Worldwide: Spain/Portugal: Global Annual Report 2016: Shaken Up

Last Updated: 10 November 2016
Article by Iberian Lawyer
Most Read Contributor in Spain, May 2017
Brexit has rocked Europe to its foundations, but it will present opportunities for law firms if they can spot them – meanwhile, though clients from China are potentially a rich source of work, they can be tough negotiators when it comes to fees

Exactly how the international business of Spanish and Portuguese law firms will be impacted by Brexit is, as yet, unclear. As clients muddle through amid the uncertainty, law firms are expected to receive a wave of advisory work as businesses explore their options and consider whether their UK headquarters would be better located elsewhere in Europe. However, any surge in advisory work will likely be overshadowed by a significant drop in transactional matters – some estimates say that, in the event of the UK undergoing a slow, protracted separation from the EU, the deficit in global M&A activity could be as much as $1.6 trillion.

Beyond the tumult of Europe, lawyers talk of the "staggering" potential of the Chinese market. With foreign direct investment from the country reaching new heights, law firms are refining their strategies for cashing in on the potential for major instructions from the Far East. Singapore is also highlighted as a major centre for dispute resolution and arbitration work, but the US market remains one that many European firms still struggle to penetrate. From a Portuguese perspective, Lusophone Africa remains the bedrock of many law firm's international business, though they also identify Latin America, Francophone Africa, and, perhaps a little surprisingly, Iran as potential hotspots.
            
Companies to leave UK?

"Brexit could be a big opportunity," according to Hogan Lovells partner José Luis Huerta. "Many thought Brexit was not possible and overlooked reports, but now some Asian and Latin American companies, for example, are seriously considering relocating [from the UK]." However, Baker & McKenzie partner Enrique Valera, says it is "too early to describe the result of the UK referendum as a big international opportunity". He adds: "There is a question about whether it [the result of the referendum] will be followed through – the application [to leave the EU] may have to be ratified by parliament." Valera says it is too soon to tell whether Brexit will be a "huge fee driver".

Some senior partners at law firms in the UK said that Brexit wouldn't happen, according to Allen & Overy partner Antonio Vázquez-Guillén. He adds that it remains to be seen whether the UK government will act on the result of the referendum. "We've had many client enquiries and our regulatory finance people are very busy," says Vázquez-Guillén. He continues: "It is unclear whether material adverse change [MAC] clauses in contracts have been triggered, it depends on the context of the transaction." Vázquez-Guillén believes that, if companies in the UK decide to move their headquarters into Europe, among the cities that could benefit are Frankfurt, Paris, Amsterdam and Madrid. "UK has got instability, but Spain has got stability," he says. One partner remarks that his firm recently conducted studies for a number of US companies to help them make a decision on where to base their European headquarters. "They [the companies] decided to go to the UK, but that decision may now be revised [due to Brexit]," the partner adds.


Deal slowdown
The result of the referendum in the UK will result in a "slowing down" in the making of decisions on UK-related deals, says Ashurst partner Eduardo Gracia. "In some cases, bidders have decided they are not going to file their bid by the deadline [because of Brexit] – some companies are now wondering 'should we keep bidding for UK assets?'" One partner argues that investment funds that were about to submit a bid for a UK company before the referendum may now be reconsidering, and this may present an opportunity for Spain. The partner adds: "Investment funds have money to spend and Spain will see probable political stability. The Brexit issue triggers the Northern Ireland and Scotland issue – [investors will think] 'what business investment can I make there with certainty?'" There is a view that, with funds looking for returns on investment, the result of the Spanish election (in which the ruling PP increased its number of seats, though it failed to win a majority) was good for the country in terms of increasing its chances of attracting investment. "This is a great opportunity for Spain," says one partner. "We [Spain] can sell stability and predictability – Spain is a cheap jurisdiction, while Madrid is a great hub," he adds.
Spain would have a better opportunity to benefit from uncertainty in the UK if it had a stronger government, argues Gracia. "It would be better if Spain was less bureaucratic, Anglo-Saxon investors would fear this [bureaucracy in Spain]," he says. Gracia also says that while income tax has recently been reduced in Spain, regional government in the country can set inheritance tax as high as 80 per cent. "We [Spain] could replace the UK, but bureaucracy could push us out of the game," Gracia says.
The big banks are all in Spain, but the country's public sector lacks the international standards needed to "really understand what investors need", says Vázquez-Guillén. "It's also difficult when the government changes the rules – we are playing within a global market, we have fantastic law firms – all the big players are in Madrid, what is needed is an agreement to provide a stable regime for all investors."

