Although Freshfields is credited as being one of the world’s oldest law firms, their Madrid office is under new management and adapting to the latest domestic and international demands of a modern firm.
As only the second Spanish chief in Freshfields’ history, Miguel Klingenberg embodies the new generation of Spanish lawyers managing the major UK City law firms in Spain. Following on from Clifford Chance, then Linklaters, the last year has seen Allen & Overy, Freshfields and Ashurst introduce local leadership.
Freshfields may have arrived in Spain in 1991, but as one of the world’s oldest law firms it can trace its roots back to 1743 – when Samuel Dodd was appointed solicitor to the Bank of England, still a firm client. The name Freshfields was only settled on in the early 1800s when James William Freshfield took over as managing partner.
Though the firm may have played its own small part in the expansion of the British Empire – a subject in which Klingenberg has a growing interest – Freshfields’ own global aspirations were only cemented in 2000, through its mergers with Germany’s Deringer Tessin Herrmann & Sedemund and Bruckhaus Westrick Heller Löber, to form Freshfields Bruckhaus Deringer.
It now has more than 2,400 lawyers in 26 key business centres around the world and by revenue was ranked fourth in the global legal tables for 2006, behind Clifford Chance, Linklaters and Skadden Arps.
The firm opened in Madrid, initially under the leadership of John Byrne, before establishing a Barcelona presence in 1994. The two offices now count between them 14 partners and over 100 associates making Freshfields the secondbiggest Anglo-Saxon firm in Spain, behind Clifford Chance, which had opened 11 years earlier.
When John Byrne stood down last year it was the head of the firm’s Spanish tax practice, Klingenberg, who succeeded him.
Klingenberg, together with Joaquin Hervada, had merged their small but highly successful Klingenberg & Hervada partnership into Freshfields ten years earlier.
Even then, he explains, they were unsure how a niche firm could survive in a changing market. “We could have kept the firm small, but with no real prospects of growth and potentially missing out on the major deals and international work, we were concerned that we would inevitably start to lose our best people.”
Competitors still speak highly of Byrne, who leaves behind a strong legacy. “John’s approach to the local legal community was, from the very beginning, respectable and notably less aggressive than some of the later English arrivals,” explains the managing partner of one Madrid firm.
Some suggest however, that like Peter Cornell at Clifford Chance, he enjoyed the luxury of being able to build a team without the time and profitability pressures imposed on the later Magic Circle arrivals, Allen & Overy and Linklaters.
Klingenberg’s strong interest in cultural history leads him to note the contrast in working practices between Freshfields’ London headquarters and its offices in Spain.
“Walking around our London office – which has over 1,000 lawyers – there is silence as people focus on their work. Here in Madrid people will talk more and be more sociable spending perhaps longer hours at the office. There is nothing better or worse between the two approaches they are just different,” he says.
Similarly, he sees differences in the way client relations are handled. “In London relationships are highly institutionalised. In Spain work is still based more on personal relationships, and clients will put their trust in an individual lawyer more than the firm,” he says.
This has its advantages he believes, although Freshfields actively works to avoid a “my client” approach. Associates work across practice areas, and with a variety of partners, while clients will not necessarily be tied to a specific partner he explains.
In parallel, Klingenberg notes that Spanish in-house lawyers have become increasingly sophisticated. “The biggest change has been that clients now realise that as transactions become more complicated you need more specialist lawyers.”
“Of course they know their business better than we do, and Spanish companies like Ferrovial, Santander and Telefónica not only have excellent legal teams but also have great experience of deal making around the world. Ten years ago it was more difficult for them to evaluate the benefit of hiring locally an international firm like ours to assist on a foreign acquisition. Now clients can see the value you bring in transaction management.”
An early challenge, he admits, was to convince clients that not only could the firm assist them with international elements but it also had the necessary weight in Spain. “Ideally, as in our case, you invest locally in order to develop international deals but then become large enough to be able to handle domestic work too.”
One of Byrne’s legacies is that Klingenberg has inherited a very clear market strategy. “We have placed ourselves in the market as a premium firm,” he says. “Just as there are a limited number of businesses doing certain types of transactions there are a limited number of law firms who can advise them. Clients know very clearly where external lawyers can add value.”
