Madrid annual report 2015: The new Renaissance

Managing partners in Madrid say that, given the revival in the Spanish economy, firms have to take this opportunity to reinvent the way they do business.


Many lawyers are convinced that the crisis is over but it would be wrong to say they are unanimous in this view. Yes, an increase in M&A and capital markets is fuelling optimism but there are a still few voices sounding caution and warning that there could still be some troubled times ahead. However, the overall feeling is one of optimism. Yet challenges remain – the younger generation of lawyers are creating headaches for managing partners in Madrid. Some senior lawyers say associates are less versatile than they used to be as they tend to specialise too soon in their learning and lack the training to be an all-rounder. Other managing partners remark that associates are generally less motivated and question whether the legal profession still has the allure it had in the past.   
Despite these concerns, workflow is increasing for firms in Madrid. Baker & McKenzie Madrid managing partner, José María Alonso, says that, in the last 12 months, more opportunities have opened up for law firms in the Spanish market. “More foreign investors are interested in Spain, particularly in the real estate market, and there is also more capital markets work,” he adds. Meanwhile, Alonso believes that many Spanish clients – particularly construction companies – are looking to expand their businesses in the Anglo-Saxon market, especially the US.
José María Segovia, senior partner at Uría Menéndez, says one of the major changes has been that “we no longer speak about the crisis all the time”. He adds: “All the law firms are working more, there is an increase in M&A and capital markets work, though there has been an increase in litigation.”
Clifford Chance Spain’s managing partner, Jaime Velázquez, points out that there have been few changes in the Spanish legal market and highlights that the presence of US firms is not as noticeable as it is, for example, in the French or German markets.  He adds: “Spain is seeing more investment from the US and a general improvement in the economy – we are also seeing a lot of interest from Asian clients in Spain’s industrial sector and South American clients are investing in listed companies.”

Going global
Miguel Riaño, Madrid managing partner at Herbert Smith Freehills, says the market is more stable now and there has been consolidation among Spanish companies: “Private equity houses are investing in Spain again.”
Deloitte Abogados managing partner, Luis Fernando Guerra, says the appetite of Spanish companies for expanding abroad has not changed. He adds: “Many Spanish companies are making big acquisitions outside of Spain, but there are also mid-sized companies looking for deals.”
Freshfields Bruckhaus Deringer Spain managing partner, David Franco, says the challenge for law firms now is trying to be as international as their clients. “A lot of our turnover is generated in jurisdictions where we don´t have offices. We introduce our clients to local players, we educate our lawyers to be more global as clients are expecting trusted advisers to go with them wherever they do business.”
Alonso says that Spanish clients are becoming more sophisticated and are going to more sophisticated markets. “They are thinking in terms of Anglo-Saxon markets – the UK, US and Australia, as well as Asia-Pacific markets – law firms need to be global, a big part of the revenue from big Spanish companies comes from outside Spain,” he says.
Roca Junyent managing partner Joan Roca says his firm´s practice has “shifted” in the last year. “We are doing less insolvency and more M&A,” he says. “For our clients, in the crisis, it was about surviving but now they are worried that they face competition in all the jurisdictions in which they are active.”
Alonso says that, while there has been an increase in the number of hours being billed by lawyers, it is not certain that this will be translated into increased revenues. “Clients are more difficult in terms of prices,” he says. “They want more senior lawyers but they don´t want to pay higher prices.”

Struggling to manage?
Segovia says one of the issues now facing law firms is how to manage lawyers with four years PQE (post qualified experience). “Five or more years ago, newly qualified lawyers had more legal education and the practical aspect was left to law firms,” Segovia says. “Now lawyers study more practical subjects and they say they know the practice.”
Franco says that investment bankers are now in more of an optimistic mood. He adds: “There is less concern than there was a year ago about deals derailing.” Meanwhile, Franco argues that in-house lawyers have grown wiser during the financial crisis and have enticed some law firm partners in-house. In addition, he says training younger lawyers now presents an issue: “Very young lawyers are starting to work on a peaking market, they have been brought up in a different environment – lawyers enter the profession at different stages and the economic environment influences the type of work they do and how they are trained.”
Velázquez says that clients’ choice of external legal advisers is influenced by risk management-related concerns: “Having access to a highly qualified team is crucial to ensure an efficient approach to the transaction, manage risk and preserve reputation.” Riaño believes that “we are living at an exciting moment” and that the challenge for law firms now is to implement their strategies. “If you want to concentrate on profitability, you need to execute that strategy,” he says. “What will differentiate firms will be those that are able to execute their own strategy.”
Allen & Overy co-managing partner Antonio Vázquez-Guillen says that, when it comes to legal requirements, clients want a “one-stop-shop” but the approach to providing this can differ depending on the firm. However, he adds: “There is a difference between the in-bound and out-bound markets. Capital markets are good at travelling but public law and litigation are very local and it can be difficult to compete with local players.”

