The instability caused by the Covid-19 pandemic and exacerbated by Russia’s war with Ukraine, with the resulting gas supply difficulties and growing inflation, has affected the Italian legal market as much as anywhere else. This notwithstanding, Italy’s leading independent law firms were able to curb the slowdown in some practices and achieve excellent results in others, most notably through investment in technology and new talent.

Perhaps the most interesting development was the launch, on 1 January 2024, of PedersoliGattai, resulting from the merger of Gattai, Minoli Partners and Euro Elite firm Pedersoli, together with a third group of professionals led by Carlo Montagna and Stefano Cacchi Pessani. PedersoliGattai has ambitions to be an Italian legal powerhouse offering consultancy services in a range of practice areas. The firm hopes, according to founding partner Bruno Gattai, to provide ‘better advice on cross-border deals in M&A and banking and finance’.

As independent Italian firms go from strength to strength, international firms have begun to lose their position in the Italian legal market. While never able to compete with large Italian firms as general practice providers, major US and UK firms have shifted focus to offer specialised advice in specific practice areas, where they are ‘formidable competitors’, according to Massimiliano Danusso, chair of BonelliErede. There is an expectation that this trend will continue, with Italian independents consolidating their practices and dominating the market while international firms become progressively more specialised.

Coming after two very successful years in Italy, ‘2023 was quite challenging for the legal market in general,’ according to the managing partner of BonelliErede, Eliana Catalano – particularly in the M&A space. With the proliferation of geopolitical strife, an increase in interest rates and the continuing high inflation have limited the Italian market.

As a result, ‘M&A transactions were smaller in size but larger in number,’ says Danusso, compared to 2022, with mid-market deals dominating the field. Despite this, certain industry transactions continued to hold fast. ADVANT Nctm found ‘a growing trend for transactions aimed at capturing tech innovation’ in products and processes, according to corporate partner Matteo Trapani. Likewise, BonelliErede saw clients shift their demand to portfolio deals, with an increased popularity in buy-and-sell strategies. Despite this, firms were able to capitalise on ‘a solid pattern of investments and divestments’, according to Gianni & Origoni, seeing excellent results over the past year.

If the M&A market was characterised by a decline in deal values, the previous year witnessed a ‘growth in percentage terms of private equity’, says Trapani, an area that is expected to grow over the next year especially, says Danusso, ‘in relation to disposal divestments from private equity’. While corporate finance and litigation have proved to be stable, continuing to be ‘the main drivers of our market’ according to Gattai, significant developments have been seen in technology and telecoms.

Contrary to expectations, the economic difficulties facing Italy in 2023 did not materialise in a booming market for restructuring and insolvency. An unusually strong financial year for many industries in 2022 meant that companies were more able to stay in the black, though this began to change as the financial year ended in 2023. With a higher-than-normal amount of lending and Covid-era loans increasingly becoming due, firms are anticipating a wave of new restructurings soon. A change to Italy’s insolvency code has also provided companies in financial difficulty a greater range of remedies to restructure their debt and avoid liquidation. Though there is hope that this will benefit the sector, it has been met with some trepidation, dampening foreign investment, as the courts continue to interpret the new legislation and companies adjust to the changes.

2023 saw major reforms to the civil justice system. To access the Next Generation EU recovery package, regulation has come into force reforming the Italian code of civil procedure with the intention of encouraging the use of arbitration services and streamlining the administration of justice. This includes stricter requirements surrounding the impartiality and independence of arbitrators who now have the exclusive power to grant provisional relief where previously this was purely the civil courts’ domain. Regulation has also allowed for the filing of court documents electronically, and enabled remote hearings for civil procedures, to be done more broadly. It is unclear whether the reforms have been effective, with a mixed response from Italian law firms – though some have noticed an increase in the amount of arbitration cases following the changes.

‘2023 was quite challenging for the legal market in general.’ Eliana Catalano, BonelliErede

The current economic environment, technological innovation and sectoral challenges will directly influence the Italian market and, as such, greater market dominance by leading law firms is expected. ‘Size matters,’ says Gattai, ‘and smaller firms could struggle to compete.’ Additionally, AI is beginning to threaten demand for low value-added services from firms, so to compete in the changing market, it is vital that they continue to attract as much high-value work as possible. As such, investing in technology and talent is key. This will be more easily achieved by established law firms who are able to capitalise on their size to seize the opportunities for business growth that technology will bring.

Firms also anticipate increased competition with the in-house legal teams of major companies operating in the country. With an influx of top practitioners to the legal departments of clients, firms have experienced a decrease in demand for general advisers – which can increasingly be handled internally – as companies begin to look for more specific and specialised advice from top firms. To compete, firms will have to increase efficiencies to make their offerings more appealing, either improving fees or providing more sophisticated services.

Though the general picture for Italy remains murky, with changes to regulation and economic uncertainty muddying the waters, glimmers of opportunity shine through. For firms poised to leverage innovation and take advantage of select practice areas bucking the trend, 2024 promises to be an auspicious year. LB

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While the three years following the onset of the Covid-19 pandemic were marked by instability and uncertainty – exacerbated by Russia’s war against Ukraine resulting in gas supply issues and inflation – law firms have been presented with opportunities for expansion and growth within a significantly reshaped legal market. With Italy among the European countries that suffered the most from both the pandemic and the energy crisis, its legal community has been concerned as to their fate in 2022.

Both large international and independent law firms faced an arduous business environment, characterised by tightened competition, shifting client needs, technological advancement and strict regulatory developments. Despite these challenges, many of Italy’s best independent law firms were able to achieve strong results in 2022 and have unanimously reported their busiest and most successful years, with an average increase in revenue of up to 10%.

‘In 2022 we recorded an average growth in work of 9%,’ says Legance managing partner Alberto Maggi. ‘Corporate finance and banking grew at this rate, but also IP, white-collar crime and public law grew significantly. For Legance, 2022 was again a record year in terms of economic results.’

One of the key changes in the legal market in 2022 was the continued shift towards remote working and digital services, which forced law firms to invest in new technologies, especially AI, to streamline processes and improve client service and efficiency as well as seeking new ways of providing legal assistance. Similarly, the increased reliance on technology led to growth in demand for legal services in data protection, intellectual property, and cyber security matters. Growth has also been witnessed in regulatory compliance, M&A, and Covid-19-related litigation in the healthcare sector. Across the board, independent firms have reported significant growth in dispute resolution, with an unprecedented number of disputes arising, particularly in the M&A, banking and finance, infrastructure and digital sectors. For many firms, litigation departments were the main source of turnover.

As companies seek to navigate financial difficulties, Italian law firms have seen an uptick in restructuring and insolvency mandates. BonelliErede president Stefano Simontacchi, however, notes that while restructurings did in fact steadily increase, enormous state aid and recovery packages given to corporations and individuals have brought the economic decline to a temporary halt. But while a temporary reprieve was achieved by tapping into Italy’s PNRR (national recovery and resilience plan) and NextGenerationEU, the EU’s recovery package, this has yet again been toppled by geopolitical developments. As Simontacchi comments: ‘With inflation on the rise and the possibility of a major recession just around the corner, we and other European firms expect that 2023 will see a high number of restructuring cases.’

‘With inflation on the rise and the possibility of a major recession, we and other European firms expect that 2023 will see a high number of restructuring cases.’ Stefano Simontacchi, BonelliErede

Other areas of growth, predicted to continue this year, have been large investments in infrastructure, real estate projects and energy transactions. Disrupted energy supplies, changes to energy regulations, pricing and fees, has put pressure on businesses, and severely impacted financial institutions. Equally, it has propelled the transition towards green energy. Firms that were able to respond quickly and effectively to increasing demand and investment in renewables to reduce the existing dependence on Russia were able to capture new business and expand their client base. This trend is accompanied by an increased focus on sustainability and environmental, social, and governance (ESG) issues. In recent years, top Italian firms have established ESG-focused teams to address the pressing needs of clients to navigate the complex regulatory environment as transactions are increasingly structured through an environmentally and socially conscious lens. Contrary to the US or the UK, ESG work in Italy as well as other southern parts of Europe has not translated into large revenues yet; mandates are so far predominantly emanating from the public sector instead of high-level investigations within corporations.

