Global Report 2009: Defining what it means to be ‘global’: A question of priorities

 In light of the evident economic challenges currently facing many businesses across Iberia, lawyers in Spain and Portugal report that their clients continue to seize opportunities internationally albeit at a more measured pace. The situation is one that is also being reflected in the way that their own law firms now view the world.

Clients’ investments in international markets have nonetheless decreased significantly on the previous year, say many.

“The current financial climate has undoubtedly caused companies to be more selective with their foreign investments. However, we are seeing many continuing to follow opportunities beyond Iberia and looking to grow abroad now that they face a more complicated domestic scenario,” says Jaime Folguera, Head of Competition at Urí­a Menéndez.

The depressed Spanish and Portuguese economies have certainly prompted many companies to take a more cautious approach towards international expansion. But not all companies are suffering equally. Those focused on the renewable energies and infrastructure sectors remain very active with continuing activity also by Spanish banks – Banco de Sabadell this summer has agreed to acquire Miami-based Mellon United for around $200m, while Banco Santander is assessing a partial- IPO of its Brazilian subsidiary.

Both debt and equity finance can still be obtained by those with properly supported expansion projects, note lawyers. The capital markets have seen a flood of preference shares and rights issues, which in turn have allowed companies to reduce debt and prevent rating downgrades and, in certain cases, to continue to embark on ambitious expansion plans.

The Iberian markets will however take a number of years to fully recover from the wider economic crisis, say lawyers. “To some extent the Spanish and global economies have now caught up with the Portuguese reality of recent years,” says Pedro Rebelo de Sousa, managing partner of Sociedade Rebelo de Sousa & Advogados Associados (SRS Advogados), formerly Simmons & Simmons Rebelo de Sousa.

The result, say lawyers in Lisbon, is that clients notably in the construction, real estate, energy and finance sectors had already begun to place an increasing emphasis on expanding to developing markets, with talk even of a potential ‘boom’ in growth across the Portuguese speaking African countries.

“Portuguese companies had already started to look at opportunities, before the onset of the current global crisis, in markets such as Central and Eastern Europe, Brazil, Angola and Mozambique – where Portuguese companies now have a significant presence,” notes Manuel Santos Vitor, Deputy Managing Partner of PLMJ.

João Vieira de Almeida, Managing Partner of Vieira de Almeida & Associados (VdA) agrees: “Clients have been looking to expand abroad not in spite of the crisis but because of it, as a way to seek alternatives to a dull – even shrinking – domestic market.”

Placing limits

But despite such evident prompting, lawyers recognise that the current economic situation is also clearly restricting many clients’ expansion plans.

“Clients’ ambitions are not being limited but controlled by financing, by weak consumer spending and by a new sense of prudence,” says Manuel Martí­n, Managing Partner of Gómez-Acebo & Pombo.

Credit remains tight and the cost of borrowing is higher. Balance sheets are suffering as collecting periods are longer and cash is no longer accumulating for new investments.

“The current economic situation is limiting clients’ ambitions not only because of the difficult access to funding, but also as a consequence of conditions imposed by the banks to limit and control their risk position,” adds Diogo Leónidas Rocha, a partner with Garrigues in Lisbon.

Some suggest that many Iberian companies are simply too focused on managing their existing business issues to consider new growth.

“Concentration and expansion plans are frozen in an atmosphere of high distrust with no signs of recuperation. Companies are adapting to the current situation with new developments and strategies of survival rather than growth,” says Isabel Dutilh, managing partner at Dutilh Abogados in Madrid.

The priority of companies is therefore to get back in shape before exploring and evaluating new opportunities. Expansion is not feasible until deteriorated balance sheets have been fixed.

“Companies are revisiting their medium and longterm business plans in light of the economic challenges they are facing. Many expansion plans have been abandoned or reset but also there is concern about being aligned to whatever new opportunities the recovery may bring,” says Frederico Pereira Coutinho, a projects-focused partner at Cuatrecasas Gonçalves Pereira in Lisbon.

Prospects for the second semester of 2009 also remain unclear and uncertain, albeit law firms report increasing demand for strategic M&A and restructuring, private placements and intensive insolvency litigation.

Nonetheless, companies with cash are clearly in a position to capitalise on potential opportunities and lower asset values. Access to funds and credit remains therefore a significant strategic differentiator. “Naturally, clients are more sensitive to the risk implications of international expansion and, indeed, limited access to funding – investments have become more selective,” says Folguera.

