a ‘binational, bilingual and bicultural’ approach. Key hires in December and January indicated that the firm was making good on its ambitions.

‘Our Madrid office is a window to Latin America. We now have Lisbon, which opens the door to Lusophone legal work, both in Portuguese-speaking Africa and Brazil,’ he says.

Portugal is no stranger to Spanish law firms. Well-known players such as Cuatrecasas, Garrigues, Uría Menéndez and Gómez-Acebo & Pombo are longstanding players in the legal market, which is otherwise dominated by domestic independent firms like PLMJ, Morais Leitão and VdA.

With Portuguese firms facing competition from their Spanish counterparts, and those same Spanish firms continuing to battle Global 100 firms for the most prestigious cross-border instructions in the domestic market, talent attraction (and retention) takes centre stage. ‘Attracting top talent will continue to be key given our organic growth strategy,’ says Sánchez-Terán. ‘Beyond this, we believe that the rapid advances that are taking place in the technological field will be the main challenge we face.’

Indeed, to meet evolving client expectations, Iberian firms are now prioritising investment in innovation and the integration of legal tech into their business structure. ‘Generative AI is a game changer and will force firms to adapt to a service delivery model based on output and value rather than input and time spent,’ says Gomes Freire.

Galvão Teles agrees: ‘Firms that invest in innovation are positioning themselves as providing value at a time when clients are strengthening their own in-house legal departments and looking outside only for specialised knowledge.’

Despite the pressures imposed by the accelerated technological race, an intensifying tussle for talent and rising competition in the market, Iberian firms maintain a positive stance when looking to the year ahead. ‘M&A is very likely to do better in 2024 and we expect strong activity in the infrastructure, energy and environment sectors fuelled by available public funds under the EU Recovery and Resilience Plan,’ says Gomes Freire.

‘What keeps me up at night is the devaluation and the impoverishment of the Spanish market as a whole.’ Pedro Pérez-Llorca, Pérez-Llorca

‘We foresee a high volume of real estate deals coming in and expect an increase in capital markets transactions, restructurings and a steady flow of M&A deals,’ comments Sánchez-Terán.

The deal pipeline may not be the only thing to worry about. After several years of stability, the Iberian neighbours find themselves staring down respective political crises. Having failed to achieve a majority, Spanish prime minister Pedro Sánchez eventually secured his position in November 2023 after forming a coalition with Sumar, a left-wing alliance, and agreeing to a divisive amnesty deal with Catalan separatists. There is deep scepticism that the government will survive its full four-year term. In Portugal that same month, prime minister António Costa resigned after being the subject of influence peddling and corruption allegations. Parliament was subsequently dissolved, and a snap election called for early March, with many predicting that the socialist party will struggle to repeat its past victories.

Few believe that the current tumult represents a material risk to investor appetite. That said, few were able to predict the extent to which 2023’s broader political challenges would depress the market. Cautious optimism is a logical stance. LB

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The past three years have been nothing but challenging for Portugal and Spain. The neighbours, whose economies are hugely reliant on the hospitality and tourism sectors, were hit hard by the series of lockdowns imposed to battle soaring rates of Covid-19 infection in 2020. But fast forward to 2023, and the outlook has shifted significantly.

Emerging from what could understatedly be described as a turbulent period in 2020, with a 10.8% economic downturn, the Spanish legal sector has successfully regained its footing and competitive outlook. While the pandemic made economic constriction inevitable, it has also heralded an opportunity for significant year-on-year growth.

‘The Spanish legal market is extremely mature and competitive, but it grows consistently year after year,’ says Fernando Vives, executive chair of Garrigues.

The real estate, technology, and renewable energy sectors continued to garner serious attention from both domestic and foreign investors despite accelerating interest rates and galloping inflation, globally.

While Spain still trumps Portugal in both volume and scale, the latter has belied its size with a robust comeback. Despite GDP contracting by 8.4% in the first year of the pandemic, the country is on track to make a sound recovery.

The relaxation of Covid restrictions coupled with a wave of investment in the infrastructure and energy sectors spurred a 4.9% spike in growth in 2021, followed by a 6.7% boost in 2022, according to the OECD. With increasing pressure on private equity firms to deploy their ample reserves, Portugal’s sell-side M&A market remained an attractive option, especially for long-term investors seeking to diversify their portfolios both in terms of location and industries.

‘As the inflationary trend continues to spike, we are seeing client activity driven by a desire to use existing liquidity,’ says Paula Gomes Freire, who succeeded João Vieira de Almeida as VdA’s managing partner in February 2022. ‘Market volatility due to inflation, and rising interest rates are favouring investment-grade targets and driving investment into ESG-compliant assets and companies.’

Time and again, elite Iberian independent firms have proved that they can face adversity head on. Their breadth of service offering makes them well placed to adapt and reinvent themselves in periods of turbulence: the Eurozone crisis, the Covid-19 pandemic, and the current inflation surge.

Among the top Iberian firms, revenue grew on average by 12% in 2021. In a market with such strong competition, it is even more impressive to see powerhouses like Garrigues, Cuatrecasas and Uría Menéndez maintain pole position, continuing to report the highest revenues.

‘As the inflationary trend continues to spike, we are seeing client activity driven by a desire to use existing liquidity.’ Paula Gomes Freire, VdA

When it comes to growth strategies, Pérez-Llorca has set a standard for Spanish firms looking to expand in Asia after announcing it will become the first to have a presence in Singapore, with a new office set to open in the city state in early 2023.

‘Clients’ requirements have accelerated law firms’ digitalisation processes, as the need for efficiency and productivity are higher on their agenda,’ comments Vives. ‘Another important trend is the competition for hiring and retaining the best talent in the market.’

While some firms have focused on internal growth, others have sought out talent at rival practices. Lateral hires in Portugal have largely held steady over the past year, but top-tier firms have increasingly turned to recruiting former government officials. Assunção Cristas – a former minister of agriculture, sea, environment and territorial planning in Portugal – joined VdA to lead its environmental practice, while PLMJ’s finance and corporate groups were bolstered by the arrival of Pedro Siza Vieira, who served as minister of the economy between 2018 and 2022.

‘Attracting and retaining talent is clearly one of the sector’s key challenges and one we have been looking at very closely,’ says PLMJ’s managing partner Bruno Ferreira. ‘The leading Portuguese law firms are now competing for talent with the large London firms. And when it comes to UK law firms, compensation is a key driver where it’s very hard to compete.’

Iberia has a relatively stable legal market, particularly at the top end. Well-established independent law firms are at the helm of the most high-profile mandates and significant transactions in the region. VdA, Morais Leitão and PLMJ dominate the Portuguese market, while in Spain that role is shared by Uría Menéndez, Garrigues and Cuatrecasas, all of which have also managed to establish credible footholds in Portugal.

Save for a handful of Spanish firms, few international outfits have successfully made inroads into the Portuguese market. Among them is Linklaters, the only Magic Circle firm with a tangible presence in the country. But while international players are absent from the market, their impact is still significant.

‘Over the past few years, we have seen new entrants such as DLA Piper, CMS and Eversheds Sutherland using their international credentials and competing on scale, sector and local capabilities, while Spanish firms are also trying to capture market share,’ comments Gomes Freire. ‘This has created increased competition in a very small market where the proportion of high-end, complex, high-value and international work is relatively limited.’

Despite the increased competition faced by independent law firms in Iberia, the legal sector holds promise. Though 2023 will be marked by uncertainty, lawyers in Portugal are cautiously optimistic.

‘Law firms with strong transactional profiles and focused on large deals are particularly well-positioned to face what could be a few months or years of economic downturn,’ says Ferreira.

But perhaps optimism should be tempered. As Vives warns, market players would be remiss to forget that ‘geopolitical conflict, the energy market crisis, and the tightening of monetary policy’ loom around the corner. LB

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In past years, Portugal was on the radar for all the wrong reasons, primarily due to the accrued debt problem, but also due to the consequences of the lack of structural projects or investment. Now things seem to have changed and 2023 looks like a promising year.

Not only is Portugal the furthest European country from the war in Ukraine, but it is also one of the countries least impacted by that war, as it does not depend materially on Russian gas and has other sources of supply. As a consequence, energy prices have not climbed as much as in the rest of Europe and Portugal seems to be one place where energy prices will be more attractive in the future.

The country is in a unique position to face climate transition. It appears to be the best place in Europe to produce solar PV energy and green hydrogen (and other renewable gases), and to produce energy from renewable sources in general. Moreover, its geographical position links Europe to the Atlantic Ocean, and this is important not only because it can receive liquefied gas by sea, but also for intercontinental cable connections among many others. Lastly, following the Covid crisis, Portugal has put together a large investment plan that will begin in 2023, and it intends to push GDP up by more than 3%.