Expensive or not, Byrne left Freshfields’ Madrid office at the top of its game, representing Gas Natural in its bid for Endesa, and Ferrovial through its acquisition of UK airport operator, BAA. Since then, under Klingenberg's leadership, the Spanish offices have continued to prosper.
The corporate team is notably strong. Toni Valverde who has built a name for himself in Barcelona now heads up the practice in Spain, having replaced Joacquín Hervada who has taken a more relaxed senior of-counsel role, supported by fellow partners Armando Albarrán, Javier Gómez- Acebo and newly promoted David Franco. The firm’s client list is equally impressive: La Caixa, Suez, Agbar, Cinven and now, a new private equity player in Spain, Doughty Hanson.
The same partners have also been involved in many of the major real estate mergers of the last two years, advising Riofisa, Inmocaral, Reyal, Martinsa and Realia. But the landmark deals were undoubtedly the Gas Natural and BAAmandates, for which they were able to call upon the support of head of competition, Francisco Cantos – who even some competitors admit leads one of the most effective teams in the market.
With its roots so firmly in the City, Freshfields has inevitably benefited from the increasing importance of finance issues within M&A, with advice in Spain led by Iñaki Gabilondo, who also handles asset finance, while head of the practice, Fernando Bautista is focused on bond issues and securitisations. The firm’s banking and finance group can also now draw on a team of five English solicitors, led by John Byrne, to deal with the increasing demand for English law in cross-border transactions.
Freshfields has also featured prominently in many of the major equity capital markets transactions of the past year. Under the leadership of Toni Valverde and Armando Albarrán, it notably beat a number of top firms to lead on the IPO mandate of Criteria, the industrial holding portfolio of La Caixa – at €3.45 billion, Spain's biggest-ever listing.
Tax issues were inevitably key, and this is an area in which Klingenberg himself shines, alongside Silvia Paternain and Barcelona-based Miguel Lorán – a leading member of the Criteria team.
Freshfields was instructed for both the domestic and international tranches of the Criteria IPO because, says Klingenberg, of its ability to handle the corporate, tax and capital markets work in Spain, London, Washington and Hong Kong. Its reputation was established through its involvement in the IPOs of Renta, Riofisa and Corporación Dermoestética, among others.
Juan Gómez-Acebo leads a successful real estate practice, focusing on commercial property and funds transactions, such as Whitehall funds (Goldman Sachs) on a number of deals including the auction sale of a portfolio comprising of 74 properties conducted by Carrefour.
The firm also counts two very experienced dispute resolution partners in practice head Vicente Sierra and Rafael Murillo – also members of the firm’s award-winning international arbitration team – who had great success advising French oil major Total in its dispute with Santander, over the latter’s stake-building in Cepsa, Spain's number two petroleum company.
While 95% of Freshfields’ lawyers in Spain are Spanish all however share the international vision of the firm, says Klingenberg. “Cross-selling to the other offices in the network is fundamental and we are very clear that China is our priority.”
Freshfields is currently advising a number of Spanish corporates and financial institutions, such as Agbar, in their acquisitions and joint-ventures in China, and has transferred a dual-qualified English- Spanish lawyer to its Shanghai office to advise Spanish clients locally. But it is not targeting the wave of Spanish small and medium-sized enterprises (SMEs) investigating opportunities in Asia, emphasises Klingenberg. “We only take those clients with the size of business and requirement for sophistication that matches our own.”
And like its magic circle rivals, Freshfields is also interested in India. “There is enormous interest by Spanish companies there – infrastructure, manufacturing and banking. It is a vast market and some suggest it is more stable in the longer-term than China,” says Klingenberg.
Surprisingly perhaps, given the size of the firm’s German operations, competitors question however Freshfields’ ability to advise the major Spanish infrastructure and banking players currently investing in Central and Eastern Europe (CEE). It has in fact recently closed its Hungary office and all CEE work is now coordinated from Vienna.
“We don’t need to be in Bucharest, Budapest or Prague to advise clients, as they are only seeking our support in finding the best local lawyers for them and helping them in the transaction management,” says Klingenberg.