' Joke' ministries
One partner argues that Spain should be asking international businesses what the country could do to make it attractive to investors. As another partner at an international firm in Madrid puts it: "We have government ministries that are a joke, we don't have a serious financial court, we should be moving quickly, we should create an arbitration hub."
There is also a view that major Spanish law firms should "work harder to convince government" of the need to bring more "legal business" to Spain, as one partner puts it. He continues: "The UK government has a plan to increase legal business, but do we [Spain] have a plan?" It is in this context, that Frankfurt and Luxembourg are identified by some market observers as the places that have the most to gain as a result of Brexit.

It is understood that some major global firms with operations in London are now asking themselves whether they have "over-capacity" in the UK. One partner at the Madrid office of a 'Magic Circle' firm says: "Given the value of the pound following Brexit, it may be more profitable for a global firm to move 500 London lawyers to Frankfurt or Luxembourg – you also have to ask whether it makes sense for US firms to open offices in the UK." Another partner remarks that banks and hedge funds could "trickle from London".

Chinese potential

Away from the Brexit-related turmoil and uncertainty, the Chinese market has "staggering potential", according to Valera. He adds: "We [Baker & McKenzie] have established a Chinese practice in all major centres – the Chinese are looking at anything and everything and there are a lot of opportunities for cross-border work." Valera highlights data showing that China's outward foreign direct investment (FDI) in Europe and North America amounted to a record $40 billion in 2015.
However, despite the opportunities offered by Chinese outbound investment, there are doubts about how profitable such work will be for law firms. "It will take time to make money [from Chinese investors]," says one Madrid-based partner at a global firm. "The Chinese are really tight on the way they negotiate fees." Meanwhile, Singapore also offers considerable potential, according to Vázquez-Guillén. "Singapore is a dispute resolution/arbitration hub – we see a great market there," he adds.

There seems to be a broad consensus among law firm partners in Spain that the US market is a difficult one to crack. One partner remarks that the US market is dominated by Manhattan-based firms and that US firms from outside New York are often left trailing behind them. Another partner comments: "Collaboration and interaction is required and you need a strategic view [when running a law firm], but US firms generally seem to be more focused on getting revenues in quickly, they have a much more short-term view." Meanwhile, there is a view that Anglo-Saxon firms could potentially make more inroads into the Latin American market. "Anglo-Saxon firms are missing business in Latin America," one partner says.

Indeed, Javier Villasante, partner at Cuatrecasas, Gonçalves Pereira, highlights Latin America as one of the most active markets due to its "openness to development". He adds that China, Africa, and the Middle East are also in the spotlight due to expected developments in a range of sectors including infrastructure, TMT, real estate, retail, energy (including oil and gas) and tourism.

Add value or die

There will still be a considerable number of opportunities for law firms to advise on cross-border M&A despite current global uncertainties, such as the slowdown in the Chinese economy, depressed commodity prices, falling stock markets and Eurozone instability, according to Álvaro Sainz, senior partner at Herbert Smith Freehills. He adds: "The short to medium-term outlook for M&A as a priority focus for capital allocation by corporates remains extremely robust and optimistic."

Meanwhile, the key challenges law firms face at a global level include the increasing commoditisation of the work they do and significant pressure on fees. "Clients are becoming more knowledgeable and they know how to ask for more," remarks one partner. Another partner in the Madrid-office of a 'Magic Circle' firm says bluntly: "You need to add value or you're dead. You need to re-evaluate your equity system and you need to cut costs." In addition, lawyers also note that, in general, there is a significant increase in the number of in-house lawyers. "There are more in-house lawyers, they come from our profession and they know exactly what to ask for – clients don't want junior lawyers learning on the job," says one partner.

Cheap debt driving activity
From the perspective of law firms in Portugal, Linklaters partner Pedro Siza Vieira says, in a reversal of the situation in previous years, there are currently greater opportunities in more mature markets, rather than in emerging markets. "Cheap debt is the driver of activity – the Asian economy is struggling, but there are opportunities in Latin America and Central America, especially Mexico and Peru," he adds. "We're very busy in Africa, there is a lot of activity, though the pipeline is not as strong [as in previous years]." In addition, Siza Vieira says Chinese outbound investment has reduced significantly.

Nuno Pena, founding partner at CMS Rui Pena & Arnaut, says that the levels of interaction within the CMS network have increased. "The interaction is reaching a new level," he adds. "We have developed joint teams – we're very active in the aviation sector in Western Europe on a Portuguese-oriented project." Pena says that the collapse of Banco Espírito Santo means that a lot of Portuguese lawyers are experienced in bank resolution matters and that this expertise is "sought by colleagues in other jurisdictions".
Though Africa is still a significant source of work for Portuguese firms, Pena says it can be sometimes difficult to "take money out due to the current transfer restrictions in some countries". In addition, there is also a lot of outward investment from Brazil and this represents an opportunity to win business on the "private client side", according to Pena.

