The news of the arrival of two major international law firms into the Spanish legal market demonstrates the growing strategic emphasis of Spain and of Spanish clients globally, but has nonetheless surprised some, coming as it does in an economic slowdown.

The March news that US-based Dewey & LeBoeuf was to open in Madrid was closely followed by a similar announcement by City of London heavyweights Herbert Smith. Although unrelated, such developments, lawyers say, help to demonstrate the continuing international demand and interest in Iberian legal and business connections even in the face of the obvious economic challenges that it currently faces.

“Despite the economic headlines, it is in my opinion a good time to start a new project - to focus on building a new client base and on working as efficiently as possible,” says Alvaro Sainz, who is to co-lead the new Herbert Smith office.

Three of the four partners initially recruited to establish the UK firm’s Spanish practice were previously with the Madrid office of Linklaters: Miguel Riaño who led the firm’s energy and infrastructure practice in Spain, administrative law partner Ignacio Paz, and corporate partner Sainz, and litigation specialist Ignacio Diez-Picazo, a consultant with Linklaters until last year.

In addition, London-based Herbert Smith finance partner David Wyles is to relocate to help build the finance practice and aid integration with the firm’s network. He will sit on the new office’s management committee alongside Riaño and Sainz. The firm officially opened for business in Madrid at the start of June but will not move into its own offices until the start of September.

Endorsement

The four Spanish partners were approached directly by Herbert Smith, says Sainz. The decision to move, while not easy, nonetheless offered an opportunity to build something new while taking on board the lessons learnt at Linklaters. Sainz was among the first Spanish partners to join Linklaters in 2000, having moved across from Garrigues, shortly followed by Riaño.

“What is important is that as professionals we trust one another, we have worked closely together for a number of years and know each others’ strengths. But there is a heavy responsibility on us towards our teams and to our clients who trust us to look after their interests perhaps even better than we have done previously,” he says.

“Inevitably, transitional issues arise, but we have been extremely pleased with how things have gone. How our arrival was received within Herbert Smith and their network, and by competitor firms. You never know what the reception will be among clients but the vast majority have agreed to move with us, which is a fantastic endorsement of their belief in what we are doing,” adds Riaño.

Also moving across have been the majority of the partners’ senior associate team, while the coming months will begin to see Herbert Smith look to recruit more junior lawyers and to fill practice gaps with more senior hires. “We already count around 20 lawyers but the idea is that we will have most of what we need in place by September, and to grow further in the years to come,” says Riaño.

Immediately prior to opening, Herbert Smith announced that it had added a fifth local partner, Ignacio Echenagusia, formerly a corporate and transactional focused managing associate with Linklaters in Madrid.

For David Wyles, the firm’s decision to open in Spain is in line with the principal strategic goal of selectively expanding capability to meet the needs of its multinational clients. “For a firm that wants to operate on the global stage, Spain is a market and an economy that we cannot ignore. There is a lot of interest among our clients about what is happening domestically, but also Spanish companies themselves are now incredibly active internationally.”

Strategic fit

Some competitors may question the rationale of making such an investment at a time when Herbert Smith has looked to cut costs elsewhere – in June it announced 84 London redundancies – but Wyles says that support for the move was overwhelming within the firm.

“We take a long-term view to building up our practices and offices and the partnership has taken all of this into account. It is a fantastic opportunity for all of us. We do not want to simply have a ‘franchise’ office.” The opening nonetheless represents the inability of Herbert Smith to persuade its local referral partner Cuatrecasas Goncalves Pereira to join its European alliance, alongside German firm Gleiss Lutz and Dutch firm Stibbe. Cuatrecasas signalled last year that it was against a more formal integration and consequently Herbert Smith had been known to be exploring options for a merger or to launch its own domestic practice.

“Herbert Smith remains puzzled why Cuatrecasas did not want to work on a more exclusive basis,” says the managing partner of a competitor firm. “But perhaps they failed to read the motivation of the handful of hugely successful partners leading the firm.” Going forward, Herbert Smith will continue to need to rely on local law firms, notably in areas such as labour and competition, while the team in Madrid will also now no longer have any direct connection to Portugal.

Despite having operated from a distance, it nonetheless has extensive experience of advising on Spain-related matters for multinationals, including Spanish businesses on their international activities. The firm advised BAA on its £15.6 billion acquisition by Ferrovial, and they continue to advise BAA on competition law aspects of the potential sale of Gatwick Airport plus other airports. It also acted as the UK referral firm for Yell Group on its €3.1 billion bid for TPI, the publisher of Spain’s Yellow Pages.

New US arrivals

The arrival of Dewey & LeBoeuf in the local market has been a much less public event, but behind which lies a similar strategy – to better support the firm’s existing Spanish clients as they expand globally, as well as those from elsewhere interested in the Iberian peninsula.

“Yes, it is a difficult time economically for many businesses, but nonetheless we still see many opportunities and our decision to open in Spain is a reaction to some of them,” says Margaret Civetta, who will act as managing partner of the new Madrid office. “We see significant growing interest in Spain being generated in places like the Middle East, but also emerging markets such as Africa and Asia – there is evidently already a flow of investment to and from China, for example.”

Among the firm’s Spanish clients are Ebro Puleva, Gestamp Automocion, Energy East (acquired by Iberdrola) and Teléfonica, for which New York and London-based partner Berge Setrakian is the relationship partner, and who led the team advising on Telefónica's May 2007 €2.6bn sale of Endemol, and the $5.25bn debt refinancing relating to Telefónica's acquisition of O2 in 2006.

“I have worked with and alongside Berge for 15 years on Spain-related deals, and had involvement in the local market for just as long, so we already therefore have a strong local client base. Nonetheless we prefer to start small and build things gradually,” she adds.

The Madrid office will be overseen by Civetta who will also spend time however in Paris, where she is currently based. The firm will though have a permanent local partner presence, and Spanish capability, through corporate and competition partner Teresa Zueco who is to relocate from Paris.

In addition, says Civetta, the firm will also look to build a small team of associates while also calling on Spanish expertise across the firm’s network. The firm had traditionally relied on Madrid and Valencia-based J Olleros & Asociados for domestic Spanish issues.

“Our emphasis will initially be towards the insurance, energy and telecoms sectors. But as a firm we are also recognised for our ability to operate in emerging markets, that perhaps present clients with specific issues, and already our work for Spanish clients is taking us to Africa – wherever there are natural resources there is always international investor interest.”

Dewey & LeBoeuf is the result of the August 2007 merger of two US firms, corporate and commercialfocused Dewey Ballantine and corporate and energy-focused Leboeuf Lamb Greene & MacRae. Combined, the firm has over 1400 lawyers and 24 offices.

The firm has however been placing increased emphasis on building its international practice – opening offices in the United Arab Emirates and Qatar over the past year – albeit having seen cost-cutting in the US, with the closure of its Austin, Charlotte, Hartford and Jacksonville offices.

The ability of firms to continue to expand to new strategic markets while at the same time undertaking cost-cutting in less profitable offices or practice groups, suggests that despite the clear market challenges currently being faced by law firms, opportunities continue to also present themselves.

The arrival of Herbert Smith and Dewey & LeBoeuf in Madrid has surprised some but all agree it has been a vote of confidence for the Iberian legal market, inevitably intensifying rumours of further international law firm openings, particularly as Spanish (and Portuguese) banks, infrastructure and energy, and telecoms companies continue their international expansion to offset the domestic economic downturn.