Spain’s law firms have long and established relationships with leading firms in Latin America - but with the crisis hitting hard at home, asks Clare Bolton, can they continue to be relevant in the region?
When Telefónica posted its first-quarter results, the market was somewhat surprised at a growth in net income of nearly 10 per cent, despite a raft of forecast cuts at European rivals. Over the two quarters since then, the story has remained the same - despite falling revenues in Spain, the Latin American arm has been growing sufficiently fast to offset that. In November, the group posted profits of e1.99 billion, over a third of which is Latin American.
In the financial sector, the numbers are even more significant: in 2008, 51 per cent of BBVA’s operating profit came from Latin America, as did 43 per cent of Santander’s. Utilities and energy companies such as Repsol, Endesa and Iberdrola also all owe significant chunks of their success to the region (although Repsol, badly burnt by the Argentine crisis of 2001, might yet be cashing in its Latin American assets at some point). Spain is now the second-biggest investor in the region, after the US.
Spanish companies are also taking advantage where their US rivals are less keen to spend money. In Venezuela, Iberdrola signed a US$2 billion contract to build a combined-cycle gas turbine power plant in August; and an oil exploration cooperation deal between Repsol YPF and state-owned PDVSA was signed earlier in the year. (A leading Venezuelan lawyer told us that Spanish firms were by far the biggest referrer of work to his firm this year.) Spain is Cuba’s third trade partner after Venezuela and China, and its second-largest investor (as is discussed in more detail on page 23).
This tendency to invest in the region has been in evidence at these companies for some time, encouraged by the linguistic and cultural links which helped them take full advantage of Latin America’s privatisation boom throughout the 1990s. Yet it is the contrast between the domestic and Latin American markets, brought into sharp relief by the global recession, which signposts the future.
Spanish unemployment is at nearly a fifth of the working population and twice the European average; Latin America’s is 8.5 per cent. Spain’s GDP fell by 4 per cent in the first half of the year, and its 2010 IMF forecast is the worst for any developed economy. Latin America’s GDP could fall 1.8 per cent this year, and most economies there are expected to come back sooner, with a rapid return to health particularly visible in Brazil.
So the region is a sensible and obvious growth lever for Spanish companies. Many attribute their success to long-term commitment to Latin America - many of those mentioned here are approaching 20 years of investment, if not more. They joined during a boom, but in most cases stayed during the busts, and are now reaping the rewards.
Spain’s top law firms cannot claim the same proportion of financial input from the region as their clients - at the country’s top-grossing law firm, Garrigues Abogados, former co-managing partner José Maria Alonso admits that, as a percentage of revenues, work originating from Latin America is “not large”, and UK and US firms are always going to contribute a larger amount to the bottom line of firms in the region than those from Spain. But if the success of Spain’s top companies in the region is down to the length and steadiness of their commitment there, the same can certainly be said for its law firms.
Garrigues, for one, has a history going back more than four decades, as the creator and founder of the prestigious Club de Abogados network. However, its merger with Arthur Andersen in 1997 meant the dissolution of those links, and the Club now has rival Gómez-Acebo & Pombo Abogados as the Iberian member of the group.
Meanwhile, Garrigues’ arch-rival, Uria Menendez, decided in the mid-1990s that Latin America was somewhere they needed to be. “It followed basic reasoning,” says partner Eduardo Rodríguez-Rovira. “Our clients were launching major investments there, and so, as a leading Spanish firm, we had to go.” Its strategy, beginning in 1997, was two-pronged: firstly through building a “best-friend” network with leading firms, and also by always having lawyers based in the region for long periods. For example, Rodríguez-Rovira himself spent three years in Buenos Aires, and partner Luis Acuña is currently in São Paulo.
Key to the network’s development was the late Rodrigo Uría Meruéndano, who spearheaded the firm’s push into the region. Speaking after Uría died in 2007, Juan Francisco Gutiérrez of Chilean network firm Philippi, Yrarrazaval, Pulido & Brunner described the nature of the relationship: “Rodrigo was extremely generous in sharing with us Uría’s experience in forming and developing its internal organisation, which of course helped us a lot in developing our own law firm,” he said. “At the same time, he was also very respectful of our identity and never pushed us into adopting any particular structure or policy in order to better fit with the Uría organisation - it was thus possible for us to use Uría as a model.”
Uría’s network spread from Argentina (with Marval, O′′Farrell & Mairal) to Chile, while in 1998 the firm also founded its own international law office in São Paulo. Rodrigo Uría helped found Peruvian firm Payet Rey Cauvi Abogados (then called Uría & Trazegnies) in 1996, and it remains a dedicated member of the group. Mexican firm Galicia y Robles SC was added in 2000. In Colombia, the firm links more loosely with Prieto & Carrizosa; and in 2002, the firm opened a Brazilian alliance firm practising local law, Dias Carneiro Advogados.