Another layer of uncertainty was added by Italy’s new government. After Giorgia Meloni, party head of right-wing Fratelli d’Italia, was named prime minister in October following elections in 2022, the impact of the new government on the legal landscape is yet to be seen. While changes in regulation are expected to particularly impact the demand for legal services in data protection, IP, and environmental law matters, policies to attract foreign investment may lead to further growth in M&A, banking and finance, and the real estate sector.

With an augmentation in foreign investment, Italy is becoming more attractive for international firms. While historically several international outfits have entered the Italian legal market, few if any have been successful and as such are not perceived as an immediate threat to the independence of local firms. However, Simontacchi comments: ‘Will a local independent firm be able to compete in the next 20 years, given the quantum leap the world experienced and – at EU level – the increasing subjects that will be centrally regulated? Those are the real challenges to be faced, regardless of whether international firms expand into Italy.’

Filippo Modulo, Chiomenti’s managing partner, suggests ‘complex deals require more multidisciplinary and homogeneous capabilities from law firms’. To tackle a client’s issues effectively today, he says an integrated approach is essential: ‘Any transaction ought to be accompanied by the same level of quality and competence on the regulatory side that is provided with the main deal advice. Chiomenti got there after years of focus and pursuing a clear strategy.’ Other independents having achieved that strength-in-depth throughout the firm include BonelliErede and Legance.

Another challenge faced by the entire legal sector in a post-pandemic environment is being attractive to new talent. According to the managing partners of Chiomenti and BonelliErede, there is not a war for talent among firms per se but rather a structural problem that needs to be overcome. The generational shift is pushing firms to adapt their work-life balance management and their operations with the aim of improving flexibility, job satisfaction and good health among staff.

It is clear that independent Italian law firms face a range of challenges over the coming year, including increased competition, technological advancement, talent attraction, increased regulation, inflation and geopolitical uncertainty. Those with agility and the ability to embrace new technologies, respond to the needs of clients, and stay ahead of changes in a rapidly changing world, are headed towards success in this competitive market. LB

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Visiting Milan at the end of 2019, it was striking that a map of law firms’ office addresses drawn up just the year before was no longer reliable: too many had moved, taken up larger premises… or no longer existed.

Finding our way to meetings with 20 partners at domestic and international firms, an unusual buzzword was emerging: consolidation. ‘There are too many Italian firms and there is not space for everyone, so they need to consolidate,’ argues one Milan-based partner of a foreign firm.

Such dynamics would be too obvious for comment in most other Western jurisdictions. But in a market for decades defined by individualism, fragmentation and unstable hierarchies, such developments mark a significant turning point.

If the country’s top three players – BonelliErede, Chiomenti and Gianni, Origoni, Grippo, Cappelli & Partners (GOP) – have long been in the (sometimes faltering) process of detaching their image from their founding partners, the news is that there is now a much broader group of domestic firms with plans for their future. Meanwhile, the boutique model, for decades the dominant one for Italy’s profession, has been falling from favour, surviving only in a few specialist sectors (see box).

International firms will be keeping a close eye on such developments, since local clients’ focus on individuals over brands has been one factor that traditionally made the market challenging for foreign advisers. Will their Milan branches fare better in the 2020s?

Some are hopeful that the long-term trends are with the foreign law firms, however troubled their history has been. As Dentons’ Italy head Federico Sutti notes: ‘Multinationals use panels and panels use international firms, so they are taking market share off Italian firms.’

The straightforward path

In what has been dubbed ‘the deal of the year’, Italy’s largest and highest-grossing law firm BonelliErede merged last July with 70-lawyer rival Lombardi e Associati, expanding its headcount to about 550.

Few firms were as illustrative of Italian law’s resistance to institutional brands as Lombardi. Founded in 2004 as Lombardi Molinari e Associati, it became Lombardi Molinari Segni in 2013 after a three-partner team led by Antonio Segni joined from Labruna Mazziotti Segni; then it changed into Lombardi Segni after founding partner Ugo Molinari left in 2016 to launch his own boutique; and finally reverted to its last name when Segni himself quit in early 2019. Such stories were hardly exceptional in a country where firms were made and broken at the whim of a small group of veterans.

‘Multinationals use panels and panels use international firms, so they are taking market share off Italian firms.’
Federico Sutti, Dentons

Indeed, the founding partners, still active at both BonelliErede and Lombardi, were the driving forces behind the merger. Sergio Erede and Giuseppe Lombardi had already considered uniting their firms more than a decade ago. But while back then the deal collapsed partly because they could not agree on the firm’s name, this time BonelliErede was in a clear position of power, being more than five times the size of its merger partner both in headcount (almost 500 compared to 70) and revenue (around €160m compared to around €30m).

More importantly, the merger signals a shift in a practice area that is set to acquire increasing importance in a country where the transactional market is getting tougher: litigation. While contentious work has for decades been dominated by small firms with a handful of strong names gathering small teams around them and running the show, the merger added 40 lawyers to BonelliErede’s litigation team, taking it to around 100. The firm’s president, Stefano Simontacchi, is bullish: ‘There were only two Italian firms that were tier one in litigation. They are together now. It’s almost impossible for anyone to catch up. The merger makes us invincible in a key countercyclical practice.’

External observers are predictably more sceptical, with several pointing to the fact that client conflicts will be an obvious issue for a full-service firm trying to grow its contentious practice quickly.

‘There are too many Italian firms and there is not space for everyone so they need to consolidate.’
Milan-based partner of a foreign firm

But BonelliErede is hardly the only big firm expanding its contentious ranks. GOP now boasts around 70 litigators; Chiomenti has 40 and senior partner Francesco Tedeschini says there is ‘room for growth’; even PE specialist Gattai, Minoli, Agostinelli & Partners focused much of its efforts last year on building a 20-strong disputes team under founding partner Luca Minoli, adding Lombardi’s former protégé Filippo Rossi and absorbing ten-lawyer boutique Mazzoni Regoli.

There are other reasons why the BonelliErede-Lombardi merger is significant. Clearly, the deal had some fallouts, with more than 20 lawyers parting ways with the firm. But whereas once departing partners would have set up their own shops, this time they joined established firms – with Segni and his 14-lawyer corporate team returning to GOP and Gattai Minoli picking up around a dozen.

The cliché that Italian firms are unable to survive their founders might soon be history. Indeed, Sergio Erede and GOP’s founder Francesco Gianni still carry a sizeable portion of their firms’ business and client relationships. But it is becoming increasingly hard to imagine an existential challenge to their firms when they finally depart.

While BonelliErede is now well past the 500-lawyer mark, GOP is not far behind at 490. ‘On average, our revenue does not rely on one single client for more than 2% or a single practice for more than 35%,’ says GOP’s co-managing partner Rosario Zaccà.

Adds Simontacchi: ‘In a slowly-growing Italy and a static Europe, we could either scale back and only do high-end work, or expand. But if we don’t give young people more opportunities to develop we cannot get the best ones.’

Chiomenti’s team is smaller at 341 lawyers but its ability to survive its founder has never been in question. Half-way through his first three-year term, Tedeschini represents the fourth generation of leaders at the 72-year-old firm. In January, Chiomenti added a seven-lawyer finance team from Orrick Herrington & Sutcliffe, led by partner Gianrico Giannesi.

While Italy’s big three all bill well over €100m, the clearest sign of the new era is what is happening outside of this group. Where there once was an indistinct bunch of small-ish challengers and one-practice specialists is now a series of respectable names progressively absorbing smaller boutiques around them.