‘Where 2022 witnessed mostly studies and other ancillary activities, such as projects and the definition of investments and case bases, 2023 will most probably be a year of getting things done.’ Diogo Duarte Campos and João Marques Mendes, PLMJ

All of these circumstances lead us to believe that 2023 will be a year of heavy investment, both public and private, and that will bring some great opportunities. In fact, where 2022 witnessed mostly studies and other ancillary activities, such as projects and the definition of investments and case bases, 2023 will most probably be a year of getting things done.

In the public sector, among others, a more than €3bn investment plan in a high-speed train line connecting Porto to Lisbon was announced and it is divided into three different public-private partnerships. We expect the launch of the first public tender in the first half of 2023 and it will certainly raise the interest of project companies. Also in the public sector, we anticipate a boom in housing, with an expected investment of just over €1bn this year. The investment will be shared out between several municipalities across the country.

Another important development in 2023 is the expected launch of the plan to privatise Portugal’s flag carrier airline (TAP) and the regional Azores Airlines (SATA). Details are not known yet of the share capital to be sold, but we believe the bidders will include the leading international airlines and it will certainly involve a major investment.

In the private sector, energy is an obvious focal point. Portugal has great capacity to produce clean energy. It has a large number of hours of sunshine and excellent conditions for wind, both onshore and offshore, and 2023 will see the launch of the first offshore energy auction. Portugal also enjoys a climate that does not demand the same level of energy spending as in the northern and eastern parts of Europe. Moreover, the real estate sector, including tourism and logistics platforms, has already been growing from some years.

Against this background, there have been a large number of investment announcements for the production of green hydrogen, green ammonia, biomethane, among others, that can be used in Portuguese industrial facilities, but also exported to the rest of Europe. This is especially so after the announcement of a new trans-European pipeline connecting Portugal, Spain and France, and from France to the rest of Europe. This connection is, of course, strategic for Portugal and Spain as it might mean that Iberia is finally linked in terms of energy to the rest of Europe. But the ability to produce clean green energy on a large scale has also been crucial to other big projects such as a major green data centre that is already under construction to the south of Lisbon.

Naturally, there are still many hurdles to overcome, and we face a very challenging macroeconomic environment due to inflation and rising interest rates. Nevertheless, the future looks brighter for Portugal in 2023. Tourism is recovering and now, probably more than even before the pandemic, a significant number of ongoing investment and tenders are to be launched and they will undoubtedly enhance Portugal’s pull-on international investors and make the country a destination to consider in 2023.

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One of our key points of recognition has always been the innovation in legal advisory and the significance of being a full-service firm. We regularly advise across many areas and sectors and take on multidisciplinary projects, thus establishing future trends and models while covering all grounds. The main challenge in our very competitive market, with new entrants and a geographical disadvantage, is to continue providing in-depth legal advice while remaining economically sustainable. In order for this kind of approach to be effective, we privilege internal innovation. From project and knowledge management to legal tech, from legal design to AI, we pioneer an innovative approach to procedures and content that produces real benefits for the client, both in terms of the output and of the process that leads to it.

Given the current economic problems created by the war in Ukraine, how has this affected your firm?

From a personal point of view, it’s impossible not to be shocked by the occurrence of war in Europe, taking a heavy and unnecessary toll of human lives and disturbing profoundly people we cherish and love.

As a manager, I saw this event as a variable to consider that creates further instability in an already unpredictable economy. Even though our exposure to Russian entities was fairly limited, we ran internal checks regarding sanctions and we’ve been assisting various clients on energy and supply chain consequences –helping them navigate an uncertain strategic landscape. I’d definitely highlight the importance of solid anti-money laundering practices and ensuring that compliance values are not seen as another obligation but as insurance against future problems. One particular feature of the last few years, to which this war made a definite contribution, is the heavier scrutiny on firms and companies’ actions and standpoint: environment, society and governance issues are increasingly valued by clients, and we’ve been keeping a watchful eye on our own practices, ensuring that we measure accurately the role we play in these dimensions, thus starting change from inside.

What have been the standout matters that demonstrate Morais Leitão’s strengths?

It’s always hard to choose when all areas are performing well. In corporate, I’d highlight our advisory on the sale of two private equity funds and the property manager ECS to the US company Davidson Kempner, in the so-called ‘Crow Project’, supporting the financing banks – Caixa Geral de Depósitos, Millennium BCP and Novo Banco. The operation was the largest real estate transaction of the year and held particularly challenging contours, namely its length and the included asset portfolio.

We’ve also advised our long-term client EDP – Energias de Portugal, S.A. (EDP) on the sale of its 50% stake in Hydro Global Investment Ltd (Hydro Global), a 50/50 joint venture between EDP and CTG, to China International Water & Electric Corporation (CWE), a company that belongs to China Three Gorges Group (CTG). Hydro Global’s main asset is the hydro project San Gabán III, in Peru, which is currently under construction.

When it comes to complexity, we could mention our work with Sonae Sierra, SGPS, S.A. in connection with the restructuring and investment process for the acquisition of Imosal (owner of Atrium Saldanha, a shopping centre in Lisbon’s centre). This transaction is a sui generis and complex restructuring transaction entailing, notably, the incorporation of a real estate investment and management company (Sociedade de Investimento e Gestão Imobiliária, ‘SIGI’) used as a vehicle to raise funds for the acquisition of Imosal and the subsequent conversion of the latter into an externally managed real estate collective investment company (SICAFI).

Can you talk about any trends or changes you are seeing emerge especially across Corporate, Commercial and M&A, capital markets and corporate restructuring areas?

When it comes to Portugal, we have witnessed interesting movements. The first must be the sophistication of our emerging companies’ ecosystem. Companies such as Remote or Farfetch are world leaders – conducting their operations from Portugal. For our firm, this means excelling in project management within as many as 50 different jurisdictions and developing cutting-edge finance arrangements. I would next highlight the energy and natural resources sector, where Portugal has been pioneering and leading the energy transition – the projects in which we’re currently advising on hydrogen and renewable electric power are particularly relevant and confirm our role not only as legal advisers but as our clients’ strategic partners, innovating side by side.

Corporate and M&A has obviously been quite intense, with record years being established on a consistent basis. Our market is quite appealing to external investors, and we’ve been working on companies purchases related to their international and digital capabilities. Private equities keep enhancing their participation, with steady interest in tech-related industries and real estate. Due to our longstanding experience in capital markets (we are consistently awarded the prize of most active law firm in equity), we’ve been collaborating with Euronext on their ‘Techshare’ initiative, raising awareness of capital markets among promising Portuguese technology companies. Again, it’s about sharing knowledge and offering different options to our clients’ needs and goals.

How would you describe the investment climate in Portugal in the last 12 months? Which sectors offer the largest potential to prospective clients and how do you see 2023?

As in other countries, many entities have been reviewing their portfolios, creating strong opportunities of investment. Banking and insurance distribution have been hot topics – and there’s enough reason to believe they will continue as such. Even though inflation usually slows investment, our pipeline still remains heavy on projects. Portugal has attracted investors with a certain level of sophistication and risk capacity, leading us to exciting challenges, namely with alternative financial instruments (REITs and closed-end investment companies come to mind).

Are there any specific international jurisdictions your firm has earmarked for growth over 2023? And why?

We’ll have news on one jurisdiction in a couple of months. Our lusophone practice has been growing in terms of volume and sophistication, reflecting flows and trends of external investment. We also do try to match our clients’ needs, when it comes to internationalisation, so that they can rely on our constant support. This being said, we’ll be opening a new office in the Asian region.

What would you say is the most important part of any client relationship?

Transparency. It’s the cornerstone of a healthy relationship: transparency ensures communication, delivery and predictability, which are highly valued in every project or matter. Our lawyers work for the best possible solution for the client’s needs. Even when the outcome turns out not to be what the client initially wanted, the project can still be successful and the client happy or at the very least at ease with the output – because he or she was permanently updated on strategies and steps, in a predictable framework.

What is it about Morais Leitão that has enabled you to retain talent within the firm?

I don’t think anyone can have fixed thoughts about retention and any causal factors. Our human resources team recently changed their title to People: it wasn’t just a matter of semantics, it meant recentring its focus on our people and their needs. We do our best, within the available data, to design humane policies that balance the firm’s profitability and people’s wellbeing. We have our policies routinely audited and found worthy of a formal certification, in terms of worklife balance. This means that we regularly review and update measures in six specific areas: quality of time, flexibility, family support, personal and professional development, equality of opportunity as well as leadership and management. The plan has certainly reinforced our culture of respect and collaboration, in which opinions, feedback and constant learning are valued. Respect has also meant developing a diverse culture, in which people are viewed and praised for what they, as individuals, bring to the firm – worldviews, perspectives, personalities, experience, expertise. High levels of retention correlate strongly with a healthy work culture and ethics and we are proud that our retention levels consistently are high. In short: we thrive to develop a work environment in which everyone feels right and at home – that will definitely remain our priority.