Hot on Uría Menéndez’s heels was Cuatrecasas, Gonçalves Pereira with its Pacto Atlantico, signed in November 1998 with Argentina’s Pérez Alati, Grondona, Benites, Arntsen & Martínez de Hoz (h) and Brazil’s Machado, Meyer, Sendacz e Opice Advogados. Connections made since include Carey y Cia in Chile, Creel, Garcia-Cuellar, Aiza y Enriquez, SC in Mexico and Muniz Ramirez Perez-Taiman & Olaya in Peru.
Cuatrecasas too places senior lawyers within the region for long stints: practice head Jaime Llopis ran their São Paulo-based international practice for five years, heading a team now run by Julián Lozano.
While both of these networks are close, informal and non-exclusive, they are based more on the “best friends” concept than on a contractual relationship (except for Uría Menéndez’s Brazilian firm, which works exclusively with the Spanish parent). In both cases, lawyers are frequently exchanged, along with ideas, practices and training initiatives, but firms are free to work with others in the market.
Cuatrecasas’ arbitration team, for example, is currently working with Brazilian disputes boutique Sergio Bermudes Advogados on an ICC case, as the client had previous experience of the lawyers there. “Either because of conflicts issues, or because a client prefers it that way, it is often good to have the freedom to be able to work with other firms in each market,” says arbitration partner Cristián Conejero-Roos.
“There is no formal, structural or institutional approach, but we foster group commonality, by sharing training, events and expertise, among other things,” says Uría’s Rodríguez-Rovira. “We would not consider having it any other way - it matches our strategy in Europe, and it works very well for us.”
Better than predicted, in fact. Rodríguez-Rovira explains that in the early days it was thought the group would have only an indirect financial impact on the firm. “Not in terms of the P&L sheet, but in terms of the balance sheet - so when clients face problems in the region it would keep them with us at home,” he says. However, it has turned out that “the network is one of the things that has made us the firm we are today - and it is profitable in its own right.”
A partner from a Uría network firm in the region put it more succinctly: “I just don’t understand exclusive relationships. We get great work, great experience, great training and exchanges from Uría, and have a deep and mutually profitable relationship with them - but we can still work with other firms if we want, and we don’t have to pay… ”
Tied in
Since 2004 there has been another type of Spanish-led network in the region, headed again by Garrigues. Having split from Andersen in 2002 the firm refocused on its legal roots, and on Latin America, by forming Affinitas in 2004, initially with three firms before adding three more a year later. Those six firms were Mijares, Angoitia, Cortes y Fuentes SC in Mexico; Bruchou, Fernandez Madero & Lombardi in Argentina; Barbosa Mussnich & Aragao in Brazil; Barros & Errázuriz Abogados in Chile; Gomez-Pinzon Zuleta Abogados SA in Colombia; and Miranda & Amado Abogados in Peru.
Each of those firms are young (the oldest is Chile’s Barros, founded in 1988), modern and ambitious, focused on growth and the provision of high-end advice on cutting-edge transactions. All have made a demonstrable impact on their respective marketplaces within their first decade or two, and are serious contenders for the older, more traditional leaders which so often rule the roost in Latin American legal markets.
The firms also signed an exclusive alliance “with no ceiling”, designed to be much closer and more comprehensive than that of Garrigues’ rivals, leading to speculation that the firms would eventually merge into what would be the first truly pan-regional law firm.
That (admittedly always far-off) ideal was dealt a blow when Barbosa Müssnich left the alliance earlier this year. “We were not clear on how that greater integration would deliver for our clients,” Bruno Camara Soter da Silveira, then-managing partner, said at the time of the split. “It would be very disruptive to stay in the alliance but on a different path - it is better to say openly we see things differently.”
According to José Maria Alonso (the driving force behind the formation of Affinitas and still heavily involved, despite stepping down from his management position this year), “we are looking to become more aligned, and to operate on a more integrated model - but although we have not decided on the right formula for that, we are not currently considering a merger.” Despite a rocky patch, during which every outcome for the alliance was on the table (including dissolution), the other firms in the network have recommitted to each other and the network, while nonetheless holding on to their independence.
The value of Spanish connections
When Barbosa Müssnich left Affinitas, Soter also commented on Brazil’s closed legal market, stating that its firms must prepare for the allowance of multi-jurisdictional partnerships. “An international strategy is essential for our survival, it needs to include other jurisdictions, and the US or UK needs to be involved,” he said. “Just an Ibero-American alliance is too short - we need to find another path.”
Competitively speaking, Spanish law does not hold anything like the same position that US or UK law does in deal-making. The broader and longer-standing networks of Anglo-American firms mean they are more likely to attract investment from Asia and elsewhere, as well as from domestic companies. That said, the Spanish firms also have offices in eastern Europe and Asia.