Legance, which launched as an 80-lawyer spin-off from GOP in 2007, has passed the 250-lawyer mark with revenue over €90m in 2019. Highlights in 2019 included launching a three-lawyer white-collar business through the takeover of boutique Bertolini Clerici; hiring Linklaters Italy tax head Luca Dal Cerro and Orrick energy partner Cristina Martorana.

‘There were only two Italian firms that were tier one in litigation. The merger makes us invincible in a key practice.’
Stefano Simontacchi, BonelliErede

Turning 20 this year, Nctm also has 250 lawyers and topped the Mergermarket league table by deal count in 2019.

Arguably the most successful new entrant in the market in the 2010s, eight-year-old, 130-lawyer Gattai Minoli has moved from a PE boutique into a transactions-focused full-service firm turning over more than €30m. ‘Our model is to assist both funds buying companies and the companies they acquire,’ says the energetic managing partner Bruno Gattai. ‘We tend to do everything for portfolio companies: labour law, IP, IT, fiscal law, litigation, antitrust.’

Its client roster includes CVC, Bain and Clessidra; its relationship network features US giants Weil, Gotshal & Manges, Kirkland & Ellis and Milbank.

Pedersoli has likewise been transforming itself. Founded in the 1950s as a litigation boutique, it is now full service, having added 30 lawyers over the last two years to reach 154. At the end of 2019 it turned heads locally by bringing back home well-regarded corporate partner Giovanni Pedersoli from Linklaters after 12 years. Son of founder Alessandro and brother of current head Carlo, he returned to his family’s firm partly to use his experience from Linklaters’ well-run Milan arm in Pedersoli’s journey from a family-run organisation into an institution. ‘The challenge is maintaining the boutique approach while understanding that the firm is so big and complex that it requires some management and organisational structure,’ reflects Pedersoli. ‘I hope I can help with that.’

The firm, which can count on longstanding relationships with banks including Intesa Sanpaolo, finished second in Mergermarket’s league table by deal count and third by deal value in 2019 and acted on one of the most recent multibillion-euro deals in Italy, advising the shareholders of pharma group Recordati on its €3bn acquisition by a CVC-led consortium in 2018. Its much-vaunted Turin branch fields well-connected lawyer Carlo Re.

Finally, transactions-focused Gatti Pavesi Bianchi has, since its 2005 launch, doubled its headcount to around 100 lawyers and almost tripled revenue to nearly €40m. Recent additions include a six-lawyer labour team from GOP in 2018 and a four-strong finance group from Paul Hastings.

A forest dark

Where does this leave the Italian branches of UK and US players? The Italian market has never been kind on foreign advisers, and 2019 was no exception. Paul Hastings left the country after 14 years, while Linklaters, Latham & Watkins and Freshfields Bruckhaus Deringer saw prominent departures.

Nor is the Italian economy in its best shape. After the country fell into recession in the last quarter of 2018, growth was flat in 2019. Ominously, several marquee deals fell through, with Permira withdrawing Milan-based healthcare group Althea from the market and BC Partners stopping the sale process of Italian restaurant chain Old Wild West following the populist government’s proposals (never implemented) to ban Sunday opening of shopping malls.

With almost no deals over €1bn, BonelliErede topped Mergermarket’s league table by deal value in 2019 despite a 68% drop to $11.8bn. For context, in 2018 Freshfields finished first at $55.6bn.

In a country dominated by small and medium-sized enterprises, many companies are sceptical of the highly-regulated capital markets. Needless to say, the political sphere remains chaotic, the government unstable.

But then the Italian legal industry has long outperformed the country’s economy. Rather than making Italy uninhabitable to foreign counsel, consolidation has been evident with international firms as well.

Although the exits of Pedersoli and Dal Cerro to two growing domestic firms stung, they were not enough to dent the image of Linklaters as leading UK firm in the country. The hire of 69-year-old rainmaker Roberto Casati from Cleary Gottlieb Steen & Hamilton in 2018 has, according to Italy head Andrea Arosio, delivered, bringing ‘gravitas and contacts’ to its corporate practice and moving sizeable clients, including energy group Saras and insurance company Assicurazioni Generali.

Linklaters’ 120-lawyer Italian practice, which in 2018/19 turned over around €45m, includes other prominent names in corporate partner Giorgio Fantacchiotti and capital markets specialist Claudia Parzani. The firm also rebuilt its tax practice with the hire of Roberto Egori from Freshfields.

Among the US advisers, Latham’s and White & Case’s relatively young Milan outposts of around 50 lawyers each have quickly climbed up the pecking order. Prominent banking partner Andrea Novarese and corporate partner Maria Cristina Storchi moved from the former to the latter last July, reuniting with their former colleague Michael Immordino, who left Latham’s Italian practice three years after its launch to found White & Case’s Milan arm in 2011.

Latham’s high partner turnover has become almost a running joke among local lawyers, and even its top rainmakers take pride in not hanging pictures on their office wall as a reminder that they might have to leave at any time if they do not deliver. But the revolving doors have spun both ways, with the US firm in 2017 bringing across Gattai Minoli’s corporate partner Cataldo Piccarreta and his trophy client Bain Capital.

Latham’s longstanding key client Carlyle allowed the firm to put its name on one of the few large Italian deals last year, with well-regarded PE partner Stefano Sciolla leading the team advising the sponsor on the €1bn acquisition of manufacturer Forgital.

Elsewhere, some mid-market players have been growing fast. In less than five years since its 2015 launch, Dentons has gone from nine to 130 lawyers turning over €40.7m in 2019, which Italy head Sutti says is the right size for a full-service offering. Fieldfisher launched in 2016 and now fields more than 300 lawyers across five offices, in 2018 hiring Chiomenti’s Carmelo Raimondo as finance head.

The last few months also saw some new entrants, as Greenberg Traurig merged with 50-lawyer Italian firm Santa Maria Studio Legale last July and Squire Patton Boggs launched a four-partner Milan base in January.

The journey ahead

Legal Business’ analysis of the Italian legal market two years ago (‘And yet it moves’, LB283) concluded that it was time to abandon the view of Milan as impenetrable to foreign firms as the market gradually matured and modernised.

The good news is that the names mentioned in that analysis – Linklaters and Latham in particular – have largely fulfilled their promise, moving ahead of the rest of the international pack and showing that Italy can deliver to foreign advisers with a plan.

But this window of opportunity is closing fast: a number of domestic firms have, over the last two years, made decisive moves to consolidate, meaning hierarchies are becoming more entrenched.

With the lateral market unlikely to slow any time soon, there is little doubt that the streets of Milan will remain the setting for many colourful stories. But the map of their home firms has become a lot clearer. LB

marco.cillario@legalease.co.uk

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Looking out of the window of his office overlooking the picturesque Piazza del Duomo on a rainy April afternoon, one veteran Milan partner is feeling sentimental: ‘I remember the firms that used to dominate the market back when I started – Graziadei, Carnelutti, Pavia Ansaldo. No-one hears of them anymore.’ What on the surface seems nostalgic reflection poses a pressing question for Italy’s current legal elite: what will become of today’s top independents in the near future?

‘It is as if the market gets tired of dominating firms every ten years or so and replaces them with others,’ agrees a partner in another office in the northern Italian city.

The question is prescient for the top three independents – BonelliErede, Chiomenti and Gianni, Origoni, Grippo, Cappelli & Partners (GOP). With the rainmakers that have defined the Italian legal market over the last 20 years approaching retirement, will there be space now for new players to dominate? And could international firms be among them, after being relegated to the margins of the most peculiar western European economy?

The last of London’s Big Four to enter the market, Linklaters, seems to think so. In March it made the most unexpected move, voting through a waiver to its partnership terms to allow one of Italy’s top M&A rainmakers, 69-year-old Roberto Casati, to join from Cleary Gottlieb Steen & Hamilton’s Milan arm at the top of the lockstep – a deal worth more than €2m annually.