But it is not only Iberia’s largest businesses that are reassessing their international growth. Smaller companies wanting to maintain business and profit levels also recognise a need to be creative or take brave decisions.

“Two of the many options such companies have is, for example, to reduce costs or to get new clients. A conservative investor might put limits on his expectations due to the crisis, but that is unusual among entrepreneurs,” says Diego Vargas Yábar, partner at Maniega & Soler.

Others sense that clients’ desires are only limited by their own ambitions.

“Small and medium-size companies with excess cash, and there are some, are adopting a wait and see attitude.

In any event, they tend to be well-disciplined and managed. They recognise attractive opportunities and when they do they will act,” says Calvin Hamilton, at Madrid firm Hamilton.

But the wider economic situation has prompted a strategic refocus among many companies’ towards established markets and industry sectors, while prompting others to cut back on more speculative growth, say others.

“Some clients may have believed that expansion into markets such as Asia was a sure strategy, but it has proved to be a very large and difficult market with many barriers to entry. The result is that there is now much more caution. Companies are preferring to invest in areas where they have natural strengths and the cultural fit is good,” says Luis Riesgo, Managing Partner and Head of Latin America at Jones Day in Madrid.

Others note still that the same pressures affecting Iberian companies’ ambitions are also restricting the appetite among investors looking into Spain and Portugal.

“Whether we like it or not there has been less international interest in buying Spanish assets than previous years. We would prefer this wasn’t so but we have to be honest. We have asked many of our clients what their ambitions are towards Spain and the answers are generally cautious with much fewer definite targets in mind,” says Pedro Perez-Llorca, managing partner at Perez-Llorca.

A Latin focus

Recent analysis by ratings agency Moodys showed that the global economy is suffering the worst downturn since the 1930s Depression. All of North America is in recession as is virtually all of Europe – with Spain and Portugal among those suffering the most.

The IMF expects global GDP to shrink by 1.4% this year with rich countries’ economies contracting by around 3.8%. The emerging Asian markets look brighter as do the BRIC countries – Brazil, Russia, India and China – while the high spots of Africa include Angola and Mozambique.

Such findings reflect the areas of continuing client interest and investment, say lawyers, with Latin America continuing to stand out.

“The Latin American market has always been very attractive to Iberian companies, and emerging economies such as Brazil, Chile, and Mexico all continue to thirst for new services. The good relationships between us, a common culture and language are an advantage for any Iberian company looking to do business there,” says ílvaro í‰cija, co-managing partner of Madrid-based í‰cija.

There is a clear perception that it is no longer possible for Iberian companies to ignore the region, and huge markets such as Brazil, for which Portugal and Spain continue to be regarded by many European investors as an entry point.

“Latin American markets are still attractive, but Iberian investments are currently concentrating on the most dynamic economies: Mexico, Brazil and Chile. Investments there remain generally stable, with energy and infrastructure companies being the most active,” says Folguera at Urí­a Menéndez.

Iberian entities such as Telefónica, Santander, BBVA, and energy companies including Iberdrola, Gas Natural-Unión Fenosa, Galp and infrastructure groups such as Brisa are now major players across the region. Nonetheless lawyers note the relative ability of Spanish and Portuguese companies to penetrate markets.

“Spain is a large country investing into a lot of predominantly different small and medium-size countries, whereas Portugal is a smaller country investing into one huge country – Brazil, which accounts for approximately a third of all of Latin America,” says António Mendonça Raimundo, partner at Albuquerque & Associados.

Countries in the region may be experiencing their own internal issues but economies have proved relatively resilient.

Businesses are less dependent on credit and the financial markets and transactions are usually less highly leveraged than those seen across Europe and the US.

Others though suggest that the region is losing its lustre, even to Iberian companies, because of the populist nationalist policies of some regional governments, including moves to withdraw from international arbitration agreements such as ICSID.

“There is some reluctance to invest in Latin America because of recent nationalisations, but a growing interest in expanding into India and China,” notes José Marí­a Balañá, Managing Partner of Lovells in Madrid.

The result, say some, is that companies are also now looking to more stable markets particularly Eastern Europe, the Middle East and Asia. Others suggest that it is the growing confidence of Iberian businesses that is seeing them move into more sophisticated environments.

“A historically strong focus on Latin America, and significant success there, has given many clients the ‘muscle’ to look to new markets in Europe and the US,” says Jose Maria Alonso co-managing partner of Garrigues.