The US client base is far more diversified - certainly, if a Spanish firm brings in Telefónica it would be readily welcomed, but there is a strong argument that says that such investors are already part of the fabric of the region: a Bank of Spain report says that 95 per cent of Spanish investment in Latin America since 1993 has come from six companies: Telefónica, Santander, BBVA, Repsol, Iberdrola and Endesa. These companies have their own teams and external counsel networks already embedded in the region. The other 5 per cent - vaunted previously as a second wave of investors - will inevitably have been affected by the recession - although nonetheless Garrigues’ capillary networkof offices within Spain should help catch a portion of them.
Indeed, one of the challenges for the continued success of the alliances, particularly the non-exclusive ones, is their ability to keep on delivering clients to the region given the longevity of those companies’ investments there. And if firms in the non-exclusive alliances are dismissive about the lock-in process, neither are they necessarily getting the big-ticket work from their looser arrangements. For example, on Endesa’s preferred outside counsel list are the Cuatrecasas-allied Pérez Alati, Grondona in Argentina, but Uría firms Payet Rey in Peru and Philippi Yrarrázaval in Chile (alongside Cariola, Diez, Perez-Cotapos & Cia Ltda and Guerrero, Olivos, Novoa y Errázuriz, who remain unconnected to any one Spanish firm). Equally, Santander is very much a core Uría Menéndez relationship client, but picks and chooses from the wide range of legal options in the region as it sees fit.
Eduardo Rodríguez-Rovira admits that having such mature clients in the region means that the companies do not need his firm for day-to-day issues. “But for strategic matters, for the big issues, they still very much use the network - the firms in it are independent, but it is a very, very tight relationship.” His firm also works a little more in the background on some issues - on Santander’s recent IPO in Brazil, Davis Polk & Wardwell and Pinheiro Neto Advogados led the work on this US-Brazilian law deal but Uría was involved, although Spanish law issues were hardly the most relevant.
For Rodríguez-Rovira, this lesser importance of Spanish law matters (compared to US or UK law) is one thing that makes the local law network make sense for a firm like his. “We’re European and provide broad advice - a US firm provides domestic US advice, even in the region,” he says. “If they tried to get into the detail of local law, it would require a level of integration and communication with local firms that most US firms are not interested in.”
Alonso agrees, noting local firms in the region could not be seen as bound to any one US firm. “US-referred work is such an important part of their business, and if there was an idea a firm was allied to one US firm it might jeopardise that,” he says. “Firms are comfortable allying with a Spanish firm because we’re not seen as competitors.”
Garrigues has recently worked hard to portray itself as the partner, not competitor, of US firms when it comes to Latin America. Part of the member firms’ recommitment to the network was launching a US project in which the Peruvian firm’s managing partner, Jose Daniel Amado, is touring US firms marketing Affinitas to them. “We want to concentrate the power of the whole alliance for top US and UK firms, and demonstrate to them we have the same values, the same standards of quality, and a breadth of experience in Latin America, and we would be great partners for them,” said Amado.
Garrigues also has a small Miami office which doesn’t practise US law, but is designed in part to help funnel work down to the region and vice versa. “We have several good friends in Miami and so it is better for us to work with several firms,” says Alonso.
There is one US firm which has followed Spain’s lead in forming a local law alliance, Squire, Sanders & Dempsey LLP. Its non-exclusive alliance is designed to be more than a client-referral network, aiming to work together to promote best practice and aligned working >
The competition question is trickier when considering UK firms, likelier than their US rivals to globalise their business. Of the top 10 most international law firms, judged on the percentage of lawyers based outside their home jurisdiction, eight are UK firms with only two - White & Case LLP and Baker & McKenzie LLP - of US origin.
More importantly, Linklaters, Clifford Chance LLP, Freshfields Bruckhaus Deringer LLP and Allen & Overy LLP - the magic circle firms with the biggest Latin American practices - are players in their own right in the Madrid market, and thus compete with the Spanish firms for clients. While of course the heart of UK firms’ Latin America practices are in New York (and São Paulo), Madrid does have its role in channelling work to and from the region.
Alonso admits his network is less likely to get work from UK firms, “but we do still get some, even though others have a presence in Madrid and could see us as a competitor.” He says the fact that London firms generate any work at all “speaks to the quality of the firms in the alliance.”
Into this mix comes Jones Day, the only US firm to base its practice in Madrid (Latham & Watkins LLP, Davis Polk & Wardwell, Dewey & LeBoeuf LLP and the ubiquitous Baker & McKenzie LLP also have offices there, but they all have their Latin American hub in the US). Jones Day’s Spanish law practice is a recognisable part of their Latin American work, although their model is focused on advising their core global industrial clients (often of US origin) throughout the world; feeding these clients into their new Mexican office, for example, has ensured the local head, Fernando de Ovando, describes his first year within the global firm as “very, very good - the interaction between our office and the global network has been amazing”.