Almost 15 years after the collapse of its merger talks with GOP, Linklaters is seriously trying to make inroads in mainstream corporate work in Italy, the one area global firms have largely failed to crack so far. Could it work?

Grey hair factor

The individualism of the Italian legal market is well and justifiably documented.

‘It is as if the market gets tired of dominating firms every ten years or so and replaces them with others.’

The local legal industry has been dominated for years by a small bunch of grey-haired veterans more inclined to pull the strings of their own independent firms than take orders from London. Legal brands have been weak, firms made and broken by a small cadre of top people, and loyalty a largely disregarded value. Schisms have been far more in vogue than mergers and partner moves high in number.

This individualism at the top end has persisted in a country that has too many lawyers – more than three times as many as France, as the locals often say with a mixture of irony and resignation.

Meanwhile, with SMEs making up the vast majority of the country’s business community and the in-house legal function still largely underdeveloped, for many clients getting the lowest possible fees matters more than the quality of legal advice.

These factors largely accounted for the failure of the assault of the international firms in the 1990s and their retrenchment since the turn of the Millennium – hence the image of Italy as an impenetrable market. But they also call into question the business model of the top three nationals, exposed to the risk of being too reliant on a handful of rainmakers.

Chiomenti is a case in point. Soon-to-be-70 Michele Carpinelli, the veteran behind its success over the last two decades, retired from the partnership this year – despite remaining at the firm in the newly-drafted role of special independent counsel. Meanwhile, a five-year slimming plan has seen Chiomenti scale down by around 100 fee-earners to 300. ‘This is the right size for Italy,’ says Carlo Croff, who as senior partner oversaw the process. ‘There will always be a space for independents in this country, but only those that focus on quality will survive.’

‘Roberto Casati is a force of nature. He is 70 but looks the same as when he was 50 – he had grey hair back then too.’

Croff himself stepped down as senior partner in May after nine years, replaced by corporate heavyweight Francesco Tedeschini. This will be the ultimate test of the firm’s ability to weather change. The general consensus is that it is well equipped to do so.

‘We regard ourselves as the only really institutional firm,’ says Croff. By far the longest-standing elite player in Italy, the firm founded in 1948 already saw the role of point man passed from the founder Pasquale Chiomenti to his son Carlo and then on to Carpinelli. ‘Chiomenti’s depersonalisation is well ahead,’ agrees a peer.

The firm retains a strong reputation in M&A and private equity (less so in litigation). This year it was part of a group of elite nationals acting on the €1.94bn acquisition of railway operator Italo – Nuovo Trasporto Viaggiatori (Italo-NTV) by private equity house Global Infrastructure Partners (GIP). Tedeschini himself acted for shareholder Allegro on the deal.

Yet Chomenti, whose reputation has rebounded in recent years after a troubled period, is the exception rather than the rule. The generational change will be more testing for the other top two.

The country’s highest-grossing firm, 300-lawyer BonelliErede, has handled well the loss of founder Franco Bonelli, who passed away in 2015, but some still speak of its reliance on its other big hitter, 77-year-old Sergio Erede. However, the firm also counts on other strong corporate hands such as Umberto Nicodano and a respected younger co-managing partner, Stefano Simontacchi, who is leading its expansion into Africa and Asia. In general, the overall quality of its lawyers is considered to be the highest in the market and the firm can point to a 12% revenue growth to an estimated €158m last year.

The position of GOP is trickier. The 440-lawyer firm is widely described as the most reliant on its own founder and senior partner, Francesco Gianni, although at 67 his retirement might well be another decade down the line by Italian standards.

‘Italian firms compete with international firms on inbound M&A, but they cannot do outbound. The future for successful Italian companies is to go abroad to sell their world-class product.’
Michael Immordino, White & Case

‘The goal of our founding partners was to create something which would survive them. That’s why they have formed an ever-growing, cohesive team that is increasingly involved in the firm’s management,’ says co-managing partner Rosario Zaccà, who points to a 6% revenue growth to €132m in 2017. But the departure of the 80 lawyers who launched Legance in 2007 following a clash with Gianni over the management of the firm is still described as depriving it of the best next-generation talent, although GOP went on to hire the well-regarded Roberto Cappelli from Grimaldi three years later.

While the top three nationals have been dealing with generational flux a group of foreign players, traditionally considered irrelevant, are gaining momentum.

The invaders

When a Magic Circle firm with a reputation for managing out old partners hires a near-septuagenarian at the top of its lockstep in a market traditionally considered secondary, you know that something significant is going on.

It took just two months for Linklaters Italy managing partner Andrea Arosio to convince the global partnership that Casati was worth the deal.

‘For me it was a no-brainer,’ says Arosio. ‘The Italian partnership agreed immediately that we should take him. But he was welcomed with great favour at an international level too. He brings clients, experience and profile to the firm.’

Legal Business struggled to find a lawyer in the streets of Milan who did not point to 100-lawyer Linklaters as the top Magic Circle firm in the country by a mile.

The most senior move in the market in recent years splits peer opinion like few other topics. While at Linklaters there is confidence the rainmaker can bring in around €8m a year, some observers question whether Casati is worth his remuneration and others point to the potential frustration of younger corporate hands in a firm that rarely promotes Italians to the partnership.

But the majority regard it as a strong move. ‘Casati is a force of nature,’ says a former colleague. ‘He is 70 but looks the same as when he was 50 – he had grey hair back then too. You will find him at his computer checking documents for typos till late at night. He is different from [the typical Italian rainmaker]. Not one for political relationships. A hard negotiator.’

Legal Business struggled to find a lawyer in the streets of Milan who did not point to 100-lawyer Linklaters as the top Magic Circle firm in the country by a mile. Launching later than peers in 2007, the firm had the agility needed to refocus on restructuring when the crisis hit, it was the only one of London’s Big Four that did not scale back post-Lehman and established itself as a robust competitor in banking and capital markets over the last few years.

Meanwhile, another group of international firms have bucked the trend by launching in Italy post-crisis and speak of ambitious plans.

Under the energetic leadership of former DLA Piper Italy head Federico Sutti, Dentons has since its 2015 launch grown to over 100 lawyers spread across Milan and Rome, while revenue rose 92% to €22m in 2017. The target is to create a 120-lawyer, full-service firm by the end of the year.

‘We offer similar fees to Italian firms and compete on the Italian market, while also offering an international platform,’ says Sutti. ‘That’s why we are growing.’ While conceding its M&A firepower still has to improve, he points to corporate head Stefano Speroni, who has worked with big groups such as Enel and Finmeccanica.

Speroni himself is bullish: ‘I understand that Italian firms like to describe international firms as second tier. But that’s not true anymore.’

‘Prices are still slightly below other markets and a lot of SMEs have a big potential for growth because they still have to go abroad.’
Bruno Gattai, Gattai, Minoli, Agostinelli & Partners

Latham launched in 2008 with a group of former BonelliErede partners. Led by securities lawyer Antonio Coletti, it fields well-regarded Stefano Sciolla in M&A and Andrea Novarese in banking, who advised on two of the country’s top mandates last year – GIP in the acquisition of Italo-NTV and the banks financing Atlantia’s €16.3bn bid for Abertis.

Detractors point to a high turnover among partners, while Latham’s well known lack of flexibility on fees is certainly an issue in a country where the brand does not carry the same clout as in the Square Mile. But Novarese insists: ‘The Italian legal market is in a transitional phase. The quality of legal services will continue to grow and fees will have to rise accordingly. Clients will have to acknowledge this if they want first-class legal advice.’