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The past three years have been nothing but challenging for Portugal and Spain. The neighbours, whose economic and social development are hugely reliant on the hospitality and tourism sectors, were hit hard by the series of government-mandated lockdowns imposed to battle soaring rates of infection in 2020. But fast forward to 2022, and the outlook has shifted dramatically.

Emerging from what could understatedly be described as a turbulent period in 2020, with a 10.8% economic downturn, the Spanish legal sector has successfully regained its footing and competitive outlook. While the pandemic meant a constriction of the economy was inevitable, it ultimately provided an opportunity for significant year-on-year growth.

‘These circumstances, together with an environment of low interest rates and high liquidity, reactivated the M&A market, mainly in the renewable energy sector, with a volume of transactions never seen before. Other areas, such as technology and real estate – especially logistics and residential – have also been very active,’ notes Jesús Zapata, managing partner of DLA Piper Spain.

‘Companies were able to stay afloat, mainly due to government measures adopted to support the economy.’
Paula Gomes Freire, VdA

Several headline-grabbing deals exemplify Spain’s progress over the last two years; EY Abogados and Allen & Overy (A&O) advised American Tower on its multibillion-euro bid for Telxius’ European telecoms tower division (with Telefónica, the seller, represented by Garrigues), while IFM’s partial takeover bid for Naturgy, where the latter was represented by Freshfields Bruckhaus Deringer, culminated in the purchase of a 10.83% stake in the energy group (A&O advised BNP Paribas in connection with the financing to IFM investors). Elsewhere, Latham & Watkins ushered EIG through its $19bn agreement with Repsol, which was represented by A&O, to acquire a 25% stake in Repsol Upstream.

Predictably, Spain still trumps Portugal in both volume and scale. And yet, belying its size, Portugal’s economy continues to be robust. Despite GDP contracting by 8.4% in the first year of the pandemic, the country is on track to make a sound recovery. The relaxation of Covid restrictions and a wave of investments in the infrastructure and energy sectors spurred a 4.9% spike in growth in 2021 (with 2022 growth projections sitting at 5.4%, according to the OECD).

To the surprise of many, the number of insolvency filings in 2020 did not deviate from historical average levels and, in fact, fell slightly during 2021. This came as a shock to those who had predicted a massive surge in insolvencies and restructurings that would have ravaged the bedrock of Portugal’s business ecosystem: small and medium-sized enterprises.

‘The fierce competition among Spanish law firms to retain and attract talent, not only at senior level, is and will continue to be a key trend in the coming years.’
Coral Yáñez, Bird & Bird

‘Companies were able to stay afloat, mainly due to government measures adopted to support the economy, such as credit moratoriums, new credit lines, layoffs and the suspension of the obligation to file for insolvency,’ says Paula Gomes Freire, who succeeded João Vieira de Almeida as VdA’s managing partner in February 2022.

Against this backdrop, private equity houses and international funds drove deal activity to new heights. With ample dry powder and increasing pressure on PE firms to deploy large amounts of capital globally, Portugal’s sell-side M&A market remained an attractive option, especially for long-term investors seeking to diversify their portfolios both in terms of location and industries.

‘For clients, a multidisciplinary model will always be the most convenient, but there are aspects of the legal profession that must be regulated very rigorously.’
Nelson Raposo Bernardo, Raposo Bernardo

Like Spain, Portugal’s real estate, technology, infrastructure and energy sectors continue to garner serious attention from both domestic and foreign investors, despite accelerating interest rates and galloping inflation haunting the global markets.

Gomes Freire suggests that an uptick in both strategic and opportunistic M&A may be on the horizon. ‘As the inflationary trend continues to spike, we are seeing client activity driven by a desire to use existing liquidity,’ she says. ‘Market volatility due to inflation, and rising interest rates are favouring investment-grade targets and driving investment into ESG-compliant assets and companies.’

The heightened focus on green energy and decarbonisation globally has put renewables at the forefront of the government’s carbon neutrality agenda, making ESG-related compliance increasingly relevant in the Portuguese market.

‘The energy sector has also registered greater activity as a result of the energy crisis, which has led to increasing demand and investment in alternative energy sources to reduce the existing dependence on Russia,’ says Inês Sequeira Mendes, managing partner of Portuguese firm Abreu Advogados.

In recent years, many Portuguese firms have created ESG-focused departments to address the pressing needs of clients. Transactions are increasingly structured through the lens of environmental concerns. July 2021 saw the largest IPO on the Portuguese stock exchange since 2014, when domestic renewable energy firm Greenvolt raised more than €150m to fund its expansion into Europe. Several months later, Mota-Engil made a public bond issue – the first sustainability-linked bond issue through public subscription from a Portuguese company. VdA acted for the corporates in both instances.

Growth amid challenges

Despite the adversity, time and again elite independent firms in Iberia have squared up to the challenge. Their breadth of service offering makes them well placed to adapt and reinvent themselves in periods of turbulence: the Eurozone crisis, the Covid-19 pandemic, and the current inflation surge.

Among the top Iberian firms, revenue grew on average by 6.5% in 2021, according to research by El Confidencial. A particular standout in this regard was Pérez-Llorca, which surprised the markets with a 33% increase in turnover. In a market with such strong competition, it is even more impressive to see powerhouses like Garrigues, Cuatrecasas and Uría Menéndez maintain pole position, continuing to report the highest revenues.

But when it comes to growth strategies, Pérez-Llorca has set a standard for Spanish firms looking to expand in Asia after announcing it will become the first to have a presence in Singapore, with a new office set to open in the city state in early 2023. Andersen also bolstered its expansion plans, integrating DA Lawyers and CHR Legal into Andersen Spain, while also consolidating its Portugal presence with the assimilation of Curado, Nogueira & Associados. Meanwhile, Cuatrecasas reinforced its position by signing an integration agreement with SLCM – Serra Lopes, Cortes Martins & Associados in October.

While some firms have focused on internal growth, others have sought out talent at rival practices. In Spain, key moves saw Clifford Chance’s former employment head Juan Calvente jump ship to Simmons & Simmons in October. Elsewhere, Teresa Zueco left DLA Piper to become Squire Patton Boggs’ new Madrid managing partner, as well as head of the corporate, M&A and private equity groups.

‘The fierce competition among Spanish law firms to retain and attract talent, not only at senior level, is and will continue to be a key trend in the coming years,’ comments Coral Yáñez, co-head of Bird & Bird’s Madrid office.

Stable market

Iberia has a relatively stable legal market, particularly at the top end. Well-established independent law firms are at the helm of the most high-profile mandates and consequential transactions in the region. VdA, Morais Leitão and PLMJ dominate the Portuguese market, while in Spain that role is shared by Uría Menéndez, Garrigues and Cuatrecasas, all of which have also managed to establish credible footholds in Portugal.

Save for a handful of Spanish firms, few international outfits have successfully made inroads into the Portuguese market. Among them is Linklaters, the only Magic Circle firm with a tangible presence in the country. But while international players are absent from the market, their impact is still significant.

‘Over the past few years, we have seen new entrants such as DLA Piper, CMS and Eversheds Sutherland using their international credentials and competing on scale, sector and local capabilities, while Spanish firms are also trying to capture market share,’ comments Gomes Freire. ‘This has created increased competition in a very small market where the proportion of high-end, complex, high-value and international work is relatively limited.’

With parliament set to overturn its current ban on multidisciplinary practices (MDPs) and restrictions on regulated professions, Portuguese independent firms are expected to face even tighter competition from new market entrants in the coming years. This reform, which was proposed by the European Commission but put on hold following the dissolution of parliament in late 2021, would make it possible for lawyers and non-lawyer professionals, such as accountants and consultants, to practise together.

‘We can offer differentiated legal services to clients active across a range of jurisdictions with the certainty there is consistency.’
Mónica Moreira, CTSU

This change could herald the biggest shift in the domestic legal market for decades and has fast become the most contentious topic in Portuguese legal circles. Many welcome the opening of the market, though others condemn it on ethical grounds, including concerns around confidentiality. Chair of the Bar Association Luis Menezes Leitão vehemently rejects it, while several Portuguese law firms choose not to comment on the issue.

‘Naturally, the entry of MDPs will create a small revolution in the legal market,’ says Nelson Raposo Bernardo, managing partner of Portuguese firm Raposo Bernardo. ‘We have no doubt that, for clients, a multidisciplinary model will always be the most convenient, but there are aspects of the legal profession that must be regulated very rigorously.’

Rise of the Big Four

Anticipating the end of the protective regulations, consulting firms spotted an opportunity in the Portuguese legal market as early as 2015. Using its strong foothold in Spain to venture into Portugal, Deloitte was the first to make the move by adding Portuguese firm CTSU Sociedade de Advogados to its legal network. EY followed suit, partnering with Lisbon-based RRP Advogados – founded by a former Linklaters managing associate in 2016. The most recent arrival, PwC, incorporated CCR Legal into its legal network in 2018.

