Adjusting to reality

Prague, 15.02.2010
After a chilly 2009, international law firms in Prague seem to be experiencing an early spring. Many are busy with new deals and some are going through structural changes, such as mergers or expansion.


However, competition has been increasing on the Czech market and only those who adapt and stay fit will make it on a long term, legal market experts say.
No major departure, no new arrival, no crash at the top—the economic downturn seems to have frozen the market of international law firms in the Czech Republic in 2009. For some firms that entered the market in autumn 2008 when the crisis was fully hitting the country, such as Kinstellar and Bird & Bird, last year was a matter of survival under tough conditions. Still, even the new entrants say last year wasn’t that bad, after all.
The majority of managing partners with international law firms polled by CBW took an optimistic tone about 2009 revenues and the volume of business projected for this year. Despite annoyances created by some competitors who pushed legal fees to a level lawyers call unsustainable on the long-term, legal firms state that they cashed in revenues above expectations, and some are now ready to raise headcount and start new operations.
As 2010 promises to be a deal-rich year, with both investors and companies hungry for new business opportunities, this means more legal work, more revenues and more profit—for the legal sector, business as usual.
The game of the fit
“The main consequences of 2009 for the [Czech] legal market were, as expected, the repositioning of law firms on the market,” said Milana Chamberlain, managing partner with Norton Rose, a UK international law firm in Prague. Firms with solid bases and good change management have come out of 2009 stronger and better placed to provide services this year, she said. However, there were others who didn’t cope with the changed circumstances. These downsized and are potentially weaker as a result of last year. “I believe that this trend will continue during 2010,” she said.
“The clear trend in 2009 was a drop in work levels in the areas most severely hit by the crisis,” said David Plch, a partner with the U.S. international law firm White & Case. There were fewer large cross-border merger and acquisition (M&A) deals, foreign investments and major international acquisition financings. The level of new activities in real estate also decreased visibly. The international law firms that were more dependent on inbound business with fewer domestic clients were naturally affected the most, Plch said. Similarly, law firms heavily dependent on one type of client or transaction, such as real estate acquisitions and financings, felt the crisis more than law firms with a more diversified strategy. “As for 2010, I believe that the more diversified law firms with strengths spread across several practices will be best positioned to weather the storm brought by the current economic crisis,” he said.
“2009 was quite an eventful year,” said Daniel Weinhold, managing partner with Prague-based international law firm Weinhold Legal. Most firms had to face the impact of the economic downturn, followed by a need to significantly change strategies, structures and frequently also to dismiss people. “Fortunately, we didn’t need to make lay-offs, as our market offerings have been reasonably diversified since the time before the current economic situation. But we understand this was not the case everywhere,” he said.
Last year, there were just a few large transactions that provided a fresh breath for international teams, such as the disposal of energy firm International Power’s Czech assets. Yet, in general there were fewer and fewer projects for which an involvement of large international practices was justifiable. “As a result, international firms had to think twice about their efficiency and capability of offering quality service for a reasonable price,” Weinhold said.
“In terms of ‘movers and shakers,’ we have not seen any significant changes in 2009,” said Kamil Blažek, a partner with Kinstellar. “There may be some lateral hires in 2010; however, I do not expect any market players to leave the Czech market.”
The global financial crisis has slowed new acquisitions and investments, according to Bill Finney, a lawyer with Giese & Partner in Prague. “There are fewer new real estate projects, but a greater need for restructuring loans,” he said.
“In our firm, we have actually stayed focused on our priorities: real estate, finance, and arbitration and litigation,” said Vladimíra Papirnik, managing partner with Squire, Sanders & Dempsey. In real estate, the firm participated in three out of seven investment deals above €10 million (Kč 260.9 million) in 2009 and maintained work on a broad portfolio of development projects, even if the amount of work decreased. It was also involved in a number of sales of development projects. “The decreased amount of work in areas of our priorities was outweighed by work in other areas such as restructuring and insolvency. In summary, the workload remained steady; we have always been a mid-size law firm in Prague so the impact of the crisis was not that big as in case of larger law firms,” Papirnik said.
“We certainly had quite a difficult year in 2009,” said Erwin Hanslik, a partner with Austrian international law firm e|n|w|c Natlacen Walderdorff Cancola. “Since almost no significant transactions took place, we strengthened our restructuring and employment team and could shift a certain part of workload to this area,” he said. On the other hand, 2010 started quite promising. “We finished a large real estate transaction and started with the due diligence process for another transaction. We see an increasing interest in real estate transactions as well as investments in the Czech Republic from our clients,” he said.
“Simply put, international law firms rationalized, reduced or exited, and local law firms held their ground or established strategic alliances and acted more regionally,” said Stephen Kines, managing partner with Bird & Bird for Central and Eastern Europe. “I expect more of that conduct, with a growing realization that, just like many Czech corporations, it is not enough to be on the local market.”
“The U.S. and UK firms have been hit the hardest,” said Paul Sestak, managing partner with the Prague office of Wolf Theiss advokáti. The London-originated finance work has basically evaporated. The laid-off lawyers created spin-off firms, he said.
Another trend that characterized the activity of international law firms last year is the significant reduction of staff that had to be endured by many international firms with a pure transactional focus or noncompetitive rates, according to Arthur Braun, managing partner with bpv Braun Haškovcová. Thus, many lawyers left for promising spin-offs. “The crisis is not over. Lawyers will still do well with more litigation and restructuring work. The most interesting issue is how much the business with nonperforming loans will boom. Some more M&A activity is probable, while few new green filed investments [are] to be announced,” he said.


Source: http://www.cbw.cz/article/adjusting-to-reality.aspx

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