Among those to leave Latham following its launch was Michael Immordino. The well-respected Italo-American transactional hand joined White & Case in 2011 alongside former Chiomenti M&A rising star Ferigo Foscari to relaunch its Milan operations after the 2008 closure. And the office mantra is internationalisation.

‘Today Italian firms compete with both national and international firms on inbound M&A, but they cannot really do outbound,’ says Immordino. ‘And the future for successful Italian companies is to go abroad to sell their world-class product. There are more and more like that.’

Fresh blood

But serious competition to Italy’s top three is not only coming from a group of international firms. A few recent entries seem also equipped to claim a bigger slice of the pie.

GOP’s spin-off Legance launched in 2007 with the goal of creating ‘an institutional firm that survives its founders’, says managing partner Alberto Maggi.

The initial group of 80 lawyers has grown to 227, generating €78m in revenues last year. ‘The real firm of the future’, ‘the best young people from GOP’, ‘a success story’ are some of the comments Legal Business has heard on the firm. In M&A it focuses on mid to high-end mandates with well-regarded Filippo Troisi and Alberto Giampieri, while being one of the very few Italian independents with a strong banking practice, led by Andrea Giannelli.

But perhaps the most interesting new entrant is Gattai, Minoli, Agostinelli & Partners. The 100-lawyer firm launched in 2012 focusing on private equity.

A character even by Italian standards, its 59-year-old founder Bruno Gattai has had quite a journey. A skiing champion who had to quit at 19 after breaking his back, during his time as a young lawyer he doubled up as a sports commentator during weekends (a more remunerative job for him than law back then) and became a national TV star for his commentary of Italian skiing star Alberto Tomba’s successes in the 1990s.

In his third life, he led Simmons & Simmons’ and then Dewey & LeBoeuf’s Italy operations until the collapse of the US firm.

Bain Capital, CVC, Apax, Clessidra and Investcorp are some of the impressive client roster of his new firm, which in 2014 recruited Riccardo Agostinelli from Latham to expand its finance capabilities and last year grew revenues 25% to €29m.

‘The Italian market is in a transitional phase. The quality of legal services will continue to grow and fees will have to rise accordingly.’
Andrea Novarese, Latham & Watkins

While Gattai makes a point of having a light management structure, the firm cannot escape the usual questions on its potential to survive its founders. On the whole though, Gattai Minoli shows that private equity can be a highly successful business in Italy.

‘Italy is seen as a good market for private equity houses,’ says Gattai. ‘Prices are still slightly below other markets and a lot of SMEs in many sectors have a big potential for growth because they still have to go abroad.’

Moving on

Contrary to received knowledge, there is plenty of room for growth for firms that know how to tackle the Italian market.

Significantly, today’s most dynamic players launched around the time of the financial crisis, were agile enough to adapt to changing market conditions and could present the image of a growing rather than retrenching operation.

GDP growth is still slow (although last year’s 1.5% is an improvement), the pressure on fees is still intense and the political landscape unstable to say the least. But top law firms have regularly outperformed the local economy in the last three years. And the process of internationalisation, involving both Italian companies going abroad and foreign companies investing in Italy, provides foreign players with a window of opportunity, while pushing the nationals to reinvent themselves.

Italy’s top three independents will not be deposed any time soon, although to different degrees they will have to grapple with the process of institutionalisation for years to come. But as the importance of international platforms grows, a growing number of rainmakers are finding a selected group of global firms more attractive.

‘And yet it moves,’ Italian philosopher Galileo Galilei famously said 400 years ago – his view that it is the Earth that revolves around the Sun and not vice versa reverted a received wisdom that was seen as eternal and immutable. The image of the Italian legal market as a closed shop has started to sound like that received wisdom today. LB

marco.cillario@legalease.co.uk

The post The Euro Elite: Italy – And yet it moves appeared first on Legal Business.

In 2011 Stefano Simontacchi, then head of tax at the Italian legal giant Bonelli Erede Pappalardo, made a high-stakes presentation at the firm’s general partners’ meeting. The increasingly disastrous economic climate in Italy was forcing the firm to reappraise its strategy and Simontacchi, as part of a three-partner committee, had been approved by the firm’s board to find a solution.

‘We needed strategic thinking about whether we wanted to be a very small boutique or whether we wanted to remain at the size we were,’ recalls Simontacchi. ‘In which case, how could we survive when overall spending capacity of the market is decreasing?’

The structure that was proposed for Bonelli represented a radical shift for the firm and its equity partners, introducing a full lockstep for the top partners, shared client relationships and a limited bonus pool. This was a significant departure from the norm, especially in a legal market where a partner’s individual client relationships are sacrosanct, where earnings are largely linked to performance and a firm’s business often hinges on its founding partner. The challenge wouldn’t just be about changing Bonelli’s structure: it would be about changing the partners’ behaviour as well.

‘Clearly it isn’t an easy task because lawyers tend to base their behaviour on the experience they’ve had,’ says Simontacchi. ‘If you take a guy who is 55 or 60 and he’s been doing something successfully, it isn’t easy to convince him that the market has changed.’

But Bonelli’s partners were quick to recognise that the market had changed and they eventually voted unanimously in favour of the new proposals, which were officially adopted in May this year. In tandem with this came a significant change to the firm’s leadership structure: two managing partners would replace Alberto Saravalle, the firm’s outgoing head, who had managed the firm singlehandedly since September 2007. Employment head Marcello Giustiniani would be responsible for managing internal affairs, while Simontacchi would take the second managing partner position, which is a more outward-facing role focused on developing strategy.

Given that the firm’s three founding partners – Franco Bonelli, Sergio Erede and Aurelio Pappalardo – still practise at the firm, rivals are watching developments at Bonelli with keen interest.

Mind the step

By adopting the new business model, Bonelli has shifted from the modified lockstep that the firm introduced back in 2007 (itself a move away from the more meritocratic eat-what-you-kill system that is fairly universal among Italian commercial law firms), to a full lockstep for the top nine equity partners. These top partners have an untouchable level of points and their results as individuals aren’t liable to review unless in exceptional circumstances. The remaining equity partners are on a 90% lockstep, with an extra 10% discretionary bonus pool. Previously, the lockstep element of Bonelli’s remuneration had been set at 80% for all equity partners.

Equally important is the fact that all client relationships are to be shared between two partners now, rather than protectively guarded by just one. Cross-selling is essential: the firm now considers itself as an institution and client relationships need to reflect this, shared by the firm as a whole.

For firms using the Anglo-Saxon model, this might not sound particularly revolutionary, but within the Italian legal market, a full lockstep system has never been adopted by a domestic firm of Bonelli’s size. In most cases, such as with one of Bonelli’s closest rivals, Gianni, Origoni, Grippo, Cappelli & Partners, the lockstep is limited to 80% of remuneration.

In the current market conditions, Bonelli’s top nine rainmakers will in effect be taking a pay cut by adopting full lockstep. Indeed, the only prospect for extra remuneration is if all nine pull together in the right direction.

‘They have some extra points at stake but they only get it if they, as a group, achieve their targets,’ says Simontacchi, himself a part of this group of nine. ‘If one of them doesn’t behave as the firm wants them to, then all of them will lose their points.’

Succession planning

Bonelli’s strategic overhaul is more radical than most, but it has been a long time coming. Prior to the financial crisis, other firms had recognised the need to make a smooth transition from their founding partners to the next generation of partners, thereby encouraging greater institutionalisation. Many have realised there is a very real danger that when their senior partners retire, clients could also leave.

‘This is a generational issue,’ says Stefano Sutti, managing partner at Sutti. ‘For the first time in history, those that established the main firms are now in their seventies. When one feels the rainmaking lawyer is still working, but not so up-to-date, the client might look for alternatives, especially if other firms are more eager to serve them for a better price.’

In light of this, many firms set the wheels of reform in motion well before the market crashed.