‘We can offer differentiated legal services to clients active across a range of jurisdictions with the certainty there is consistency in terms of methodology, approach, rigour, and innovation, which are all part of Deloitte’s DNA,’ comments Mónica Moreira, managing partner of CTSU, which she says benefits from access to a network of over 2,000 lawyers working across more than 75 countries.

She adds: ‘The ability to provide clients with an integrated global view of the different aspects of their business, their problems and propose solutions is a huge asset. For example, the ability to combine the financial, tax, commercial and legal aspects in an M&A due diligence means added value for the client.’

Boasting deep pockets and longstanding relationships with multinationals, the Big Four legal networks in Portugal have emerged as an attractive alternative for small and medium-sized enterprises seeking cross-disciplinary, document-heavy, and cost-efficient advice. Initially, their efforts were concentrated in areas such as tax, corporate, real estate and compliance, though they are now poised to become a serious contender for work taking place at the intersection of law, technology and automation – a space in which many mid-market and smaller domestic firms find it hard to compete.

Owing to lower profit margins and reliance on work that can be standardised and replicated by consulting firms, it is these firms that are expected to really feel the pressure as the market tightens. However, Sequeira Mendes argues that increasing competition is a natural trend in any legal market, and one that Portuguese independent firms are prepared for. ‘MDPs already exist in many countries, albeit under different models. In none of these markets has this resulted in the disappearance of independent law firms; there will always be room for them,’ she adds.

‘Companies need true 360° advice, with multidisciplinary and highly experienced teams to tackle their challenges from all angles of business law,’ says Fernando Vives, executive chair of Garrigues, which itself merged with the Spanish tax and legal arm of audit company Arthur Andersen in 1997 before becoming independent again following Andersen’s spectacular collapse a few years later.

As they are ranked among the seven-largest law firms by revenue in Spain, the increased pressure from the Big Four is a critical topic of interest for firms operating in the country.

‘They focus on highly standardised, high-volume, mid-market transactions, and in very specific niches in which they have more penetration due to their greater flexibility and ability to add very innovative products to their offer,’ says Zapata.

‘In a few years’ time the Big Four will be involved in major business law transactions.’
Jesús Zapata, DLA Piper

But while they are exhibiting tremendous growth potential, the Big Four’s penetration of the market does not come without challenges, with conflicts of interest playing a particularly significant role in the scope of their operations.

‘They interchange, depending on their exposure or workload due to conflicts of interest that arise from their work as auditors,’ says César Albiñana, managing partner of CMS Albiñana & Suárez de Lezo. He believes that traditional law firms still offer a different proposition in the Spanish market: ‘These companies provide more due diligence and advisory legal work whereas a law firm covers matters that are more judicial.’

However, Zapata concludes: ‘Despite the handicap posed by the incidence of conflicts of interest given their huge number of clients, I believe that in a few years’ time these players will be involved in major business law transactions.’

This cautionary stance, stems partially from the fact that the Big Four have also been adding to their workforces. Across all of PwC Spain’s business lines, 23 new partners were appointed (eight of these as equity partners) and 895 professionals were promoted. This growth mindset is also shared by Deloitte, where Nicolás de Gaviria has become managing partner. KPMG Abogados grew 7% in terms of headcount, while EY Abogados has seen a 5% increase in its workforce.

With many clients seeking out alternative providers of legal services, a fragmentation of the market is evident, one that traditional law firms will have to adapt to. Consulting firms are already taking advantage of an uptick in diverging demand. As part of its legal managed services (LMS) strategy, EY Abogados integrated Samaniego Law in February 2022, paving the way for one of the first ALSPs (alternative legal service providers) in the Spanish-speaking world.

Promising signs

Despite the increased competition faced by traditional law firms in Iberia, the legal sector holds promise. When discussing the future of the Spanish market, Albiñana predicts that ‘there will certainly be an increase in revenue, although perhaps not as marked as in the previous year’.

Though 2023 will be marked by uncertainty, lawyers in Portugal are cautiously optimistic. ‘We project that the resilience plan will finally be put into practice in a relevant way, and, as a result of this, special attention will be given to the infrastructure, construction, projects and healthcare sectors,’ comments Raposo Bernardo.

But perhaps optimism should be tempered. As Vives warns, market players – both new and old – would be remiss to forget that ‘geopolitical conflict, the energy market crisis, the tightening of monetary policy and economic contraction’ loom around the corner. LB

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Recently, Portugal took another important step to consolidate its commitment to fighting climate change, previously made in the Paris Agreement, by the publication on 31 December 2021 of the new Framework Law on the Climate (Law 98/2021 of 31 December), which establishes the guiding principles of climate policy and governance. It also introduces targets and provides for mechanisms to combat climate change, to decarbonise the economy and to achieve sustainable development.

The Framework Law on the Climate is a comprehensive and programme-based law that focuses on various sectors, including the energy industry, construction, agriculture and fisheries. It also addresses financial assets and green taxation. The assumption of an integrated vision of the different sectors of the economy as a fundamental vector to mitigate and adapt to climate change is the realisation of one of the structuring principles of public policy on the environment – the principle of transversality and integration.

This new law also reinforces and brings together other legal instruments in force on climate change. These include the National Strategy for Adaptation to Climate Change (ENAAC) 2020, the Roadmap to Carbon Neutrality 2050, the National Energy and Climate Plan 2021-2030 (PNEC 2030), and the Action Programme for Adaptation to Climate Change (P-3AC). It thus condenses the guidelines for Portuguese climate policy, with the aim of achieving carbon neutrality in the country.

In line with the European Climate law, the major objective is to achieve ecological balance and neutrality in greenhouse gases by 2050, taking into account the targets for the reduction of emissions of these gases by at least 55% by 2030, 65% to 75% by 2040 and 90% by 2050, considering the reference to 2005 values.

Above all, as a result of its transversal nature and the integrated vision of the economy underlying it, the Framework Law on the Climate sets out the development guidelines for the economic policies to be implemented in Portugal in the near future. In particular, for this purpose, it outlines some strategic lines of the economic policies as an instrument to fight climate changes:

In the energy sector, decarbonisation of the electro-production system is planned. This is to be done by banning the use of coal to produce electricity from 2021, and of natural gas of fossil origin to produce electricity from 2040, provided the security of supply is guaranteed. Together with decarbonisation, the policy to produce electricity from renewable sources is reaffirmed. There is also a focus on the aspects of decentralised production and energy efficiency. Another important point of focus is on the sea as a preferential area to harness energy from renewable sources for electricity production. Finally, the Portuguese State will prohibit the granting of new concessions for exploration and exploitation of hydrocarbons in Portuguese territory.

In the industrial sector, the focus is on promoting decarbonisation and the consequent energy transition. For this purpose, ‘the green industrial strategy’ to support companies in this transition is expected to be in place by February 2024.

Concerning transport policy, besides the provision to develop measures to promote sustainable mobility, 2035 is set as the reference date for the end of sales in Portugal of new light vehicles powered exclusively by fossil fuels.

As the forest plays a central role in carbon sequestration, provision is made to support the sustainability and resilience of forests. This is to be achieved by maintaining and incorporating residual forest biomass into the soil and promoting more sustainable and resilient forest crops, such as native species, white oaks and hard woods.

Regarding materials and consumption policy, the circular economy is recognised as the cornerstone of decarbonisation and it is established that the design of products, packaging, infrastructures and buildings must follow a logic of ecodesign.

In terms of waste policy, the Portuguese State is obliged to adopt a bio-waste collection and recovery model and, by 2025, incentive and returnable packaging waste systems to effectively recover plastic packaging from urban waste.

Concerning the agri-food chain, provision is made to encourage the decarbonisation of agriculture, fisheries and aquaculture, and to encourage sustainable and healthy eating habits, with a reduction in food waste.

For the financial system, it is established that the public and private agents and institutions must take into account climate risk and climate impact in their financing decisions. The new law provides that any lack of transparency or failure to share information regarding the consideration of climate risk and climate impact in financing decisions is considered an inadequate sale, under the terms of the regulation on markets in financial instruments. In addition, the new law also provides that the analysis of risk in financial intermediation should take into account the climate risk and climate impact of the activities that seek financing.

Finally, public investment is also subject to the principles described in the law, which sets out a preference, in the financing of projects, contracting of services or concession of public services, exclusively or partially, for actions that comply with the principles of the taxonomy on environmentally sustainable activities of the European Union. Moreover, the largest public investments will now be subject to a strategic evaluation that deals with the risks associated with climate change in national and sector-by-sector planning and economic investment decisions.

In a nutshell, although the law already establishes a set of specific targets, it will still be necessary to implement it in a set of other laws.

It is undeniable that the goals of this new law have good intentions and are ambitious. However, their effectiveness may fail if they are not implemented and they simply remain on paper.