The region may however be more important to him than his London partners. “At some stage a Warsaw office could be of interest,” he reveals. The past year has already seen Garrigues and Uría Menéndez establish themself in the Polish capital.
But despite increasing Iberian investments in Latin America there are no plans to open there. “I am not convinced we would be better off with a permanent presence in Latin America,” says Klingenberg. “As with all our offices, I am not sure we want to have a business which in terms of profitability is not closely aligned to the rest. Many Spanish clients are already well established there, and know the legal environment and local law firms well.”
Klingenberg does however acknowledge a clear recent change in Freshfields’ international strategy, which is now more in line with the international outlook of some of the leading US firms, especially when assessing new markets.
“Freshfields used to only open where it could replicate its London practice, albeit on a smaller scale. Now when opening the key focus is on corporate finance, perhaps supported by tax and competition, etc, and depending on the jurisdiction specific finance capacity.” Such an approach has seen the firm establish a highly successful presence in the Middle East including an office in Dubai.
The firm has also had growing success in the US, where it has restricted its growth to New York and Washington DC, with the firm’s former US managing partner Ted Burke now global chief executive.
At the start of the decade Freshfields looked to be aligning itself towards a US merger – with a less enthusiastic Davis Polk & Wardwell believed to be its preferred choice. But the standing down of the firm’s former senior partner, Anthony Salz (who had spent a year on secondment with Davis Polk), appeared to have put such a strategy on hold despite the increased financial parity of the major London and New York firms.
Klingenberg, like Byrne previously, remains highly complimentary of Spanish law firms, but his assessment of some firms’ strategies is inevitably coloured by Freshfields’ approach – it is perhaps unwise to advise on all areas of commercial law. “In the legal world there are clearly different market segments and approaches, all are highly appropriate and respectable and any model can of course be profitable. But I genuinely believe that you have to select the specific areas you want to advise on and then be big enough in that area.”
He also questions the wisdom of some of the international offices being opened by some Spanish firms, although he applauds the growing emphasis on London where Garrigues and Gómez-Acebo & Pombo arrived this autumn. “It is always good to be in a big financial market like London, and close to the London-based banks, potential clients and referrer law firms.”
Klingenberg is troubled however about such firms’ prospects for 2008: “It is clear that the old European economies will not grow much next year – with the culture of some Spanish law firms based on growth it is unclear what challenges they will face.”
Klingenberg’s preference towards a measured approach to growth emanates perhaps from the measures recently adopted by Freshfields to address its own rapid growth at the start of the decade. The firm made legal headlines with the removal of around a hundred equity partners and the deequitisation of others.
While such a need is said to have arisen from over-capacity as well as the burden of non-core practices resulting from the Bruckhaus Deringer merger, Klingenberg denies the exodus was driven by profit. “We have decided to focus on our core practice,” he says. The resulting realignment towards a US-style of practice may yet perhaps indicate a reawakening of Freshfields’ transatlantic ambitions.
Within Spain however, Freshfields, like Bird & Bird and Ashursts, has always declined to reveal its financial performance, although Klingenberg admits it saw “around 20% growth last year”. But unlike some of its domestic competitors such growth was not achieved through acquisitions or mergers, he emphasises – his aim is to increase revenue with existing or indeed reduced resources.
And Klingenberg has little to say about Latham & Watkins or any other potential new arrivals in Spain. Indeed he is unfazed by the increase in US competition, preferring to emphasise the time it takes to build a strong practice with good teams.
Inevitably he has now to think about his own generation of partners, and sees a major challenge in assessing how best to make the most of senior lawyers and partners approaching retirement age.
Freshfields’ recent overhaul of its pensions policy in London has seen legal challenges from former partners. But most senior partners, himself include, want to stay involved he says, possibly working as mentors and client ambassadors, “Since they all still have a lot to give.”
Meanwhile in the little spare time he currently has, he has been studying the histories of the Spanish and British Empires, and judging what lessons can be learned from both. The potential lessons of history are revealed when he suggests that: “Maybe Gandhi and perhaps Margaret Thatcher are two of the historical figures I would most like to have dinner with.”
But while there is more than a touch of the anglophile about Klingenberg, he maintains a wider world view, acknowledging that he and his firm can learn from US experience as well.