‘Our succession planning was already in place more than ten years ago,’ says Francesco Gianni, founding partner of Gianni Origoni, which adopted its modified lockstep in 2006. ‘Among the various governance bodies, there is an executive committee with seven members and a remuneration committee with another seven members. I’m one of the senior partners and my powers are disciplined by our governance rules. I have a voice mostly when it comes to the strategic, long-term guidelines for the firm. The founders have to step back.’

Despite their best intentions, however, the continued existence of high-profile founding partners does mean that even under the new system, some partners are more equal than others. In reality, the new remuneration policies all come with caveats that protect the founding partners. Bonelli’s founding partners remain outside of the lockstep and are due a portion of the firm’s profits regardless of their numbers. Similarly, at Gianni Origoni, founders Francesco Gianni and GianBattista Origoni also enjoy greater benefits than their fellow equity partners. The mandatory retirement age at their firm is 65, whereas for the founding partners it is 70. If they do decide they want to continue practising, only then will they fall outside of the remuneration package that they are enjoying at the moment.

In theory, this protection gives them greater flexibility to spend more time drumming up business, whereas the day-to-day relationships and fee-earning with existing clients can go to younger partners.

‘If I consider my hours a year, about 75% of what I do is billable and 25% is management and originating new business,’ says Francesco Gianni. ‘My role is to introduce younger partners to the clients.’

No ego

It is too early to say what the fallout will be from Bonelli’s new business model, if there is any at all, but many Italian lawyers believe that shifting to a pure lockstep won’t be easy if profits are depressed.

‘It is a difficult and long process and they are really at the beginning of it,’ says the managing partner at one rival firm. ‘They still have the name partners, but we will see how good they are at completing this transition. For the time being they are competing really well.’

Partners at other firms don’t believe that a lockstep system is necessary to foster closer integration. ‘Our flow of knowledge and expertise are to the sole benefit of clients’ needs: though our firm has a meritocratic system, we have a strong incentive to shift competences across the firm,’ says Ascanio Cibrario, a corporate partner at 19-partner Pedersoli e Associati. ‘If we win an instruction for a debt restructuring, I would bring in one of my banking partners. We all very much appreciate each other and have strong respect for each other’s competences.’

One Italian lawyer with a good idea of the difficulties that lie ahead for Bonelli is Paolo Montironi, senior partner at NCTM, a leading Italian firm that commenced its own structural changes in 2009. The firm, which was created following the three-way merger of Negri-Clementi/Montironi & Soci/Toffoletto & Associati in 2000, has gone to great lengths to try to institutionalise its client relationships: it introduced mandatory cross-selling and put all associates in a common department pool rather than being allocated to individual partners, in order to promote more efficient use of resources and improve associate training. The firm also introduced mandatory specialisation for partners, where they couldn’t focus on more than two discrete practice areas. The new strategy came with a cost and some partners did leave in the wake of the changes, including litigation partner Paolo Pototschnig, who took a four-strong team of lawyers to Legance. ‘It is difficult to achieve, although our reforms had the full support of the ample majority of partners,’ says Montironi. ‘You must be firm in ruling how any partner can behave and firm in ensuring that everyone respects the rules. That can create clashes, but that depends on how determined you are in your bid to institutionalise. We succeeded in that, but we did lose some partners as a result.’

Market forces

In Montironi’s view, the need to institutionalise and change the firm’s internal culture was as much down to external market forces as it was with any pressing generational concerns.

‘We started from the assumption that the golden age will not come back, therefore we are very focused on our profitability,’ says Montironi. ‘Our emphasis isn’t on growing the firm, but finding a sustainable model of profitability. When you are growing, everything is easy. When you reach a certain size, you can get into trouble, because people want to grow their careers and increase their salaries.’

Most firms concede that growth isn’t really an option. ‘Not many firms are growing,’ says Andrea Arosio, managing partner of Linklaters in Italy. ‘If they grow it is by recruiting a team. Nobody can afford to grow without people bringing in new work.’

In one of the most high-profile moves of this type, in November 2011, Roberto Cappelli, a corporate partner and co-founder of Grimaldi, left his firm with ten associates to join what was then Gianni, Origoni, Grippo & Partners, where he automatically became a name partner. Grimaldi elected to dissolve a month later and other firms benefited from the fallout, including DLA Piper, which, in May 2012, recruited one of the firm’s three founders, Francesco Novelli, and a team of 20 energy lawyers. For law firms looking to grow quickly, it is often difficult to marry up the need to bring in high-profile rainmakers to boost revenues with the equally important, yet sometimes conflicting, need to institutionalise client relationships and encourage greater partner stability.

‘I’m a little bit scared of lateral hires; I always see them as a risk,’ says Luca Masotti, a partner of the boutique firm Masotti & Berger. ‘If I go with a woman who has cheated with her husband, I cannot be angry if she cheats with me three years later. I can’t afford someone coming in and learning something, and then taking our clients somewhere else. We prefer organic growth.’

In fact, as firms struggle to maintain profitability, the reality is that most have taken the opposite route to growth. The lower ranks of fee-earners have borne the brunt of these cuts, with most firms adopting what one managing partner calls ‘an up or out process for our associates, so that they remain lean and hungry’.

A new era

Few deny that the golden age of growth is over. M&A work, the bread and olive oil for the major Italian independents, has fallen off a cliff. According to mergermarket, after Italian M&A reached a peak of 453 deals in 2008, volumes plunged by 42% to just 261 completed deals in 2009. There has been a gradual pick up since then, but the 322 M&A deals completed in 2012 still represent a 28% drop from the 2008 high. 2013 shows no sign of improvement; in fact, completed deals in the first half of the year are down 7.6% on 2012.

Coupled with this is the lack of liquidity in the market, which has seen average lockup periods rise from 90 days to about 150. In turn, clients have reduced their legal budgets and are assessing how they can better manage their law firm relationships. Panels and beauty parades are increasingly commonplace among domestic clients who in the past might have stuck with one relationship partner, a fact not lost on firms like Bonelli. This has resulted in reduced fees, particularly for commoditised matters, where smaller firms can reasonably compete.

Conversely, smaller law firms are also leveraging off the fact that they can supposedly offer a more personalised and efficient service to the client, now that their larger counterparts are taking the institutional route.

‘In this law firm, the lawyers cover a lot of areas of activity: they are generalists,’ says Alfredo Craca, a founding partner of the three-partner boutique Craca Pisapia Tatozzi. ‘The clients want to create a relationship with the lawyer and want to be sure that that lawyer is involved in the matter, that the deal isn’t handed to the youngest lawyer in the law firm after the kick-off meeting with the senior partner.’

This tricky combination of external market pressure and internal evolution is very much behind Bonelli’s decision to restructure itself over the next few years. It is also the reason why it will be such a challenge to succeed. Nevertheless, Simontacchi is convinced that his equity partners are foresighted enough to bear the short-term losses needed to see the project through.

‘Younger guys would prefer to lose some money today, but be at a firm that is still successful in 30 years,’ says Simontacchi. ‘If this formula works, the firm will increase in revenue, so the partner points will increase in revenue. If you apply the model to previous years, the best performers wouldn’t get such big bonuses, but then all of us will earn better. We’re betting on the force of the group.’ LB

anthony.notaras@legalease.co.uk

The post Renaissance style – the battle to modernise Italy’s legal elite appeared first on Legal Business.

The Italian legal market has modernised over the past decade as local firms have reacted to greater client demands and the influx of foreign practices. Now there’s greater pressure on fees and billing arrangements

Over the past decade the Italian legal market has gradually been modernising, entering its own 2.0 era. Firms have taken a more business-focused approach to how they run their firms. Italian lawyers who traditionally prided themselves on their ability to advise on a wide range of areas have become more specialised.