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Announced more than a year ago, the largest merger in the Spanish banking sector for some time became a reality in early 2021. The Spanish competition authority cleared CaixaBank’s acquisition of state-owned financial entity Bankia – which was bailed out during the country’s banking crisis in 2012 – at Phase I, subject to conditions. This transaction is a merger between the third and the fourth largest banks in Spain, with €623.8bn in assets.

The new entity is expected to dominate the Spanish market, especially in retail banking. As executive chair José Ignacio Goirigolzarri said when the deal was confirmed: ‘The merger between CaixaBank and Bankia marks a milestone in the history of the Spanish financial system. We face this challenge from a position of strength that allows us to be an active part of the solution to the current crisis, as well as to become an important stakeholder for the socio-economic recovery of our country’.

It was therefore no surprise that this historic combination saw some of the leading firms in Spain line up to steer the merger through. Uría Menéndez advised CaixaBank, led by chair Luis de Carlos and Barcelona office partner Daniel Ripley, with Davis Polk providing US law advice, while Garrigues and Gómez-Acebo & Pombo acted for Bankia.

The role the banking sector will continue play in protecting the economic strength of Iberia – and with it the fate of leading commercial law firms in Spain and Portugal – cannot be overstated. As the CaixaBank acquisition followed reasonably hot on the heels of the Banco Santander acquisition of Banco Popular, a new wave of consolidation in the Spanish banking sector has been triggered and could revive moves by other banks to gain scale or strengthen their franchises or business models to remain competitive. But the financial services industry in both Portugal and Spain has been active for some time now – the need for consolidation is not new. For several years, the profitability of Iberian banks has been under pressure from low interest rates, subdued credit demand, increased regulatory costs and the need to invest in digitalisation. Some deals are at an advanced stage, including Abanca’s preliminary agreement with Crédit Agricole to acquire Bankoa. The long-running, on-off acquisition of Liberbank by Unicaja Banco – advised by Uría Menéndez managing partner Salvador Sánchez-Terán for Unicaja and Ramón y Cajal for Liberbank – was given the green light by the government in July, creating the country’s fifth largest bank.

Two new factors could now pave the way for banking consolidation to gather pace in Spain and Portugal. First, the economic fallout from the coronavirus pandemic could further weaken banks’ profitability. Second, the European Central Bank has signalled its willingness to ease some conditions for mergers, including not necessarily requiring higher capital ratios for the resulting entity.

And the market has certainly been awash with deals underlining the financial services sector’s desire to improve its standing. This has come in several forms, such as the disposal of non-core operating businesses, evidenced by four deals announced in April and May in Spain this year: Banco de Sabadell’s disposal of Aurica Capital Development; Crédit Agricole’s (advised by Cuatrecasas, led by Fernando Mínguez Hernández) disposal of 99.81% of Bankoa; EFG’s disposal of a minority stake in A&G; and Portuguese bank Novo Banco’s disposal of its Spanish branch business.

‘The new round of mergers in the Spanish banking system is keeping our corporate department very busy.’
Salvador Sánchez-Terán, Uría Menéndez

Another move is disposing of non-performing loan (NPL) portfolios, as seen by Uría advising Lone Star on the €800m acquisition of an NPL portfolio from Banco Sabadell. High NPL ratios impact on banks’ balance sheets and profitability, slowing down economic growth and the factors driving high NPL ratios in different EU countries have gained a lot of interest in recent years. However, NPL ratios in Portugal and Spain have started to come down sharply in recent years, showing that everything is moving in the right direction.

Sánchez-Terán says: ‘The new round of mergers in the Spanish banking system is keeping our corporate department very busy. There has also been a lot of movement in the real estate, technological, energy and insurance sectors in recent months, resulting in a significant number of transactions.’

Portuguese banks and other entities in the financial and insurance sectors have also focused on selling non-core assets and businesses. Speaking to Legal Business earlier this year, Bruno Ferreira, co-managing partner at PLMJ, noted: ‘What we will probably see is more activity in terms of restructuring businesses. We have had some bank moratoriums in place for the better part of 2020 and this will also continue until the first quarter of 2021. However, after that, there will be a significant liquidity impact once the bank moratoriums are terminated. So as a result of that, I think that, in terms of both M&A and financial restructuring and labour restructuring and operational restructuring, the Portuguese market will see a lot of activity in 2021.’

And there has been plenty of banking sector activity already, such as Davidson Kempner’s acquisition of €216.3m of NPLs from Novo Banco. And it is needed, with the banking sector arguably in need of substantial transformation – via consolidation and cost-cutting – to revive the sector. Large banks such as Caixa Geral de Depósitos (CGD), Millennium bcp and Novo Banco may well be considering merging into a single large Portuguese bank. Cost-cutting may come in the form of moving away from bricks and mortar bank branches as Covid-19 has accelerated the global move towards digital banking and unprofitable physical presence in towns and cities.

Strong reserves

With all this activity in the banking sector alone, Iberian lawyers are talking a strong game, and are defying any negative fallout from the global pandemic. Sánchez-Terán says despite its difficulties, 2020 was by and large a satisfactory year for the firm. All practice areas and offices performed commendably despite the uncertainty experienced during the most critical months of the pandemic.

‘We had a brilliant first quarter followed by an abrupt decline in April, May and June, although activity levels rebounded during the second half of the year and continued through the end of 2020,’ he says. ‘2021 is going well and we expect to close the year with good results. Our current workload is high across the board, with all practice areas and offices busy. Excess market liquidity is leading to a solid flow of foreign investment in Iberia, as well as significant M&A deals in hot sectors such as real estate, tourism, energy and renewables. There is also significant activity in capital markets with debt and rights issues as well as real-estate investments.’

‘The firm was able to grow turnover almost 1% in 2020-21. This has been possible because of the strong relationship with
our clients who trust us.’
Carlos Rueda, Gómez-Acebo & Pombo

Importantly, he adds: ‘This trend is not exclusive to Uría Menéndez, as it can be seen in the Iberian legal market in general throughout 2020.’

Adds Gómez-Acebo & Pombo managing partner Carlos Rueda: ‘From 2019 to 2020, the firm grew 14.6% in Spain and 13.4% in general. Due to the pandemic, activity in the Spanish market in 2020 slowed dramatically. This meant that firms dropped either revenue or clients. However, the firm was able to grow turnover almost 1% in 2020-21. This has been possible because of the strong relationship with our clients who trust us, which demonstrates the firm’s ability both to retain clients on a long-term basis and to maintain its turnover and activity during difficult situations such as the pandemic. Additionally, as mentioned, the firm did not take any additional measures to keep its financial situation stable or to keep its business growing.’

In Portugal, João Vieira de Almeida, managing partner of leading firm VdA notes: ‘The last financial year was very good for VdA and our direct competitors. Medium-sized firms, however, suffered during the pandemic. It was much better than we could anticipate, not only in financial terms but particularly in what it showed we are capable of when adversity strikes. The team stayed together, a specific plan was put in place to keep clients engaged and to develop customised solutions to the problems they were facing with the pandemic, and we beat the odds and gave our best performance ever.

‘This year looks good and we are on target to meet the budget, both in terms of top line and revenues. I would expect this to be the case as well with the biggest firms in Portugal.’

However, Nelson Raposo Bernardo, managing partner of Portuguese firm Raposo Bernardo, refutes the suggestion that mid-sized firms in the region have struggled: ‘In a severe crisis situation, the law firms that can potentially fare best are those with a more agile and versatile structure, but at the same time have the same capacity to access the most important mandates. The large firms can be very top-heavy in such a scenario and the smaller firms may not have the team capacity to respond to a lot of requests. So the ones that seem to me that may be better prepared are the ones that maintain such responsiveness and at the same time are more flexible and have a more agile structure.’

He continues: ‘The Portuguese economy has maintained some resilience to the impact of the pandemic, which has contributed to the fact that in the last year there have been no relevant changes. On the contrary, there are areas that have grown because of the pandemic, such as employment, contracts, insurance, data protection, litigation and restructuring to add to others that have always been on the rise, such as M&A, real estate and foreign investment.

‘Last year our firm kept up with this trend and maintained the pace of growth it had brought in from the years prior to the pandemic. Just as important is the fact that the expectations for the end of the year and for next year are very positive, with an even greater growth expected in company transactions and real estate. There are many appealing companies in the market, with good products, excellent brands and high installed production capacity, which are excellent investment opportunities.’

‘The Portuguese economy has maintained some resilience to the impact of the pandemic, which has contributed to the fact that in the last year there have been no relevant changes.’
Nelson Raposo Bernardo, Raposo Bernardo

Iberia has lost none of its attractiveness to global legal juggernauts either. While the pace of international firms launching in Spain has inevitably dropped off in recent years, June 2021 saw Eversheds Sutherland make a move into Portugal. The firm said it had strengthened its position in Europe and Africa by combining with leading full-service law firm FCB in Portugal, and its associated firms in Angola and Mozambique. FCB has a longstanding relationship with Eversheds stretching back over a decade and this combination will enable it to expand its offering to its global client base across three new markets.

