Attraction of big-ticket deals, as well as the global aspirations of Spanish clients, mean opening in Madrid is an attractive prospect for Anglo-Saxon firms
Despite some market insiders questioning what incentive US and UK law firms have to open offices in Spain – a jurisdiction where legal fees are much lower than in London or New York, for example – the Anglo-Saxon firms keep coming. Rumours persist about US and UK firms eyeing openings in the Spanish market, with Shearman & Sterling and Norton Rose Fulbright among the names being mentioned. Meanwhile, in May this year, one did actually take the plunge with UK firm Pinsent Masons setting up shop after luring a team from Ramón & Cajal, a move that has led to a legal dispute between the firms. While acknowledging that Spain may be a “low fee jurisdiction”, legal market insiders argue that opportunities to advise on some big-ticket M&A transactions, as well as a trend for Spanish businesses to expand their operations around the world, mean that for top quality firms, there is always an opportunity to build a successful practice.
Spain offers significant opportunities in areas such as private equity and finance, which are industries where UK law firms have traditionally been strong, says Andrew Ward, a partner at Cuatrecasas in Madrid who previously worked as a barrister in the UK. In addition, Ward says that “Spain has a large and sophisticated economy, so a law firm that wants to portray itself as global, really needs to have a presence”.
Meanwhile, multinational companies that operate in Spain, or Spanish companies that go overseas, demand legal advisers with a global outlook, says Herbert Smith Freehills Madrid managing partner Miguel Riaño. “This makes the Spanish market very attractive for firms such as ours that operate in different jurisdictions,” he adds. Growth in the Spanish real estate and energy sectors, as well as an increase in major transactions in general, is also appealing, according to Riaño.
With regard to the US and UK law firms that already have a presence in Spain, this is often a result of them following clients that were investors in Spain and southern Europe, says Javier Monzón, partner at Freshfields in Madrid. “Besides profitability and fees, this is also about a global offering to international clients,” he says. “A strong pan-European platform has been part of the strategy for the UK ‘Magic Circle’ firms, except Slaughter & May, and a factor that differentiates them from their US competitors’ offering in the UK and across Europe.” However, some elite US global firms have taken the step of opening in Spain, such as Latham & Watkins, White & Case and Davis Polk & Wardwell. In total there are approximately 30 US/UK firms with offices in Spain.
Diego Lozano, partner at Pinsent Masons, and head of the firm’s Madrid office says opening an office in Spain was the “natural next step” for the firm. He adds: “Pinsent Masons already had offices in France and Germany [before opening in Spain], so it was a case of the firm looking at where it could strengthen in Europe.” Lozano says the options were Spain or Italy, and the firm chose Spain because it already advises a significant number of Spanish companies – including Telefónica, Banco Santander, OHL and Ferrovial on their operations outside Spain. Lozano adds: “We are already working with many Spanish companies on infrastructure projects around the world.”
According to Lozano, around 25 per cent of the revenue of Pinsent Mason’s Madrid office is generated by international work. “We have a simple strategy, we want to be a leader internationally in our global sectors, we want to offer clients a significant international presence and be seen in the market,” he explains. “I would say we are in the middle of the first phase of our development, we currently have a strong corporate practices, a finance team and a litigation team, but we are also growing our technology and construction-related practice and we need to increase our regulatory capability.” Lozano is targeting significant growth for the firm in Spain – Pinsent Mason’s office in Madrid currently has 18 lawyers, but he anticipates that, in a year’s time, the firm could be twice that size.
Ignacio Ruiz-Cámara, co-managing partner at Allen & Overy in Madrid, says Spain has some very “big, strong and international corporates and financial institutions, with a presence all over the world” and that consequently, if firms want to build a relationship with such clients, they need to be close to their decision-makers. Ruiz-Cámara adds that there are also major transactions happening in Spain that can generate big legal fees. “Obviously, average fees are higher in New York or London, but that is not the only consideration,” he says. “While the average deal in Spain may be smaller than in other markets, there are still some big ticket and complex deals happening in Spain year after year, such as takeovers, mergers, joint ventures and bond issues, which justifies international firms charging higher fees.” However, Monzón points out that, for the Spanish offices of smaller US and UK firms, maintaining profitability levels in line with the expectations of international firms is possible but “increasingly challenging”.
The highly competitive nature of the Spanish market is seen, by some, as a barrier to the entry of more US and UK firms. “Even at the top end, firms like my own are more than able to compete with them head-to-head and in every area,” Wards says. He argues that, given there are already a considerable number of major US/UK law firms already present in Spain, it is unlikely there will be many more joining them. However, he adds that, as there are large firms in the UK and the US that do not yet have a presence, “if there is work for them then they will come.”
Maria José Menéndez, Madrid managing partner at Ashurst, says the fierce competition in the market is due to the fact that there is not a significant amount of high-end work in Spain, and international firms and the top Spanish firms are all competing for that which is available. “We keep hearing about more firms looking into setting up an office in Spain, so yes, it is certainly possible for more firms to come, but they should be aware that, although there clearly is scope for success, our market is tough,” she says.
Shearman & Sterling and Norton Rose Fulbright did not comment on rumours that they are considering opening in Spain. Ruiz-Cámara says the idea of more US and UK firms opening in Spain cannot be dismissed, and adds there could be some movement if US/UK firms “find the right partners to open up their offices.”