Practice head Luis Riesgo, for his part, is equally happy with the contribution of the Mexico practice to the broader firm. He looks forward to a time when Brazilian rules might allow a Jones Day-branded local law practice in Brazil. In both those countries and elsewhere, the firm certainly competes with local Spanish firms, most notably for infrastructure deals; its US law capabilities, Riesgo notes, gives them a significant advantage in these and other matters.
Building the links
Infrastructure and project finance work was touted by all the Spanish firms as a key driver for their practices in the future. With Latin American governments planning to spend their way out of a downturn (one which is much less severe than elsewhere) by improving the region’s roads and ports there is certainly money to be made, and Spain is home to a number of excellent construction and engineering companies hoping to capitalise. As one example of many, the US$3 billion contract to build the third set of locks for an expanding Panama Canal was awarded to a Spanish-led consortium, that of Madrid’s Sacyr.
The head of Garrigues’ public law team, Alfredo Rancaño, points to projects, such as the firm’s work on the Bogotá metro, as those in which the Spanish link really works. “Spain has a huge experience - technical, financial and legal - in the field, and we can really add value to projects in other areas of the world, particularly Latin America, where we are very comfortable linguistically and in terms of the legislation,” he says. He also notes that Latin America’s somewhat rocky start with public-private partnerships can be eased by bringing European experience on board.
To really take advantage of the long-overdue infrastructure boom, however, a strong presence in Brazil is key. Not only because that is where much of the construction will take place - the World Cup and Olympics together ensure that much of Rio de Janeiro, in particular, will be a building site for the next few years - but also because Brazil’s big engineering and construction companies will play a significant role across the region and good connections in the country will be key.
More broadly, of course, the world is caught up in Brazil’s burgeoning self-confidence, and the idea that a Latin American alliance must be strongest in its biggest economy is gaining credence. Cuatrecasas, for one, has a local titan on board, as few doubt the quality and reputation of Machado Meyer, particularly when it comes to high-end financing work.
The other two Spanish firms have very different strategies: Uría Menendez’s local firm, Dias Carneiro Advogados is very much seen as a satellite of the Spanish parent - but Rodríguez-Rovira believes it has potential as a leader of the future. “Henrique [Dias Carneiro] is building a great law firm with our help - the younger generation are really very strong, and not even 30 years old.” He points to the firm’s experience in Peru: Payet, Rey, Cauvi might have been Rodrigo Uría’s brainchild, but few deny that it is now a strong and respected firm in its own right. “It will be the same pattern, simply a decade later”. He also notes the firm’s strong relationships with all the major firms in Brazil.
Garrigues, meanwhile, is mulling its future in the country which accounts for, as Alonso notes, a significant chunk of the region’s population and GDP - “so it requires a different way”. He didn’t rule out replacing Barbosa Müssnich with another alliance firm, but acknowledged it would be hard to find one of the same quality which would fit well with other firms in the alliance. Bar rules against multi-jurisdictional partnerships are a stumbling block: “We would like to practice as much local law as the regulations would allow us.”Also under consideration, adds Alonso, is integrating with a small or mid-sized firm, then expanding that as much as possible - the kind of model Thompson & Knight had followed in a local alliance with Tauil & Chequer, although that firm has now joined forces with Mayer Brown LLP.
All models are now on the table, including a purely international law office; indeed, Garrigues might even consider competing more directly with US and UK firms. “US and UK law is more international than Spanish law - it would make sense to render it,” he says. He stressed, however, that the firm had not yet made a decision.
Where the firms’ strategies align is their continued and expanding commitment to the region: like international law firms everywhere, the practice heads at these firms know that Latin America is, in general, a region of opportunity and a shrewd lever for growth. Which of the alliance strategies will ‘win’ is either too early to call or, more likely, a non-existent battle: Garrigues is Spain’s biggest law firm in terms of lawyers and income, and so its focus on incorporating local offices into its broad network is easily understood. Uría Menéndez is a blue-chip institution, highly profitable for the Spanish market, with a proven track record in making best-friend relationships work well. Again, its strategy in the region suits its broader profile, and if there is room for all three and more in Spain, then there surely is in Latin America too.
What might be more interesting is if a Latin American firm decides to become truly pan-regional, through the process of forging exclusive alliances into a merger, or indeed by opening offices across the region and elsewhere. That might be some time off, but it would be a compelling choice for many clients, from Spain and elsewhere.
(Latin Lawyer 20.01.2010)
(Notícia na Íntegra)