FCB advises international clients from three offices in Lisbon, Porto and Faro, and offices in Mozambique and Angola through associated local firms. Gonçalo da Cunha, a partner at Eversheds Sutherland FCB (Portugal) commented at the time that the deal was announced: ‘By joining forces, we will deepen our ongoing relationship to the benefit of our international clients. We look forward to building and strengthening relationships with colleagues across the firm’s global office network and supporting clients on their activity across Europe, Africa and Latin America.’

Status quo

However, according to the established players, the hierarchy in both Portugal and Spain remains the same as it ever was. While a continual influx of foreign players has seen some international firms establish credible footholds in the market – particularly in Madrid – three leading independent players continue to dominate the legal market in each country.

In Spain, the legal market remains relatively stable. Renowned local firms Uría Menéndez, Garrigues and Cuatrecasas, along with UK firms Clifford Chance, Linklaters and Allen & Overy, still dominate in many key areas, particularly in M&A, banking, restructuring and dispute resolution. Pérez-Llorca continues to invest and has made several significant hires, notably in the areas of insurance, dispute resolution and real estate. Latham & Watkins has also not slowed its expansion in Spain; 2020 saw the firm boosting its real estate capacity with several prominent additions. Gómez-Acebo & Pombo – nominated for International Firm of the Year at the 2021 Legal Business Awards alongside Garrigues, Uría and VdA – has continued to make significant strides to be a credible alternative and competitor to Spain’s big three.

Says Rueda: ‘In general, the legal market in Spain on a financial level has kept stable. We and the majority of our competitors have kept stable in terms of results. Some have grown moderately, others more via more aggressive strategies and some have lost a little, but in general, the players have been stable despite the difficulties brought about by the pandemic.’

‘The pandemic has consolidated the market as it existed in the pre-Covid era, with three Portuguese independent firms leading the pack.’
João Vieira de Almeida, VdA

In Portugal, Morais Leitão, Galvão Teles, Soares da Silva & Associados, VdA and PLMJ still dominate in high-end transactions and deals, while Iberian firms Garrigues, Uría Menéndez – Proença de Carvalho, Cuatrecasas and Gómez-Acebo & Pombo demonstrate their strong credentials in domestic Portuguese matters.

International outfits Linklaters, CMS and DLA Piper ABBC are also active in Portugal. Says Vieira de Almeida: ‘The pandemic has consolidated the market as it existed in the pre-Covid era, with three Portuguese independent firms leading the pack. The biggest challenges do not come from competitors, but rather from changes in the market and to the business, as digitalisation, ALSPs, people expectations and new engagement models with clients and other stakeholders take hold.’

However, Nuno Galvão Teles, managing partner of Morais Leitão, sounds a note of caution. ‘The legal market has struggled to find an optimal point. It suffered immensely during the last financial and economic crisis: at a time when international law firms and consultants were establishing themselves in the market, pricing dropped, while some sectors almost completely stopped their activity. At the same time, technology, cybersecurity and overall compliance are pushing up internal costs, allowing for some concentration and mergers. Firms learned some really hard lessons – which paved the way for resilience and better performances.’

Adds Sánchez-Terán: ‘There has been an obvious flight to quality. In adverse times, clients look for external advisers to provide more value with the highest levels of excellence in their legal work. Companies nowadays have large in-house legal teams that carry out an extremely wide array of tasks and draw on law firms for the more complex issues that are directly linked to the company’s strategic goals. This is where we excel.’ LB

mark.mcateer@legalease.co.uk

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For most, May 2019 will feel like a lifetime ago, and Iberia is little different. When Legal Business last visited its legal market, the major talking point was the impact of highly-regarded dealmaker Juan Picón’s move from DLA Piper to Latham & Watkins the year before.

Less than 12 months later on 14 March 2020, the Spanish government imposed a national lockdown in response to the Covid-19 crisis. On 29 March, it was announced that, beginning the following day, all non-essential workers were ordered to remain at home for the next 14 days. It quickly became the case that Spain became one of Europe’s worst-affected countries, being the second country after Russia to record half a million cases of the disease.

The severe public health impact was compounded by a shock to the economy. Though Spain was Europe’s fastest-growing large economy – having recorded three consecutive years of GDP growth above 3% prior to 2018 – that growth was beginning to slow by 2019, with GDP up 2% for the year. According to the European Commission, the Spanish economy is set to retract 12.4% for 2020, the sharpest decline in Europe (the UK is set for an unwanted second place with a retraction of 11.3%).

However, while many sectors are being irreparably damaged by the Covid-19 lockdown, we have already seen in the City that Big Law can endure this crisis and there is every reason to believe the Iberian legal market will prove just as resilient.

‘We are optimistic about 2021, as far as the legal market goes,’ says João Vieira de Almeida, managing partner of Lisbon-based law firm Vieira de Almeida (VdA). ‘We believe the economy will rebound in certain sectors, heavily restructure in other sectors and together this will fuel significant economic activity.’

His confidence is not unfounded. Like most European economies, Portugal’s GDP retracted heavily over 2020, by 9.3% in fact. However, the country is set to rebound by 5.4% in 2021, according to the European Commission, matching the expected growth rate of neighbour Spain.

Another Portuguese outfit proving its mettle is Raposo Bernardo. The firm is set to grow 10% over the year, matching its growth rate for 2019. Says managing partner Nelson Raposo Bernardo: ‘The Covid-19 pandemic didn’t affect our results for 2020 and in this year we will even experience a slight growth of 10%. The impact of the pandemic was in the type of work we have developed; there was a shift in the areas more requested and clearly an important change in the type of mandates and work requested by the clients.’

That is not to say there has not been adaptation in Iberia. Though some routine work is continuing, things are not business as usual. It is a sign of the times on the peninsula that VdA’s most recent significant move was for new restructuring and insolvency head Filipa Cotta, who joined the firm from Portuguese counterpart PLMJ.

But survival strategies, opportunistic investments, litigation, and complex financial structures are providing the work now. Recent work for VdA includes advising the main vendor in the €3bn sale of Brisa and the purchaser in the acquisition of mobile operator NOS’ towering network for around €550m. Work such as this means the firm is hoping to up revenue 4% over the year; a significant achievement given the economic context.

Gómez-Acebo & Pombo is another firm in high spirits, coming off the back of a 14% revenue hike in its last financial year, with banking, corporate, and litigation all contributing to the healthy uptick. The firm’s financial year ends in December, but despite 2020 being almost entirely dominated by the Covid-19 crisis, Gómez-Acebo is currently outperforming last year’s growth track.

‘We are optimistic about 2021, as far as the legal market goes. We believe the economy will rebound in certain sectors, heavily restructure in other sectors and together this will fuel significant economic activity.’
João Vieira de Almeida, VdA

‘Energy and healthcare are two of the most active sectors,’ says managing partner Carlos Rueda. ‘Also the banking and financial sector is active and we are seeing a new wave of reorganisations in the Spanish banking system through several mergers now in progress. The firm has a long stable base of clients with whom we have been working for many years in a collaborative culture. Our relationships are long term and we want to accompany them in difficult moments by offering flexibility and helping meet their budgets.’

Over the last year, the firm has acted on the merger between Bankia and CaixaBank, the largest deal of the Spanish banking sector this year. The firm is also advising BFA Tenedora de Acciones (a 100% Spanish executive resolution authority – entity and owner of 61.81% of Bankia) on all the aspects related to the aforementioned merger.

Madrid-based Araoz & Rueda is also in a bullish mood off the back of an ‘excellent and very busy’ financial year, with litigation, energy, and labour work all contributing significantly to the firm’s material output.

‘Certainly labour and energy have been busy, but also M&A generally speaking,’ comments energy and M&A partner Francisco Solchaga. ‘We see special attention to sectors such as education and technology and changes expected to take place over a decade have happened in the space of months.’

Despite the firm’s belligerent showing in 2020, Solchaga concedes 2021 will likely prove more testing: ‘We did not suffer a real impact because of Covid-19 this year. The pipeline of projects from last year and the increase of cases in certain departments such as labour has mitigated the consequences.’

Continued resistance

Like elsewhere in Europe, the sternest tests are yet to come for Iberia, with the impact to date softened by extensive government intervention. In March, the Spanish government announced a €200bn stimulus package to support the country’s ailing economy – that equates to almost 20% of the country’s entire GDP. The country’s short-time work scheme was benefiting approximately 22% of salaried workers at its peak, according to an International Monetary Fund report. The report concluded in ominous tones: ‘It will take several years for the Spanish economy to recover. And the outlook is subject to strong risks.’

‘The Covid-19 pandemic didn’t affect our results for 2020 and in this year we will even experience a slight growth of 10%. The impact of the pandemic was in the type of work we have developed.’
Nelson Raposo Bernardo, Raposo Bernardo

As a result, the worst of the damage is yet to be felt. Solchaga provides a sobering reality check: ‘We guess that next year will be hard. The first impact of Covid-19 was mitigated by the support provided by the government regulation and the financial system but, as solving Covid-19 is taking more time than expected, damage to business activity is beginning to be permanent.’