Dollar investments may no longer be as cheap as in previous years but there is a clear investment trend towards the US, say many. “Spanish clients continue to focus on opportunities outside of Iberia, particularly the US, where many great companies are trading at very attractive valuations,” says Michael Willisch, managing partner of Davis Polk & Wardwell in Madrid.

The $787bn (€579bn) Stimulus Package signed into force by President Barack Obama in February has also placed significant emphasis on the infrastructure and energy, including renewables, sectors. The result being that Iberian construction and energy companies are now heavily focused towards emerging opportunities – Iberdrola alone is expected to benefit from around $550m (€380m) in US government grants for new projects.

“The US is the main target of a large number of Spanish investors, the Obama emphasis on the renewable energy sector as well as in infrastructure, creates inevitable opportunities for those companies that are experienced in these areas,” says Miguel Klingenberg, managing partner of Freshfields Bruckhaus Deringer in Spain.


For many Portuguese lawyers, it is conversely Africa where they are seeing the greatest new flow of international investment. Portuguese investors are looking to balance a depressed domestic economy with a renewed emphasis on the lusophone Portuguesespeaking countries, notably Mozambique and Angola.

“Africa now seems the destination of choice for many local players in many industries, because of the resilient growth rates and the immense opportunities to develop new business, albeit in sometimes difficult economic and political scenarios,” says Vieira de Almeida at VdA.

The Portugal-Angola Chamber of Commerce (CCIPA) reports that Portuguese exports to Angola now stand at €2,2bn, notes Pais de Almeida, partner at Abreu Advogados, making it Portugal’s fourth largest trading partner. The local economy may have been affected by the global drop in oil prices, on which it remains dependent, but nonetheless it continues to be one of the fastest growing in the world.

“The trend we are witnessing is one of the big construction and real estate companies going to Angola and Brazil and then the big suppliers following them,” says João Espanha, Managing Partner at Lisbon’s Espanha e Associados.

But while opportunities clearly exist, investors nonetheless are still taking a prudent approach, says Pedro Pinto of Pedro Pinto Reis & Associados, while investors from countries such as Angola and Brazil are also themselves now targeting Portugal.

“Portuguese Companies are looking for opportunities in former Portuguese African territories, but there are also substantial investments being made in the Portuguese market in several areas like banking, oil and tourism,” agrees César Bessa Monteiro, partner at ABBC.

Priority coverage

As to how such trends are impacting on the international strategies of Iberia’s law firms, the emphasis of many continues to be towards following their clients but also in a more measured way. The dramatic economic events of the past year may have had an impact on firm’s short-term finances, but their medium-term strategies remain unaffected, say many managing partners.

“Neither our focus or our plans have changed. Earlier this year, during the peak of the international crisis, we opened in Bucharest and Warsaw. And for the next 12- 24 months, we mean to deepen and broaden our practice in Africa,” says Nelson Raposo Bernardo.

For many small and mid-size firms it is however Europe that remains the key. For Monereo Meyer Marinel-lo, Germany remains a major focus, says partner Sí¶nke Lund. For Araoz & Rueda it is predominantly the UK and France says partner, says Francisco Solchaga at Among the major international firms the focus is inevitably more disparate. “For the moment Europe remains our priority, but we are also investing heavily in strengthening capabilities in the Middle East, the Far East and in developing a best friend relationship in India,” echoes Balaña at Lovells.

For Klingengberg at Freshfields, the BRIC countries remain important, but an emerging emphasis is also being placed on South Africa and Turkey. “Our international strategy is long term and we see good opportunities in a number of countries. But we still firmly believe that the US, as the largest legal market in the world, offers great opportunities for the future.”

But it is no longer only the global UK firms that are increasing their focus there, a growing number of Iberian firms are also looking stateside. í‰cija and Garrigues recently announced the opening of Miami offices, Cremades Calvo-Sotelo says it is considering an office there, and there remains talk also of further openings by leading Spanish firms.

Javier Villasante, international partner at Cuatrecasas denies however that his firm is looking there. “Miami does not match our strategy. There are already many excellent firms and lawyers who speak perfect Spanish. It is New York that remains our primary US focus.”

But Miami offers more than an alternative US entry point, it also helps firms enhance their Latin American coverage – and is a preferred regional arbitral seat – but also offers a useful vantage point to follow developments in nearby Cuba, which seems to be slowly opening up, say others.

“We are not seeking to compete directly with the local Florida firms but it is no secret that I think that we should build a strong Latin American platform. We now have a small Miami office with an emphasis on private client, tax and transactional management issues that can plug directly into our clients’ needs across the region,” says Alonso at Garrigues.

