Buoyed by the prospect of hosting this year’s World Cup, Germany is on the cusp of an economic rebirth, with more opportunities for UK law firms, reports Grania Langdon-Down

The economic pessimism that has gripped Germany for the past couple of years has now lifted – happily just in time for this summer’s World Cup – bringing with it a resurgence of optimism that is good news for UK law firms whose European capability is being led by its German offices.


As Johannes Jonas, a German partner with international law firm Salans, says, taking a gentle dig at his compatriots: ‘We Germans do everything very thoroughly. When we decide to be in a foul mood and pessimistic, it is very difficult to cheer us up. Unfortunately, we have done that over the last couple of years, but now somebody has decided we ought to be optimistic, and we see that from our German clients, who are starting to invest again.’


For Salans, it is excellent timing as it takes its German practice to a new level. Since 1995, it has been run with three lawyers, including Mr Jonas, from the Paris office. But the firm has now snapped up a 35-strong team of Berlin lawyers from the German independent firm Haarmann Hemmelrath, which will become its 16th office globally.


Mr Jonas explains: ‘We had been looking at Germany for quite a while but we never found the right match. Now we have found a very fine group of people in a city which is of interest to us. Many firms will tell you that Berlin is not their first choice. But, for a firm like ours, which has very widespread activity and all these offices in eastern Europe and central Asia, Berlin is a very logical choice. It is a bridge between the east and the west. We haven’t ruled out opening other offices in Frankfurt and Munich, but we don’t want to take two steps at a time – that can be dangerous.’


One important characteristic of the German market is its ‘multicentricity’. Cornelius Fischer-Zernin is Allen & Overy’s managing partner in Germany, with 135 lawyers in offices in Frankfurt and Hamburg. He explains: ‘Germany is not comparable to the UK or France. It has a very decentralised geographic and economic structure. If you are just in Frankfurt, for instance, you would probably miss an important part of the cake.


‘Other firms have more offices, which have been the result of mergers with national firms. Ours is more organic growth by selected laterals. If we find the right people in Munich or Düsseldorf, we would probably open there. But it is difficult to find the right people. You would have to cut out teams from our competitors.


‘There are just a very small number of national firms left, which is another reason why we cannot opt for a merger.’


Mr Fischer-Zernin reckons Germany is Allen & Overy’s third largest base after the UK and the Netherlands. But, given that it is the third biggest economy in the world, ‘our central management is of the clear opinion that we should probably be double the size’.


For UK firms looking to build a European capability, Germany would probably come top of the list, says Giles Rubens, of professional services consultancy Hildebrandt International, adding that several firms maintain that if they do not put their marker down fairly soon, there may not be opportunities in the future.


The favoured options for opening in Germany are by merging with a German national firm or by taking over a team to form a new office. Mr Rubens says that if a firm is considering merging with a German firm, there are two provisos, which are crucial. ‘They must have the same business rationale and share a common vision of what they are trying to achieve. Their performance – not just financial but also their client- service ethic – must be close enough to be bridgeable. If you have those basics in place, you are in with a chance, but it is a tough order.


‘For a lot of firms, the rationale to be in Germany is not quite strong enough. They would love to be there but actually there isn’t enough cross-flow of work.’


One key consideration for firms is where to have offices. Each of the six main German cities reflects key practice areas for law firms. Markus Hartung, German managing partner of Linklaters Oppenhoff Rädler, which has 330 lawyers and offices in Berlin, Cologne, Frankfurt and Munich, identifies their different strengths. ‘Frankfurt is the finance market; Düsseldorf is the traditional centre for German blue- chip corporates. Munich is of growing importance for insurance companies, for DAX-30 [the index of leading shares] companies, like Siemens and BMW, and is the centre of private equity and media finance.


‘Hamburg is very strong in maritime and shipping and privately-owned companies, while Cologne is close to the blue-chip corporates in the Rhine Ruhr area, and has media industry and TV stations. Berlin is home to everything which is close to the government, so it is a strong centre for public and administrative law, lobbying and public/private partnerships.’