There will, of course, be some opportunities as a result of the damage: M&A will likely see instances of larger companies acquiring outfits struggling as a result of the crisis. There is a view among many in the Iberian legal market that in the euphoric period after the public health crisis is seemingly resolved, smaller independent firms will be the ones agile enough to react first.

However, some believe the big independents in the region (notably the trinity of Cuatrecasas, Garrigues and Uría Menéndez) could benefit from the ‘winner takes all’ climate created by the crisis with smaller independents feeling that oft-cited pressure to consolidate. That is not to say the larger firms have not been impacted; top Spanish law firm Cuatrecasas was forced into raising €20m from its partners over the spring in direct response to economic hardship caused by the pandemic.

However, the prevailing feeling in the market is one of continued resistance. Comments Rueda: ‘Spain has a very solid, competitive legal sector. The pandemic will probably accelerate existing trends such as the digital transformation and use of technology and the increasing segmentation of the market. Top-tier firms will probably keep their position while we might see concentration in smaller firms.’

A significant topic of uncertainty is how larger international firms fit into this. Prior to the Covid-19 pandemic, Iberia was proving as popular as ever to UK and US outfits.

Late last year DWF announced the acquisition of 40-partner Rousaud Costas Duran in a deal worth approximately £42.5m. It cemented a relationship of more than a year between the firms, which led to an exclusive association in June 2019. Brexit was the conspicuous motivation, with the UK’s imminent departure from the European Union making Iberia look more attractive to internationalist firms.

‘The technological advances experienced during the last months will be an advantage for us in the future. We will be able to reach companies and places that were more difficult before.’
Francisco Solchaga, Araoz & Rueda

In January of this year DAC Beachcroft (DACB) was another to make significant inroads in Spain with the firm doubling the size of its Madrid office by combining with a three-partner insurance boutique Asjusa. The acquisition makes good on the firm’s ambitions to be the largest insurance practice in the country.

Another more recent entrant was employment-focused Littler, which entered its tenth European country through a merger with Spanish firm Abdón Pedrajas, itself a labour law specialist. The move from two experienced employment-focused firms is made all the more eye-catching given myriad workplace issues raised by the pandemic.

But the international outfits have not had it all their own way. DWF suffered a setback in the region in September of this year after eight employment lawyers, including two partners, left the firm to form their own five-partner boutique law firm Everfine – a move connected to DWF’s wider financial woes during the last financial year.

Meanwhile, Kennedys risks losing its brand name in Spain after a court sided with members of the firm’s Madrid-based affiliate in its ongoing dispute with the firm’s UK limited liability partnership. The dispute revolves around the wind-up of the firm’s Spanish entity and who owns the rights to the Kennedys brand in Spain. It comes after the relationship between the Spanish affiliate and UK arm broke down in late 2019.

However, the trend is a clear one: International firms are taking an even greater interest in Iberia. The increasing list of entrants should not be surprising; Spain continues to provide a return on investment for these firms. Despite being a smaller economy than France or Germany, entrants to the Spanish legal market have traditionally found the local independents easier to work with by comparison. Catalonia in particular remains attractive to investment, with the region making up approximately 20% of the country’s GDP and being home to many biotech companies in its hub, Barcelona.

However, irrespective of how many new entrants emerge in the market, independents remain sanguine about their future. Covid-19 has seen firms across the world lean more heavily on their technology which, for an industry often derided as conservative, has proved surprisingly robust. Independents in Iberia feel their technology has been up for the challenge and demonstrates they can serve clients anywhere.

Says Solchaga: ‘The technological advances experienced during the last months will be an advantage for us in the future. We will be able to reach companies and places that were more difficult before. You do not need to have an office in different cities of the countries for providing services and creating a relationship with the client.’

Rueda echoes: ‘Spain has a very solid, competitive legal sector. The pandemic will probably accelerate existing trends such as the digital transformation and use of technology and the increasing segmentation of the market. Top-tier firms will probably keep their position while we might see concentration in smaller firms.’

Undoubtedly independents have retained much of their appeal to local talent too. In June, local independent Pérez-Llorca managed to lure Dentons’ Spanish managing partner and head of real estate Jesús Varela to the firm. The move from Varela came just a year after he took over management of Dentons’ Spanish arm and marks a significant blow to the global giant’s ambitions in Iberia given Varela enjoys a strong reputation and a profitable practice advising investors and lenders in the Spanish real estate sector.

Reasons to be cheerful?

While hopes remained pinned on the development and distribution of a vaccine – the surest way out of the Covid-19 crisis – the Iberian legal market remains optimistic at a time when many industries are expecting a prolonged struggle.

Whenever and however the recovery emerges, it will not be uniform. Rebounds in certain sectors will be accompanied by heavy restructuring in others, with difficulty for some representing opportunistic investment for others who need to put cash to work. Meanwhile, EU public funds will be mobilised to revitalise the infrastructure sector and invariably such stimulus sees money put in the pockets of lenders. The result: a plethora of work for international and independent firms in the region.

Rueda summarises the mood: ‘There are industries such as retail and hospitality that are currently being challenged in our country. Other sectors like life sciences, financial services and technology are thriving. 2021 is quite uncertain and will be much affected by the availability of an effective vaccine. In any case, we expect a busy year with a likely mix of work ranging from insolvency and reorganisation to projects related with European recovery funds.’

Raposo Bernardo believes, similarly, Portugal is ripe with opportunities: ‘Foreign investment is still active and after a few months of expectation investors have returned not only to the real estate market but also to the M&A market. Many medium and large Portuguese companies have severely suffered during these nine months of the Covid-19 pandemic and are now decapitalised and will gladly welcome equity partners. These can be investment funds or private equity and they can acquire part of the companies’ share capital or even acquire control. At this time, there are excellent opportunities for foreign investors in Portugal.’

Lawyers repeatedly tell you it is not the crisis that kills business; it is a prolonged stasis. The good news for the Iberian legal market is 2021 will likely be as kinetic as ever. LB

thomas.alan@legalease.co.uk

The post Letter from Iberia – Despite global meltdown, local lawyers remain upbeat appeared first on Legal Business.

In spring 2018, Legal Business found the Madrid legal elite still recovering from a jolt that unsettled the local establishment. As one of the best-regarded deal makers in Spain, Juan Picón had at the end of 2017 given up his role as DLA Piper senior partner to join Latham & Watkins as Madrid head and Latin America co-chair.

Off the back of three consecutive years of GDP growth above 3% and mounting interest from international investors, Spain had been moving back onto the radar of leading international firms – the list of those stepping up investment in the country going well beyond the US giant to range as wide as Allen & Overy (A&O) to Fieldfisher. Some believed signs of renewed investment would shake up the staid local talent market and bring fresh challenges to the elite independents – Uría Menéndez, Garrigues and Cuatrecasas.

Coming back to the market one year on, things have indeed been moving at an increased pace. But not always in the expected direction.

First, the economy gave less promising signs. While Spain remains the fastest-growing large economy in Western Europe, its growth rate has slowed, GDP rising by 2.5% in 2018 and by a projected 2.1% this year according to the European Commission. M&A activity remained healthy in 2018 but amid an unpredictable general election at the end of April 2019, some speak of a recent slowdown.

‘Years in which we have a general election tend to be strange,’ notes Freshfields Bruckhaus Deringer’s José Armando Albarrán. ‘Sometimes people postpone decisions.’

All this while Spain is still dealing with the unrest in Catalonia. The background to political upheaval is increasingly familiar across Europe: a two-party system fragmenting as nationalist parties strengthen their hand. The country remains divided after the unconstitutional referendum in October 2017 in which a majority voted for the Catalan region’s independence. And while the separatist leaders face trial in Madrid for breaking constitutional law, the list of businesses relocating keeps growing, challenging the role of Barcelona as one of the country’s key legal centres alongside the capital.

It was also a difficult year for capital markets, with a number of listings postponed or cancelled altogether. The most significant was Spanish energy giant Cepsa in October 2018 pulling an IPO valuing the company at €8bn within a month of announcing its plans.

Indeed, some advisers are feeling the heat. Linklaters’ Madrid arm, which has capital markets as one of its core strengths, was for the first time in many years not expecting to finish the year ahead of budget. Also hit by the loss of well-regarded real estate partner Rafael Molina to Latham, rivals point to a lower profile than usual on the country’s major deals. Linklaters dropped from second to 12th in Mergermarket tables for Spanish deal value in 2018, while also losing seven positions for deal count – from eighth to 15th.

‘One of the reasons we have full endorsement of the management in London is that we are completely self-sufficient in revenue and profits.’
Antonio Vazquez-Guillen, Allen & Overy

But at least for now, such challenges do not threaten its image as the top Magic Circle operator in the country, counting Permira, The Carlyle Group, Centerbridge and Apollo among clients. And the commitment of its London management to the country seems unchanged with the 130-lawyer practice seeing three promoted to partners in the latest round.