Is the crisis really over?
Cuatrecasas, Gonçalves Pereira Madrid managing partner, Francisco Pérez-Crespo, says he is “not so sure the crisis is over”. He adds: “We are finishing restructuring work at the same time as working on M&A procedures,” he says. “There are still problems.”  Pérez-Crespo adds that there are also concerns about the way young lawyers are trained. “Young lawyers are trained in a different way, they are more practical, but I prefer a theoretical background.”
Roca argues that the Spanish legal framework does not incentivise going abroad to study a LLM. “In a global world, we need more global lawyers,” he says. But Riaño claims: “Young people are more global than ever – this is a fantastic generation, with some people speaking five different languages.” He adds that the problem is that training is a “long-term investment”.
Alonso says that firms with an office in Portugal used to find it difficult to get lawyers to move to Lisbon, but he adds that the good side of the crisis was the “internationalisation of lawyers in the Spanish market”.  Juan Díaz Hidalgo, managing partner at Eversheds Nicea, says that lawyers are “very open” to working abroad.
Díaz Hidalgo adds that real estate and M&A work is booming. However, he says: “Clients tend to be very conscious of risks and transactions take longer as our clients are more prudent – law firms are also having to adapt to increasingly more sophisticated procurement processes and we have to be more efficient in terms of billing.”
Guerra argues that firms need to understand the expectations of young lawyers. “They can be well prepared but it is difficult to manage their expectations – law firms are facing more challenging times and strategy will be the key,” he adds. Alonso says firms need people trained to deal with the more administrative side of law firms. “You need management skills,” he adds.

Doing the dirty work
Segovia says the advantages of the Anglo-Saxon influence on the Spanish legal market is that it meant Spanish firms were “obliged to do things we considered a bit dirty, such as business development”. He adds: “The Anglo-Saxon firms may have had a back office in London but now every firm has the same tools.” Alonso says law firms need to be more efficient: “Clients are not paying as much as they did in the past and it means we have to question whether this profession will be as profitable as it has been.”
Segovia says lawyers used to be prepared to bill for 2,000 hours per year, but now “maybe only two out of six are prepared to do so”. He adds: “More and more people are not concerned about being masters of the universe.” Vázquez-Guillen says that lawyers increasingly need to think and act like businessmen – he adds that, for some clients, “any piece of legal advice that does not fit on the screen of an iPhone 6 is not of interest to them”.
According to Segovia, it used to be the case that lawyers´ training was broader and therefore they were more versatile: “Will the new generation of lawyers who are now doing IPOs be able to shift to doing restructurings? I think it will be impossible.”
Gómez-Acebo & Pombo managing partner, Manuel Martín, says that in order to be able to work in a competitive environment, firms have to be able to deliver services in a way that is both efficient for the client and profitable for the firm. “That means that skills needed nowadays would include, at least: knowing how to manage teams; leadership; project and resources management; and of course, understanding the financial parameters of our own business.”
Alonso disagrees with suggestions that clients are less loyal. He adds: “However, they do have more opportunity to choose – there has been a war on prices, clients have learned a lot, they use beauty parades to get better prices and they now call you a supplier, and in some cases apply the company´s procurement standards.”

More panels
Riaño says the provision of legal services will now more often be linked to agreements. “There will be more panels and we will face conflicts – for example, some clients saying they don´t want their legal advisers working for companies in the same sector.” Velázquez claims that when looking for legal services, international clients have a wide choice of “excellent and sophisticated offers” from prominent national and international firms in Spain.
With regard to conflicts, Vázquez-Guillen comments on the disadvantages of being part of a global firm: “If we want to act for a big Spanish player, but if the firm´s office in London is acting for a counterparty, we can be conflicted.” Franco says that, despite some clients demanding that their legal advisers work exclusively for them in their particular sector, “this is no guarantee that they will give you deals” in the future. “Industrial clients from Asia will look for specific sector experience, if you don´t have it, they won´t hire you.”Alonso says that, due to conflicts of interest, there will be more boutique litigation practices.
According to Segovia, the fact that the Spanish legal market has remained relatively unchanged was unexpected. “In recent years, we have seen the same players and that is surprising, I think it´s good to see new faces – we´ll see what happens with the auditors, but it will be good to see new faces in five to ten years time.” Alonso says the law firms linked to the auditors are able to “attract better talent than in the past”. Another partner adds: “After the Arthur Andersen case, there was a feeling the auditors might disappear, but that has not been the case.”
One partner remarks that auditors have a way of providing legal services that is “more of a package”. He adds: “When it comes to compliance, for example, the auditors have the legal team and the technology.” Martín says the new auditors’ law is creating some uncertainty about the legal services model of the ‘Big Four’. One partner speculates that potentially some such companies could get rid of their “less profitable auditing arms”.

Making a mess of it
Alonso says law firms will continue to get more work in 2015. “Investors are thinking about more than just real estate, they are looking at all sectors of the economy,” he says, though Alonso adds the caveat that there could be possible government instability this year.
One partner says many law firms made the mistake of not recognising that the crisis was upon them. “They noticed too late and made a mess – firms have to make decisions now for the medium term, not just the short term.”
Franco says that the market is now more volatile and that growth will come from meeting client demands rather than “betting on the economy”. Díaz Hidalgo says that, in the coming year, litigation and labour practices will suffer – “we have to rethink the business of law, we have to fulfil clients´ needs”. Roca says: “We´re much better off than we were two years ago, but we have to be prudent, there is still uncertainty, we have to focus on adapting to client needs – we have to listen to the client.”
The outlook for Madrid´s law firms has certainly improved but only the most astutely managed firms will be able to capitalise on the opportunities offered by the improving economy. Paying attention to, and providing for, the wants and needs of clients will be the key to success.