Linklaters has been in Germany since 1998, when Oppenhoff & Rädler joined the Linklaters & Alliance network before merging in 2001. ‘We have set ambitious targets in moving away from being a traditional German firm to being a genuine part of an international law firm, which means going for bigger clients, for German blue-chip corporates, which are all global players, and generating work for the network.’


Five years on, it has proved a success, he says. ‘We are not in “tier one” in every part of the practice, but we have a very strong standing in private equity, acquisition finance and tax. We also have a strong reputation in mergers and acquisitions (M&A), while the smaller practice areas of real estate, litigation and intellectual property are delivering support to the core areas as well as doing some stand-alone work.’


The German practice also includes tax advisers and accountants, although, because of the UK and US regulatory framework, they cannot be partners. Mr Hartung says: ‘We have found a solution which accommodates this. Our approach is that we offer our clients an integrated service of legal, tax and economic advice.’


Germany has traditionally been the home of multi-disciplinary practices (MDPs). However, Mr Hartung says that is ‘dying out


to a certain extent because accountants have their own regulatory framework and it is getting more and more difficult to merge with them. You get in trouble as soon as you get close to Sarbanes-Oxley [the post-Enron US corporate legislation]. We don’t present ourselves as an MDP but as a partnership offering certain services to clients.’


City firm SJ Berwin promotes its German practice as providing ‘multi-disciplinary professional services’ in areas ranging from M&A and venture capital investments to private client and employment.


Rüdiger Knopf heads the firm’s German practice, which has 55 lawyers, including six tax advisers. It started in Frankfurt in 1998 with a team of 18 lawyers from Mr Knopf’s former firm, Goutier Knopf & Tulloch. The Munich office came next with a team from Baker & McKenzie in 2001, an office opening simultaneously in Berlin with seven lawyers.


Mr Knopf, who is also qualified as a chartered accountant, says: ‘Tax and accountancy are very important for German business. We have a very good relationship with a small accounting firm in Berlin, which specialises in financial due diligence and special audits. It is very helpful to understand the economics of a business.’


Mr Jonas says Salans has ‘never believed in MDPs in the sense of lawyers and accountants. The Haarmann firm did that, but they are now separating the two. It is simply no longer possible after Enron. However, the relationship between the two legal professions – attorneys and tax advisers – will remain. We have tax advisers in our Berlin office but we are not going to do accounting work’.


Salans’ Berlin office has been registered as a limited liability partnership (LLP) in London. ‘We have chosen this route because we are on our way to becoming an LLP as a whole and Berlin has been a first step in that transition,’ explains Mr Jonas.


He will be staying in the Paris office. ‘We will keep the current configuration, as it is a wonderful chance to get more French and German business. The German clients of our new office are delighted we have people in Paris who can help with their investments, who know and live with the French. And when we generate business here, we are much more credible now we have an office in Germany.’


One of the fastest growing City firms in Germany is Bird & Bird. Wolfgang von Meibom, chairman of the German practice, says it started about three years ago in Düsseldorf with 16 lawyers coming from Wessing (now Taylor Wessing). ‘We now have 75 lawyers and have opened offices in Munich and Frankfurt. We fit nicely into Bird & Bird’s strategy, which means we are a full-service firm with a focus on issues like life science, aviation and technology-orientated sectors. It is the second biggest office outside London. Bird & Bird has a policy not to merge with other firms, which can cause culture problems and clashes, but to develop as a jointly integrated law firm opening offices with our own people. There is a lot of communication rather than a colonial style of influencing the national parts of the firm.’


He says UK firms are doing well in Germany. ‘They came earlier and are therefore further advanced than some of the US firms.’


The biggest law firm in Germany is Freshfields Bruckhaus Deringer, with 580 lawyers and offices in the six major cities. Konstantin Mettenheimer is joint senior partner with Guy Morton. ‘Before 1989, you could only have one office. In 1990, [pre-Freshfields] we merged Stegemann in Hamburg, Bruckhaus in Düsseldorf and Westrick in Frankfurt.