Excess of liquidity
There are significant opportunities for Portuguese law firms to advise international investors on inbound investment, particularly in the real estate and finance sectors, says ABBC partner Nuno Azevedo Neves. "There is an excess of liquidity in the international market, investors are looking for good opportunities and there will be transactions – there are also a lot of opportunities in other Portuguese-speaking countries," he adds.

Miranda managing partner Diogo Xavier da Cunha says that, aside from consolidating growth in Lusophone Africa, the firm has been developing business in Francophone Africa, specifically in countries such as Cameroon, the Democratic Republic of the Congo, Congo Brazzaville and Gabon. However, he says that it is not easy to win business in such markets where there is "competition from French firms". Xavier da Cunha adds that, despite the fact that the natural resources sector is "suffering" and some international investors have decided to stop investing in Africa, he believes it is a continent with a lot of potential in the future.

High-net-worth individuals, particularly based in France and Brazil, are making a significant number of small investments in Spain and Portugal, says SRS Advogados partner Gonçalo Anastácio. He adds that, due to recent EU regulation, there are also significant opportunities to advise foreign investors on issues relating to data protection and private enforcement of competition law.

Iranian demand
PLMJ partner Hugo Rosa Ferreira says that his firm has adopted a strategy of expanding its reach to other jurisdictions in order to raise awareness of its network. "We have opened a UK representative office, we also have a Swiss desk and a Nordic desk – we want to be more visible in a global sense," he says. "We have also expanded our reach to Brazil, we have a partner there twice a month, there is a lot of inbound work from there." Meanwhile, Pena highlights the opening of CMS's office in the Iranian capital of Tehran earlier this year: "There is a lot of demand from Portuguese clients [for advice in Iran], which was unexpected."

Portuguese-speaking countries in Africa provide the most feasible international opportunities for Portuguese law firms, according to Vieira de Almeida partner Manuel Protásio. "There is a real need to move liquidity into those countries and capital markets are starting to be developed there."
The Portuguese economy is still under pressure so clients are looking for new markets, says Inês Albuquerque e Castro, associate at FCB Sociedade de Advogados. "Law firms must accommodate the new needs of clients and be able to provide a multijurisdictional service," she adds. To this end, the firm set up offices in Angola and Mozambique in association with local firms, though Albuquerque e Castro says that such partnerships are "not always easy and it's important to choose the right partner".

Huge Brexit risk
With regard to the issue of Brexit, Siza Vieira says that once the "template for the UK cutting off relations with the EU" is finalised, there will be opportunities for law firms to advise clients on relocating. However, he adds that the immediate impact will be adverse for business. "There will be a freeze on investment decisions," he adds. Another partner at a Lisbon firm comments: "There is huge risk here [associated with Brexit] and uncertainty creates a market for lawyers." However, there is a view that any gain made by law firms by winning Brexit-related advisory work will be overshadowed by the loss of transactional work.

Another hypothesis put forward by one partner is that Brexit could mean that UK firms would not have access to the European market and vice versa. He adds: "Would a UK court decision be enforceable in a European jurisdiction? Maybe not anymore." In addition, one partner remarks that, depending on the final terms of Brexit, Chinese and US banks with their European headquarters in London may not be able to provide services in Europe. The partner continues: "London as a financial centre is dependent on the single market; banks in the UK not given access to the single market will refocus their operations on Paris and Frankfurt." He adds that Europe should take the opportunity to "push for greater integration, for example by implementing a single employment insurance, for example". The uncertainty surrounding Brexit is the most damaging aspect, according to MLGTS partner Tiago Félix da Costa. "The biggest problem is not knowing what the future holds," he says. However, Félix da Costa adds that, despite the uncertainty, firms need to continue with their international expansion. "Stopping growth abroad is not an option," he says.

A number of leading Portuguese firms say that 2015 was their "best year ever", but Rosa Ferreira says that law firms need to prepare for the future. He adds that his law firm took the decision to expand internationally when the Portuguese economy began struggling due to the crisis. He adds: "Large law firms in Portugal are close to their peak in terms of how they can grow." As one partner puts it: "I don't believe in indefinite growth, law firms now need to be prepared for doing business in mature markets."

The biggest challenge facing Portuguese law firms in the coming years will be profitability, claims one partner at a Lisbon law firm. He adds: "Clifford Chance, for example, used to be the largest law firm in the world, but it's changed its focus from scale to profitability – that change will come to Portugal. The mid-market will be in a difficult situation: specialisation will be key and clients will want solutions to specific problems and specific issues."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.