In part, the competitive nature of the market has forced Italian lawyers to adapt. There are more than 200,000 members of the Italian bar, Consiglio Nazionale Forense. The total number of lawyers is more than in Germany, even though Italy has a much smaller economy.
‘The number of Italian lawyers is out of all proportion to the market and opportunities for young lawyers are falling each year,’ says Marella Naj-Oleari, of Scarpellini & Naj-Oleari Avvocati. ‘The new business environment is a challenge.’ Local practices have also had to react to a wave of US and UK firms setting up in the country, most recently with Linklaters and Latham & Watkins opening outposts.

Although there have been few redundancies and, with the notable exception of Allen & Overy, they have not been made public, the financial crisis has reshaped the market. Italian firms have reacted to the more competitive environment by adding more specialist areas, such as renewable energy, or by entering new markets, such as Asia and the Middle East.

As in most maturing markets lateral hires have become a much more common part of the market. ‘The market today is heterogeneous and competitive, but also unloyal,’ says Paolo Montironi, partner at NCTM. However, Montironi’s firm has certainly been one beneficiary of the greater fluidity in the market. For instance it recently hired labour specialist Michele Bignami from CBM & Partners, the 45th partner of the firm.

And, as in most major legal markets, clients are tougher as well. ‘They ask for shorter deadlines and also discounts on fees,’ Montironi explains. ‘We have had to become more flexible and we now work with different fee structures,’ he adds. ‘As well as traditional hourly rates these include fixed fees and, on occasion, success fees.’

According to Patrizio Tumietto, managing partner of Studio Consulenti Associati, the prevailing features of the Italian market today are greater uncertainty combined with high operative costs. ‘Clients are concerned about their legal budget and we get requests for low-cost quotations,’ he explains. ‘Italian firms are on average smaller than their Anglo-Saxon competitors and they must offer a better service to compensate for their size,’ Tumietto adds.

Luca Arnaboldi, senior partner of respected independent Carnelutti, compares the local market to a popular feature of Italian life.

‘An Italian lawyer is like an Italian trattoria: good food, affordable prices and lengthy service. Overall, a very pleasant compromise,’ he says. However, many in the market are becoming accustomed to some particularly unpalatable changes.

Familiar tales

The typical gripes of the local Italian lawyer would be familiar to partners at most international firms. ‘Low quality at low price is widespread,’ complains Cristina Fussi, partner at De Berti Jacchia Franchini Forlani. ‘Alternative fee arrangements are now a must and are offered by all the players. At our firm we still believe that pure success fees are not a smart idea, they could limit a counsel’s independence.’ Among other alternative arrangements, Fussi’s firm has recently offered risk-sharing structures that link the fee the firm charges to the outcome of a transaction or to the award of a litigation case. De rigeur in more mature markets, such as the US, but new for most practices in Italy.

However, some in Italy have become accustomed to ditching the billable hour. ‘The search for alternative fee arrangements is ingrained in our firm’s DNA,’ says Francesco Portolano of Portolano Colella Cavallo. ‘We founded the firm nine years ago with four lawyers and our very first client paid us with a non-traditional arrangement.’ When the second client arrived, it was charged a success fee for an M&A transaction.

‘We tell clients that we are happy to discuss whatever arrangement they deem fit,’ Portolano adds. ‘For example, when advising defendants we have been paid a percentage of the difference between the amount sought by the plaintiff and the amount awarded.’

The firm also works on a pure contingency basis or they charge a monthly rate in M&A transactions. ‘In our opinion there is no silver bullet and at times traditional hourly rates may be the simplest and preferable system,’ Portolano adds.

Like most European jurisdictions Italy is currently a buy-side market in which clients’ over-arching goal is to cut the legal budget without a change in quality and deadlines. The changing market conditions mean that Italian clients are much more forthright when it comes to discussing fees. ‘The companies we advise ask how much time a litigation is likely to last and its related budget,’ Tumietto says.

‘Law firms with high fixed costs have two alternatives,’ insists Giovanni Lega, managing partner of Lega Colucci e Associati. ‘To maintain their cost structure unaltered with a gradual erosion of profits per partners or to cut their costs losing important human resources to the advantage of other firms which are increasingly competitive.’

The firm has recently scored a significant lateral with the hire of Fabio Cappelletti, a founding partner of Bonelli Erede Pappalardo, and signed a merger deal with boutique firm Traverso & Associati.

‘Discounts on cumulative work are highly appreciated by clients. They also request more feedback and details on our billing strategies,’ Lega adds.

‘The three most common requests by clients are reduction in fees, reduction in fees and reduction in fees,’ agrees Paul Flanagan, head of A&O’s Italy practice. To achieve a cost reduction, A&O has, for example, worked with solar energy client SunRay, to create a document bank to be used across jurisdictions for future planned projects.

Although in many cases they have to, Italian firms do not exactly embrace alternative billing. ‘The traditional chargeable hour structure was very favorable to firms who were sure to get paid, even if the deal aborted,’ says Galileo Pozzoli, managing partner of Curtis, Mallet-Prevost, Colt & Mosle.

‘Success fees or more subjective arrangements, where high-added value services are charged at a premium, and more commoditised services are charged at lower rates can also work, and are increasingly requested by clients,’ he adds.

Pozzoli, a 38-year-old energy specialist who also serves on Curtis Mallet’s European managing committee, is one of the new generation of corporate lawyers in Italy. ‘In Italy the “revolving door” syndrome is widespread, with partners frequently changing firms, more often than in other jurisdictions,’ he explains.

In Italy, Curtis Mallet has gone through a radical restructuring with the hire of partner Ian Tully, an M&A specialist who was formerly at Clifford Chance, and brings considerable expertise in the energy and healthcare sectors. Over the past 12 months the US firm has also added senior M&A associate Maurizio Iacobellis from Clifford Chance and a senior litigator from Freshfields Bruckhaus Deringer, Dennis Bonvegna.

‘Italy’s share of the M&A market is only 2.8% while the UK accounts for 25%, Germany for 17% and France for 9%.’
Tommaso Amirante, Latham & Watkins

‘Although alternative fee arrangements need more time to be agreed on, and they seldom work well for both a client and a firm, they would seem to be the future,’ Pozzoli concedes. ‘As clients are now more sophisticated in the legal service purchase process in Italy as well.’

Although some parts of the market are embracing innovative approaches to things like billing, it’s fair to say that the Italian market still retains some very traditional features. Despite many of the largest domestic firms becoming more established brands in their own right, individual relationships between lawyers and their clients remain a crucial part of the market.

Alessandro Varrenti, a partner at CBA Studio Legale e Tributario, for instance offers the example of several M&A mandates that his firm has received from motorcycle producer MV Agusta thanks to a personal relationship with the company’s chief executive Claudio Castiglioni.

While outsourcing has become a commonly accepted part of the market for many US and UK firms, Varrenti does not think it will catch on in Italy. ‘Despite a greater pressure on their legal budgets, clients are still prepared to pay for quality work,’ he explains. They also expect the partner to personally attend every meeting.

This is particularly true for the due diligence carried out before a M&A deal. ‘In Italy you cannot trust financial statements as much as in the UK or the US. This is why we make sure that a due diligence is always checked twice by a senior professional.’

Among small and medium-sized businesses, it’s hard to see the personal component of the adviser-client relationship fading. The question is, will the market eventually follow the example of the largest international firms and start outsourcing work to cheaper jurisdictions? Given the language barriers not all work can immediately be outsourced but Varrenti’s opposition reflects a more deep-seated concern. ‘I cannot imagine an entrepreneur sending its company data to India,’ he insists, before adding: ‘The same will apply to international firms with an Italian office, even if their headquarters are sending work to Asia.’

Winds of change

While the drop-off in transactional work has clearly had an impact on the market, Italian lawyers have seen other practice areas partially compensate. ‘Energy and telecommunications are interesting and dynamic sectors for the legal community while employment specialists have been busy with a high volume of work but of a different kind,’ Gaetano Arnò, partner of TLS Associazione Professionale, comments. ‘They used to fuel the economy now their task is to slowly dismantle it.’

