Spanish eyes

DLA is the latest foreign law firm to set up shop in Spain.

But is it also likely to be one of the last? Scott Neilson reports on the concerted efforts to penetrate the Spanish legal market

Last month, City law firm Stephenson Harwood surrendered its entire five-partner Madrid office to English rival DLA.

DLA - which has made no secret of its further continental ambitions - is the latest in a long line of English and US law firms to have taken a shine to the sunny climes of Madrid and - to a lesser extent - Barcelona.

Spain's legal market, once brimming with traditional and conservative family-controlled law firms run by well-known lawyer patriarchs, has undergone a dramatic transformation over the past ten years.

A quick glance at the country's current legal landscape reveals a strong magic circle presence (all except Slaughter and May are there and all are either well-established or gaining ground fast) while London's elite are backed up by a committed showing from the City's usual mid-tier suspects: Ashurst Morris Crisp, Davies Arnold Cooper, Denton Wilde Sapte (through its international network), Lovells, SJ Berwin, Simmons & Simmons and Bristol firm Osborne Clarke.

Throw in a strong showing from firms tied to the big accountancy practices and add a smattering of top US law firms, and you begin to see the true level of current interest in the Spanish market among international practices.

There are plenty of good reasons why so many firms have sought to set up shop in Spain.

Strong growth, deregulation, privatisation and the gradual internationalisation of Spanish business over recent years have provided lucrative work for lawyers advising on mergers and acquisitions, flotations, general as well as project finance, and corporate restructuring.

This year, according to figures from the Spanish business newspaper Expansion, Spain confirmed its place as one of Europe's fastest-growing legal markets, with leading local practices recording an average growth of 20% in their 2001 turnovers.

Yet this growth aside, lawyers in Madrid in particular will have seen a big fall off in lucrative high-end big-ticket cross-border work over the last 18 months - in line with the rest of the EU.

And initial public offerings (IPOs) are nowadays as scarce as hens' teeth.

So does the status of the Spanish economic hiatus mean that DLA will make little gain in Spain?

'Clearly we won't be immune from what's happening in the US, Latin America or indeed the rest of the world,' predicts DLA's newest recruit, the former head of Stephenson's Madrid office, Kenneth Bonavia.

'Those firms that are dependent on the big-ticket work will be feeling the pinch.

But there's nothing inherent in the Spanish economy to point to a major recessionary climate.'

In fact, for DLA there may well be no time like the present.

Europe's fourth-largest economy is still predicted to be one of the continent's fastest growing in 2002 - analysts are forecasting growth of up to 2.5%.

Foreign firms in Spain should continue to rake in plenty of fees.

It all depends on the kind of work that a firm is chasing, says Mr Bonavia.

But after a slow year in 2001, English firms based in Spain may want to watch their backs.

The threat comes not from the larger Spanish firms (which seem unlikely to steal many of Clifford Chance's US and UK clients) but rather in the form of Linklaters, which entered the market only two years ago.

In 2001, the firm's turnover grew by a staggering 83% - even though Linklaters' number of fee-earners increased by only around 55% over the same period.

Foreign firms are indeed currently beating the best Spanish firms hands down in the race for profits.

This year saw six international players take a place on the list of the country's ten most profitable law firms.

(Corporate powerhouse Ura & Menndez, however, still came top of the Expansion table.) Garrigues and Cuatrecasas, the two firms with the highest turnover in Spain, were nowhere to be seen in the May profits table.

The accountancy-tied law firms are also still doing well in Spain - notwithstanding the hasty withdrawal of Garrigues from the Andersen Legal network this year.

Not only do Landwell, Ernst & Young Abogados and KPMG Abogados all enjoy places in the Spanish top ten for turnover, but Landwell's and KPMG's revenues per partner (that is to say, not profits) show them to also be making more than the top three Spanish firms.

However, with the tide moving against multi-disciplinary partnerships, there may be tougher times ahead.

Either way, it seems less a question of whether other foreign firms will follow DLA into the Spanish market and more a question of which ones.

'The market is maturing now,' says Stuart Percival, a dual English/Spanish finance partner in Clifford Chance's Madrid office.

'But there are [still] others who are looking.'

Ura & Menndez senior banking partner Rafael Sebastian says the Spanish firms will have to lift their game further in the face of increased competition, particularly from US firms which are the most likely candidates to come to Spain once the global economy picks up.

'Spanish law firms have to become leaner and meaner if they want to compete and survive in this environment.

They have to offer more quality service,' says Mr Sebastian.

More newcomers will further fuel the market's current war for talent.

Good commercial lawyers have been at a premium in Spain for some time.

Lateral hires are on the increase and Linklaters in particular has become renowned for its aggressive hiring strategy.

(Ashursts and SJ Berwin are also luring the local talent.) Demand for commercial legal expertise will quickly intensify when IPO and M&A activity picks up again, says one observer who closely monitors the Spanish market.

'The market is already very aggressive,' she says.

'Freshfields and Linklaters are hiring and now is a good time to be a lawyer in Spain.

There are a lot of people moving at the moment and the foreign firms are recruiting some very good lawyers.'

Meanwhile, other conquistadors seem likely to follow Clifford Chance and US firm Baker & McKenzie, and push further into the domestic legal market, aggressively leveraging their international expertise and gradually winning the trust of Spanish corporates and banks that have, until the last few years, been the preserve of the best Spanish firms.

US firm Squire Sanders & Dempsey, for example, already counts blue chip corporate Telefonica among its long-term clients, while the firm has also acted for infrastructure company Abengoa on its 102 million acquisition of US chemical company High Plains.

It seems only a matter of time before other firms establish a full-service domestic clientele in Spain, says Mr Bonavia.

'With some of the other magic circle firms, they say they're concentrating only on the high-end corporate and finance work,' he points out.

'But ultimately they all end up being pretty much full-service firms - in order to sustain the practice.

If you pull Telefonica through the door on an M&A transaction, you're not going to want to say goodbye to them when it comes to the other practice areas.'

Scott Neilson is a freelance journalist