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Editorial

Legal market overview

France is shrinking!’ laments one of France’s most respected legal minds. Despite 2016 record revenues for leading law firms in 2016 – ‘une année historique’ – few rejoice because the largest mandates are outbound. France attracts international companies and investors, including Americans and a growing body of Asian sponsors, but the size and volume of domestic M&A and leverage buyouts remains below that of pre-Lehman Brothers levels.

But leading French corporations are mainly investing overseas, meaning that large M&A transactions in France are often cross-border in nature and limited in numbers – around 50% of the M&A revenues at one top domestic law firm are generated from international deals.

This trend benefits global law firms, so how can large domestic law firms survive long among the elites in that environment?’, asked one partner at a French law, adding: ‘let’s put a stop to “bigger is better”!

For French law firms, international connections and capabilities are now a prerequisite to survival in a global market. Several mid-sized French firms are actively eying new markets in Africa and the Middle East in an effort to develop their international presence. Many French firms were also quick to set up Iranian desks (and even offices, in at least one case) following the lifting of economic sanctions.

Revenues are also being driven down by a growing low-cost legal market, where many of the small startups and boutiques are taking away some of the day-to-day and mainstream work of the largest firms. Technology is also disrupting the market; some top firms are now already looking at new business models, using technology to provide some legal services at a lower cost.

Meanwhile, regulatory advice has quickly become a growing and complementary source of revenue for law firms, alongside more traditional transactional work. The recent adoption of the Loi Sapin II (promoting transparency in the economy) is a strong example of this trend. The law introduces a new anti-corruption compliance regime – along with the concepts of internal investigations and transactional settlement – that is milder than the US system, which has imposed excoriating financial fines on French companies. ‘The French legal market is very excited by the new law. Companies will be compelled to put into place anti-corruption programmes; this will require large resources’, remarked one partner from a major law firm.

Financial services and asset management is another growing area of practice, as new players and investment funds expand to meet the demand for alternative lending in France.

The demand for tax advice remains very high following a series of headline-making tax evasion cases in recent years – such as that involving former French Budget Minister Jérôme Cahuzac, who was handed a three-year prison sentence at the end of 2016.

The authorities are also aggressively auditing companies and investors, with $4.8bn in corporate income tax reassessments in 2015, according to the French Financial Ministry. One partner added: ‘managers conducting LBOs in France have very high probability to be audited by the authorities.’ Patrimonial tax advice is consequently seen as a strategic need and many large law firms now have expertise in the area.

Some of the most sensitive litigation involves tax matters – one high-profile white-collar crime lawyer said that about 75% of his top cases deal with tax issues. Some very large sums are at stake and companies are battling before the French Supreme Courts and European Courts to challenge the French tax regime. Some lawyers are also being jointly prosecuted for the advice which they provided.

The European Union is also engaged in a fight against tax optimisation schemes and has been using antitrust law to equate national tax exemptions to state aid, resulting in very large penalties for some French and international companies.

Competition lawyers also had ‘an exceptional year in 2016’. The French Competition Authority is among the most severe in the world, handing out very high fines and blocking several M&A transactions recently.

Changes in the legal market have included some ramifications of Brexit, as unhappy Paris-based equity partners of UK firms notably moved to US-originated firms in 2016.

Freshfields Bruckhaus Deringer LLP cut down its team in Paris – seven partners left in 2016. Orrick Rambaud Martel took half the Magic Circle firm’s employment team, as well as major names in the banking and M&A areas, significantly boosting its resources.

The closure of King & Wood Mallesons in Paris led the entire LBO team to join new US entrant Goodwin, its leading fund formation team went to Willkie Farr & Gallagher LLP and Goodwin, while the rest of the staff was taken over by Reed Smith with few exceptions.

Kramer Levin Naftalis & Frankel LLP also strongly recruited in 2016 and notably took on a 12-lawyer team from Gowling WLG.France.AARPI.

Elite dispute resolution firm Quinn Emanuel Urquhart & Sullivan, LLP hired two former arbitration practice heads at their respective previous firms: Michael Young (ex-Allen & Overy LLP), and Isabelle Michou (ex-Herbert Smith Freehills LLP.

LPA-CGR officially merged on 1 November 2016, creating a 180-lawyer firm with ten offices, including nine locations internationally; it is one of the few French mergers to have happened recently.

Other notable events included the merger of CMS and Olswang France LLP with the latter’s office set to close in 2017, while French firm DS Avocats took over 24-lawyer firm VPV in Chile – the firm now has 24 offices in four continents.

US-originated specialist employment firms, which had been absent from the French market previously, recently made very significant moves. Ogletree Deakins is set to launch its French practice in March 2017 with a ten-lawyer team, while Littler Mendelson is now affiliated with French leading labour law firm Fromont Briens after it joined the Littler Global network.

Alternative assets specialist MJ Hudson launched its Paris office in March 2016, while DWF (France) AARPI also entered the French market.

The podium of law firms in France mixes French, UK and US firms. The leading French firms Bredin Prat, Darrois Villey Maillot Brochier, De Pardieu Brocas Maffei and Gide Loyrette Nouel A.A.R.P.I., which is the largest French international law firm with some 600 hundred lawyers worldwide. Key UK firms present are Allen & Overy LLP, Clifford Chance, Freshfields Bruckhaus Deringer LLP and Linklaters. The most prominent US firms are Cleary Gottlieb Steen & Hamilton LLP – which is widely regarded as the number one US firm in France – as well as Weil, Gotshal & Manges LLP, White & Case LLP and Latham & Watkins. Following a series of top hires, Orrick Rambaud Martel also looks very strong.

In corporate law, BDGS Associés, Cabinet Bompoint and Dethomas Peltier Juvigny & Associés provide high-end boutique expertise. Highly rated medium-sized firms include August Debouzy, De Gaulle Fleurance & Associés, Franklin, Jeantet, SLVF AARPI and Vivien & Associes.

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