Together with disputes involving the public sector, renewable energy work has become one of the most active sectors drawing expertise from M&A, finance and regulatory lawyers. Research by Ernst & Young shows that investments in clean energy projects were more than double that in traditional sources this year. As a result, international and Italian practices have all been targeting work in the renewables sector. Carnelutti, for example, recently worked with the US group SunEdison, a leading solar-energy services provider and a subsidiary of MEMC, in a deal to build Europe’s largest photovoltaic power plant in the Veneto region.

Not surprisingly, firms have been keen to strengthen their renewable energy teams. In a recent move, for instance, DLA Piper hired specialist Matteo Falcione as a partner from Clifford Chance.

In the aftermath of the financial crisis litigation and restructuring volumes have also risen for most Italian firms. ‘In recent months litigation work has steadily increased and what is most interesting is that I have increased my court work with referrals from corporate clients,’ says Mattia Colonnelli de Gasperis, managing partner of Colonnelli de Gasperis. ‘Boutique independent players have a competitive edge in the market in crisis times,’ he maintains. The inefficiency of local courts has helped foster the greater use of alternative dispute resolution clauses in contracts, with arbitration a particularly popular choice.

Another practice area with considerable activity is employment. ‘Employment work has developed in the past months,’ says Francesco Rotondi of boutique practice LabLaw. ‘Clients come to us, not only to implement redundancies related to the crisis, but also for advice on the impact of new technologies on their business. A typical example is the use of Facebook by employees and the effects of the social network on their productivity.’

‘Flexibility, deregulation and unrest are the three characteristics of the Italian labour market,’ says Franco Toffoletto, senior partner of Toffoletto e Soci. ‘In the past 12 months employers have had to be more careful in dealing with costs,’ he adds.

At the other end of the scale, corporate work is still lagging behind. ‘Italy’s share of the European M&A market is only 2.8% while the UK accounts for 25%, Germany for 17% and France for 9%,’ says Latham & Watkins partner Tommaso Amirante. ‘The shortage of M&A work has resulted in a significant reduction in fees by many firms. The slow market conditions push firms to accept mandates for a fraction of what they would have asked years ago and there is no way back in this trend,’ he adds.

‘The shift from a legal practice to a strategic business is happening now and it is not only linked to the financial crisis.’
Gianfranco Puopolo, Puopolo Geffers Iacobelli

Although little has changed in the deals market in the past 12 months, partners point to signs of an increase in private equity activity as a reflection that the market may be set to pick up. ‘There is too much money in the market that needs to be spent,’ comments one partner.

Despite the bleak conditions, there have been several notable highlight deals. For instance Clifford Chance assisted UK private equity fund Permira in the €805m acquisition of Findus from Unilever group, one of the largest private equity deals in Italy in 2010. The team comprised banking specialist and the firm’s Italy head Charles Adams and corporate partner Alberta Figari.

In the telecoms sector Gianni, Origoni, Grippo & Partners picked up the mandate to advise Russian company VimpelCom in its E5bn merger with Weather Investments. The new company will be the world’s fifth largest mobile telecommunications carrier by subscribers. The deal gives VimpelCom ownership of Wind Italy and a 51.7% stake in Egyptian Orascom Telecom.

Gianni Origoni also worked with F2i SGR, an Italian infrastructure fund, and AXA Private Equity in the E1.025bn acquisition of an 80% stake in Enel Rete Gas from Enel.

‘Transactional activities are still volatile, even if there is a moderate growth,’ Giovanni Nardulli, managing partner of Legance, agrees. Founded in 2008 and with a turnover of E40m, Legance is the youngest top Italian player. Among its recent deal highlights, the firm advised Total Raffinage Marketing in a 51:49 joint venture agreement with ERG, a listed Italian-based oil refinery company.

Foreign affairs

After 15 years of significant growth in the Italian market, international practices have firmly established themselves in the local legal fabric. For the largest US and UK firms their traditional bedrock clients are the largest financial institutions, while the independent firms maintain the closest links with corporate Italy.

‘Italian firms have a more stable relationship with clients. They are a point of reference for corporate M&A and capital markets deals, and they generally offer full-service advice to their clients,’ says Filippo Modulo, a partner at local leader Chiomenti.

Foreign firms’ strong relationships with the banks naturally lead them to dominate some areas. ‘They have key roles in capital markets transactions, with an overseas offering, and have a client base from their foreign offices and global agreements with multinational clients,’ Modulo explains.

‘Italian and international firms have different organisational models,’ Adams says. ‘International law firms have a corporate and managerial approach, with common vision, principles and processes across the network. Domestic firms are driven by the decisions of the founders or name partners.’

Some of the largest local players have attempted to change their structure, to move away from the traditional model. Domestic heavyweight Gianni Origoni, for example, was among the first to introduce a formal management structure throughout the firm.

As with mature US and UK firms, power is devolved from the executive committee to various internal bodies, such as the conflict committee and the remuneration committee.

‘Each practice area has a senior partner and an operative partner who are responsible for the management of the entire practice on a global level,’ explains founder Francesco Gianni.

While Gianni serves as senior partner, Tomaso Cenci is the current managing partner, but each local office also has an office partner in charge of the local performance and organisation.

‘Clients are still prepared to pay for quality work.’
Alessandro Varrenti, CBA Studio Legale

‘Through the reinforcement of the internal structure, the creation of various governance committees, and the participation of more partners in the strategic and day-by-day management process, we want to guarantee an independent approach in terms of development and growth,’ Gianni adds.

Many Italian firms have also taken their own approach to international expansion. In Asia, NCTM has received a licence to open an office in Shanghai, while Chiomenti made the most dramatic entry into the market picking up six Asia offices through its 2008 acquisition of Birindelli E Associati. Gianni Origoni, in contrast, has directed its investments to the Middle East, opening in Abu Dhabi to develop business in the Gulf and North Africa.

Given its importance as a financial centre it’s perhaps not surprising that several Italian firms have established London offices. Most target work for domestic clients doing business in the UK but also with investors from the US or Asia interested in the Mediterranean market in general.

Bonelli, Chiomenti, Gianni Origoni and NCTM all boast outposts in the City. Bonelli has the largest office with 14 lawyers and a turnover in 2009 of around €5m. The other firms’ turnovers hover around the €2m mark. Chiomenti is the only firm that advises on English law, with three English-qualified solicitors among the eight-strong team.

In each case, the firms insist that their international expansion reflects client demand to support the overseas operations of domestic companies. But they’re also a defensive move to protect firms’ client relationships from those US and UK firms that have Italian offices as well as large international networks.

A new twist

In the past 12 months, according to Mario Gallavotti, founding partner of Gallavotti Honorati, the overriding theme in the profession has been one of reform. ‘Guido Alpa, chair of the Consiglio Nazionale Forense, has often mentioned the need to reform not only the court system but the legal profession as a whole,’ he says.

He adds: ‘In Italy the legal profession is on the verge of a very much-debated transformation, which will either see the profession moving towards a greater modernisation or on the other end of the scale revert back to its more historical roots.’

‘The Italian market is more granular than ever. The high level of fees imposed by international law firms and larger domestic firms are no longer affordable by many domestic clients,’ says Decio Morgese, founding partner of Grasso La Torre Morgese. ‘Clients now look for advisers providing legal services of a high-quality and international standard, but at the same time who are familiar with the Italian market.’

Italian lawyers throughout the country are increasingly accepting the new dynamic. ‘Law firms are businesses and partners are entrepreneurs,’ explains Gianfranco Puopolo, senior partner of Puopolo Geffers Iacobelli & Partners. ‘The shift from a legal practice to a strategic business is happening now and it is not only linked to the financial crisis. It is a must when you work with international clients.’ LB

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