Other firms however, prefer to keep their Latin American practice distinct from the US. Jones Day continues to manage its regional practice out of Madrid, but has begun to build up local regional capability, says Riesgo. Last year saw the firm open in Mexico – cementing an established referral relationship – while a Brazil office is now likely.

Urí­a Menéndez, Cuatrecasas and Gomez- Acebo & Pombo already have well-established Latin American referral networks, while Garrigues has continued to talk of closer integration of its Latin American Affinitas network – a level of debate that however prompted the departure of Brazilian member firm Barbosa Mussnich & Aragao at the start of the year.

“It is not a secret that I have said that we should build a strong Latin American platform and the case of Brazil is important – I think that we should be there and it is where we should now concentrate our efforts,” says Alonso.

For Urí­a Menéndez the major development in the coming months will be the opening of a Beijing office making it the first Iberian firm with a presence in the capital – Cuatrecasas, Garrigues and Roca Junyent are all active in Shanghai – and which it will operate in cooperation with its ‘best friends’ Slaughter and May and De Brauw Blackstone Westbroek. “Despite the current financial climate, we have decided to continue strengthening our international strategy, and to focus on a market where Iberian companies are becoming increasingly active,” says Folguera.

Among the leading Portuguese firms, it is again towards Africa that many are placing their major emphasis.

Most already have well-established Angola connections, although VdA in recent months has cemented a new alliance with Mozambique’s Furtado Bihka Loforte Popat & Associados (FBLP) – effectively forming a single firm – while PLMJ last year entered into a new joint venture with Maputo-based MGA.

Lisbon-based Miranda remains however among the best known regional players although other, smaller, Portuguese firms are also placing increased emphasis on building African ties – Servulo and ABBC among them.

“We have planned and are now executing a strategy aimed at the development of a permanent platform involving ourselves, law offices in Angola and other African territories and Brazil together,” says ABBC partner Bessa Monteiro.

A number of Spanish firms are also focused on the continent. “International and more mature businesses are clearly leading Spanish expansion overseas, including to the more traditional markets, but also new ones such as Africa, the Middle East and Asia,” says Francisco Garcia Gómez de Mercado, managing partner at EJ Gómez de Mercado, which has a strong profile in Equatorial Guinea.

Alternative approaches

There is no doubt that the economic pressures facing Iberian companies are clearly having an impact on the international ambitions of many, say lawyers. Domestic and internal issues have meant that many are more focused on ensuring their own survival than new growth. Nonetheless, opportunities remain for those with cash or access to finance, or those companies focused on still in demand business sectors.

“Portuguese companies have shown that they can find opportunities in the midst of the most severe and long lasting crisis. The current economic situation will not be an exception. They have, however, to use their imagination, to look outside the box and to remain flexible and lean,” says Santos Vitor at PLMJ.

Traditional markets such as Latin America remain attractive to Iberian companies although with much of Europe in recession, companies are also clearly now willing to consider more exotic alternatives.

“In spite of the current situation, we still see many of our clients operating abroad. There are interesting niches of liquidity in specific sectors – for example, energy and infrastructure – where key operators are still finding opportunities, but also in emerging markets which offer good alternative attractions in the current context,” says Ignacio Ojanguren, managing partner of Clifford Chance in Spain.

Recent months may have seen a slightly more optimistic business climate but companies remain cautious including in respect of their international ambitions. “The general atmosphere is still of uncertainty but nevertheless estimates of a near end of the crisis are getting more and more credible.

Instructions from international clients come in different shapes and that has not changed recently,” says Paulo Cí¢mara, finance partner at Sérvulo.

What applies to law firms’ clients also however applies to them. Domestic difficulties and falling revenues may have reduced their appetite for new international investments but the medium-term client demand remains.

“Like our clients we have to decide what it means to be international, to analyse how we see the world and where we need to have an emphasis. The level of crossborder work has clearly been affected by the current economic situation but our clients’ and own strategic needs have not,” says Villasante at Cuatrecasas.

For many this means therefore making more modest steps with smaller international offices and more emphasis placed on developing new and stronger referral and alliance partners.

“Law firms are thinking very carefully about establishing new international offices, and reassessing the performance of existing offices. It is crucial however that they continue to offer clients’ options,” says Fernando Pelaez, partner with Caracas-based Hoet Pelaez Castillo & Duque and current IBA President.

While there is no doubt that Iberia’s law firms have to continue to think and act internationally what is also clear is that there remains no single ‘global’ strategy.