‘We then merged in 1998 with the Austrian firm Heller Löber, which had offices in Moscow, Budapest and Bratislava. Then we came to the late 1990s and everyone was going global, so we said “what about us?” Freshfields by that time had merged with Deringer in Cologne, which was a high-quality but small firm. So they merged with us in 2000. The British contingent makes up just over 30% in terms of headcount, with Germany the next biggest.’


Mr Mettenheimer spends three days a week in London and highlights the value of having a ‘Brit and German and an American’ – the firm’s new chief executive Ted Burke – at the top. ‘We are the only firm in the world with that set-up. We want to be the leading international law firm, and if you have that team and not just either Brits or Americans, we feel it is a very different place.’


He says the German market is looking ‘very good, very promising. M&A in particular is very up. Employment is down because, for example, the manufacture of refrigerators is moving out of the country so, on the labour front, Germany is undergoing pretty substantial change. But German companies and the economy in the wider sense are looking pretty good.’


He agrees with the other heads of the German practices that, while the economy started to grow before Angela Merkel became Chancellor, she is having a positive effect on the country’s mood. As Mr von Meibom says: ‘Her government has brought continuity into German politics, which is a very helpful signal for the economy because business now has room to plan and make strategic approaches. The former government was jumping up and down, and no one knew what was happening tomorrow or the day after.’


Harald Seisler is managing partner of continental Europe at Lovells, which has 280 lawyers in offices in Frankfurt, Hamburg, Berlin, Düsseldorf and Munich. The firm merged with German firm Boesebeck Droste in 2000, keeping all its offices except for one in Dresden, which it closed in 2001.


Mr Seisler says: ‘The mood in Germany had been pessimistic for a long time, with the result that people didn’t spend their money and companies couldn’t sell, but that has become better.


‘We have seen significant improvements on the transactional side last year. The economy is better, German companies are earning high profits and they have a lot of money to spend on M&A, while investors from England, US and Japan are interested in spending money in German companies and the stock market is growing from day to day.’


While the crossover of work is going well, how easy has it been to integrate the two cultures? Mr Hartung says there is still a certain German culture. ‘It is closer to the US legal culture, with similar education and training, than to the UK. US and continental clients expect more partner attention on deals, whereas UK firms still accept that the partner is not that visible. When you have a leverage ratio of one partner to five associates and you want to keep your people busy, you have to delegate. In Germany, the ratio is more like one partner to 3.5 associates.


‘One of the strengths of UK firms is the teamwork. German lawyers sometimes struggle to work in teams and we had to change that mindset, which we have done successfully. UK firms are also more professional. In Germany, partners would not normally let non-partners take the lead on business development or marketing. The magic circle firms have a high head count of business services people who claim their right to talk face-to-face with partners. That is something non-UK partners all over the world, with the exception of Asia probably, tend to struggle with.’


One area of competition he highlights is with US firms who, rather than bring their own partners to Germany, try to lure German partners away by ‘making very, very attractive financial offers we don’t want to match. The number of law firms in Germany may differ but the number of lawyers remains the same’.


Mr Mettenheimer says the Freshfields merger worked well because ‘we probably overstaffed committees and over-talked things, and because our approach was very much the same. If there is one thing that makes people a little uneasy, it is when you are in a video conference and, while the Brits may be only a third of the team, they sit in one room on one screen, while those in Germany are more spread out so it can give people the feeling that the UK lawyers are more powerful. But I think we have settled that one.


‘Also in English, you can be a little cryptic. In one memorable meeting being conducted in English, one of the German lawyers suddenly spoke up saying: “I can’t follow your English anymore so I thought I would speak in German.” That goes down as a war story in the firm.’


Mr Jonas says Germans are often seen as ‘cold’ because some German lawyers work together for years and still call each other ‘Herr such and such’. He adds: ‘But the world has become small and most of those ideas are no longer true. There are still cultural differences but that is wonderful – it would be boring if we were all the same.’


Grania Langdon-Down is a freelance journalist