Yet even if the caution is more evident than 12 months ago, across more than a dozen interviews, Legal Business is still hearing a lot of enthusiasm for the market’s medium-term outlook.

Clifford Chance (CC)’s Spain head Jaime Velázquez speaks for many when he says: ‘I have the highest expectations. A lot of people are saying the crisis is around the corner but we have had one of the best years and the expectation is again of a very good year.’

The country remains hugely attractive for foreign investors and private equity houses, not least because its Western European neighbours are dealing with more serious challenges – Italy with an even more unstable political landscape, France with more disruptive social unrest, Germany with a slower GDP growth… not to mention what’s happening north of the Channel.

The crucial real estate sector remains active, with tens of billions in assets still to be sold. And there were rich pickings for the local M&A counsel as a consortium of Italy’s Atlantia, Spain’s ACS and Germany’s Hochtief completed the acquisition of Spanish toll operator Abertis for €16.5bn in October 2018 after 18 months of negotiations. The deal kept busy most of the local elite, from CC to Freshfields and Linklaters, from Uría to DLA.

Latham, meanwhile, lived up to its promise of triggering more action on the lateral market. Picón’s former colleagues Ignacio Gómez-Sancha and José Antonio Sánchez-Dafos followed him, alongside DLA former competition head José Maria Jiménez Laiglesia and a ten-strong Linklaters real estate team.

In just over a year, lawyer headcount has more than doubled from 18 to almost 50, with Latham moving to larger premises in Madrid which can host up to around 90 lawyers. Latham was at the time of writing looking to add a litigation partner to complete the current phase of expansion: ‘After that, we will be opportunistic but there is nothing on the cards,’ says Picón. ‘We need to consolidate the team because there are a lot of new people.’

While locals say the firm still has to make an impact when it comes to putting its name on top mandates, no-one doubts the team’s ability to generate business. Latham has significantly (and uncharacteristically) also agreed to allow its Spanish branch to be flexible on rates while it builds its brand locally, with one competitor observing the firm is ‘very aggressive’ on fees.

Latham’s movement has prompted others to react. Contrary to a year ago, partners generally recognise that it is too early to proclaim the end of DLA as a full-blooded local player. The firm retained its role advising the buyers on the Abertis acquisition, and while it kept both lawyer headcount and revenue flat in 2018, at around 80 and €30m respectively, partner headcount rose from 16 to 21. Laterals included the well-regarded head of corporate José María Gil-Robles from Garrigues and litigation partner Borja de Obeso from Gómez-Acebo & Pombo. Madrid head Pilar Menor says the firm managed well what was ‘a very intense crisis management exercise’.

‘Money is still flowing to Spain for the time being.’
Salvador Sánchez-Terán, Uría Menéndez

The other clear growth story alongside Latham is A&O. Traditionally the weakest Magic Circle firm in Spain, it has embarked in an expansion of its Madrid operations – a project conceived around five years ago but one that took some convincing of a sceptical London partnership.

Last year the firm moved premises, increasing its office space by 30%. The team grew from 100 to 110 lawyers in 2018, while revenue increased 15% to around €43m and the firm gained five positions in Mergermarket tables for deal value and volume – to third and eighth place respectively. Well-regarded local co-head Antonio Vazquez-Guillen plans to reach 130 over the next two-three years.

Laterals included Hogan Lovells’ employment partner Silvia Bauzá last year and Ashurst’s local banking head Juan Hormaechea in 2015. But the key addition was former Cuatrecasas’ M&A partner Fernando Torrente in 2016, who by consensus changed the image of A&O’s deal muscle in the country.

While some argue that a practice that size will be forced to act on some lower-value mandates in the domestic mid-market, Vazquez-Guillen says it is a very profitable operation and a net contributor to the A&O network: ‘One of the reasons we have full endorsement of the management in London is that we are completely self-sufficient in revenue and profits.’

With less clamour, CC is growing its team too. The longest-standing and largest Magic Circle firm in the country increased its headcount from 130 to 143 last year across Madrid and Barcelona. Until recently, it would have been regarded as the foreign player to beat in Spain. But it will take some time for CC to regain ground lost with the retirement of several rainmakers over the last few years, including public law head Juan José Lavilla in 2018. The firm remains formidable in finance and IP, and Velázquez says it can afford to grow further: ‘We were able to diversify our business and do some work that international firms are not doing in Spain: for example, derivatives and structured finance.’

Bucking the trend among the Magic Circle is Freshfields, which is keeping its headcount at around 70, a far cry from a pre-crisis peak of over 100. Albarrán insists it is making a success of its lean team and the firm has the same turnover as its peers with far fewer lawyers. It was second for deal value in Mergermarket’s 2018 table, despite remaining out of the top ten for deal count. But the growing pull of Spain travels well beyond London’s big four.

Fieldfisher completed a three-year search to combine with Catalonia-bred JAUSAS in September 2018, the team growing from 60 to around 120 across Madrid and Barcelona in the following six months. Pinsent Masons, meanwhile, launched in Madrid in May 2017 with 15 lawyers and has since hit 40 with a plan to get to 80 within the next three years. (Pinsents settled last summer a nine-month dispute with Ramón y Cajal after the latter accused it of breaking previous agreements by hiring four of its lawyers following unsuccessful merger talks.)

Rises and falls

Expectations that the profession would get more fluid among Spanish independents have not been disappointed either. Several lawyers point to a clearer segmentation among the country’s big three independents, while Peréz Llorca has emerged as a strong local challenger to their dominance.

Slaughter and May’s local ally, the 602-lawyer Uría, remains established as Spain’s elite independent for high-end work. It topped Mergermarket 2018 table for deal value, despite a slower revenue growth of 2% to €240.7m compared to 6% in 2017 amid a more difficult year for some Latin American jurisdictions (it owns a 30% stake in Philippi Prietocarrizosa Ferrero DU & Uría, a firm formed in 2014 through a merger of Colombian and Chilean practices).

The larger Garrigues, whose revenue was also up by 2% to €364.6m and tops Mergermarket table by volume, retains a strong Madrid team including well-regarded managing partner Fernando Vives and corporate co-head Álvaro López-Jorrín Hernández. But rivals point to a low revenue per lawyer (RPL) and varying quality among the 1,462-lawyer firm’s huge network of 18 Spanish offices. While its overall RPL sits at €249,000, Vives points to a much higher figure in the Madrid corporate department, where the average is €470,000.

The country has proven a reliable return on investment for foreign firms for 20 years now. It certainly helped that London lawyers have been able to rub along with Spanish counterparts better than French and German.

But the firm facing the biggest challenges is Barcelona-bred Cuatrecasas. The most exposed to the unrest in Catalonia, several rivals speak of unhappiness among its Barcelona partnership as the firm focuses on growing its Madrid business.

Among its five partner hires in the capital in 2018-19 was Spain’s former deputy prime minister Soraya Sáenz de Santamaría. Described as one of the main champions of the former Spanish government’s hard opposition to Catalonia’s independence, the move has been linked to the need to sell Cuatrecasas’ image as a loyalist.

Managing partner Jorge Badía rejects those suggestions and denies tensions within the partnership, linking Sáenz de Santamaría’s hire to the growth in its Madrid corporate governance and compliance practice. ‘We agreed that we have a strong position in Barcelona and we have more opportunities of growth in Madrid.’ Critical comments should also be put in context of robust growth for the 2018 calendar year: working for clients including carmaker Volkswagen, it hiked turnover by 12% to €277.4m.

Despite Cuatrecasas’ position indicating that the attraction of Barcelona for law firms is in question, the city retains much drawing power for TMT-centric advisers. ‘You have to remember that Catalonia is around 20% of Spain’s GDP,’ says Fieldfisher’s Agustín Bou. ‘Biotech companies are very attractive to investors, and many of them are based in Barcelona.’ Likewise, Osborne Clarke – fielding a 90-lawyer national practice – keeps its Catalan arm as its largest Spanish team at around 75 lawyers and has Barcelona-based pharma company Grifols among its largest client.

If it is clear that there are more challenges ahead than anticipated a year ago, the local community has plenty of reasons to remain bullish. While a smaller economy than France and Germany and one that has seen its share of challenges over the last decade, the country has proven a reliable return on investment for foreign firms for 20 years now. It has certainly helped that London lawyers have been able to constructively rub along with Spanish counterparts better than with French and German equivalents.

‘Ten years ago, if we had a problem with elections it affected the business immediately. Now it’s different,’ concludes Garrigues’ Vives. And Uría head Salvador Sánchez-Terán concludes: ‘Money is still flowing to Spain for the time being.’ Barring a disastrous fallout from the election, that flow is set to continue. LB

marco.cillario@legalease.co.uk

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‘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

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