Central and Eastern Europe: Testament to youth
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A new generation of pioneers is driving Romania�s evolving legal market. Sophie Evans reports from Bucharest
Even before Romania�s emergence as a democratic state and market economy, the talent of the country�s younger generation was already being recognised � albeit by a brutal dictator. Indeed, the architect that Nicolae Ceausescu chose in 1984 to lead the army of designers building his �House of the People� � the second-largest building in the world � was a 28-year-old woman, Anca Petrescu.
In today�s legal community, Bucharest boasts a wealth of young and ambitious practitioners who are now reaping the economic benefits of recognising the country�s post-communist potential.
They are building on the achievements of Bucharest�s legal �founding fathers�, together with a sizeable expat community, dominated by North Americans, that has also contributed hugely to Romania�s emergence on the international business map.
Now in the fourth month of its European Union (EU) membership, big-name foreign investors and advisers are beginning to roll in at an even faster pace than the previous mid-1990s influx.
Citigroup and JP Morgan are just two of the 21 foreign companies that have stated their intention to trade on the Romanian Capital Market. Competition at the Bucharest Stock Exchange has become tougher since EU membership allowed brokers to operate without having to win the approval of the National Securities Commission. The first quarter of 2007 saw no less than 60 foreign insurance companies notify national regulators of their plans to tap into the market; with 23 million people, Romania is second only to Poland in population in Central and Eastern Europe (CEE).
In Romania, Ion Nestor is credited with providing a much-copied model with the launch of what was then Nestor Nestor Kingston Petersen in the early 1990s. Nestor was aided by two American Harvard graduates who recognised the opportunities of the heady post-communist era, Andrew Kingston and Patricia Petersen. By the time high-profile litigator Ana Diculescu-Sova joined the firm in 2001 to create Nestor Nestor Diculescu Kingston Petersen, Nestor had created a full service commercial firm with a litigation capability that set it apart from the family-run, often politically-affiliated firms of the past. Unusually for the leading firm in a jurisdiction, the partnership of the firm is largely female � a move locals say was driven by the desire to have fewer megalomaniacs than the average Romanian practice at the time.
Musat Asociatii also stands tall in the list of Romania�s largest business firms, with Gheorghe Musat founding the firm more than 15 years ago. Its recent appointment of a ninth partner, 31-year-old M A specialist Iuliana Craiciu, demonstrates how young the new generation of dealmakers are in Bucharest and how short the track to partnership can be at local firms � due in part to the lack of commercial lawyers to handle Romania�s robust work levels.
Calin Zamfirescu is another high-profile litigator to have played a major role in the development of the Bucharest legal market in the 1990s, although the firm, Calin-Andrei Zamfirescu Associates, was founded slightly later than its rivals in 1995. But like fellow managers Nestor and Musat, Zamfirescu recognised the need for firms to combine litigation expertise with business law capability and hired Stan Tirnoveanu, former counsel at the Romanian Bank for Development.
As Musat partner Catalin Baiculescu explains: �This trio broke away from the old guard in the early 1990s and understood the opportunities that were in the market.�
At the same time, a younger crowd was also forming, mentored by the likes of Zamfirescu. In 2005, Zamfirescu�s firm merged with Racoti Predoiu to form Zamfirescu Racoti Predoiu (ZRP), with commercial lawyer Catalin Predoiu leading the two firms� lengthy preparations for the tie-up. Before signing the merger paperwork, the two firms worked together for two years and referred clients.
�We were aware of the importance of having good management from the beginning,� says Predoiu, who studied the merger experiences of local and overseas firms to prepare. Having recently promoted to partner three associates who had �grown up with the firm� and sent out the message to fellow associates that a career can be built at ZRP, Predoiu says the hard work starts now.
�Last year we completed the merger and defined our brand and position in the market. Now we are turning to the market,� he says, adding that the overseas ambitions of key clients may see them launch an office in another European capital.
Unlike ZRP, where the founding father arguably merged with the firm of his protege, a raft of respected local firms have been formed out of split-offs from larger firms. The most high-profile example of this is Tuca Zbarcea Asociatii, with Musat deputy managing partner Florentin Tuca leading a 22-lawyer team from Musat in 2005 and Gabriel Zbarcea joining the firm last year. Deputy managing partner Stefan Damian says the firm has been successful in securing some high-profile clients since the launch and is trying to broaden the kind of mandates they win from them, commenting: �We work for clients including Mittal Steel, which has a very important role in the firm�s earnings, while newer clients include Carrefour, which has 10 declared projects in the country at the moment. We have a team of four to five people working around the clock just for them right now.�
Paris giant Gide Loyrette Nouel has also benefited from French investors� interest in the region, having advised Carrefour since 1999, when the company made its real estate debut in the market.
Damian is optimistic about the prospects for the coming years, arguing that the legal market is understaffed. �For a deal like Erste Bank acquiring BCR, there were 11 interested investors and almost a lack of firms to advise.�
Indeed, some firms employed virtually all their lawyers on the due diligence exercise.
Other respected firms to have been born out of Musat-trained lawyers include Popovici Asociatii, Vilau Mitel and Voicu Filipescu.
Another breed of split-off is typified by newly-formed Bulboaca Asociatii, which launched at the beginning of the year, consciously marketing itself as a potential merger target for international firms wanting to enter the market. Name partner Adrian Bulboaca headed up Linklaters� local finance practice before setting up shop alone on 1 January, before being joined by Nestor partner Corina Ionescu.
�We want to have our corporate practice at the heart of the business,� says Bulboaca, who adds that he hopes to add three more lawyers to its current 11-strong team by the middle of the year.
The Canadian connection
Of the handful of Anglo-Saxon firms with their own operations in Bucharest, all three are led by North Americans. Canadians Todd Robinson and Michael Schilling respectively lead the local arms of CMS Cameron McKenna and Linklaters and American Obie Moore heads Salans� practice. Legacy firm Hayhurst Robinson, which merged with Camerons in 2006, was founded in 1998 by Canadian Robert Hayhurst, while Linklaters� regional managing partner is Canadian Jason Mogg. Many explain the predominance of Canadians through to the combination of civil and common law they study at law school � Romania�s civil code was inspired by France�s.
This formidable troupe of emerging market specialists, together with those at local firms, have built up a knowledge and love of the region that will make it harder for international newcomer to make it in Bucharest.
Linklaters, for example, uses Bucharest as a hub for all of its southeast European work, as well as to service countries including Turkey and Ukraine. Linklaters regional private equity head Ted Cominos says having a region-wide capability means a constant flow of buy-out mandates; he estimates private equity is driving approximately 60% of the M A activity in the region at the moment.
He says: �Bulgaria, Serbia and Turkey have been more active than Romania this year, but Romania is looking good for the future. I have never seen so much private equity activity. Romania at the moment is seeing eye-popping exits � sometimes nine times what they invested.�
Salans� Moore credits EU membership and impressive, steady economic growth as the reasons for the boom that kicked off two years ago.
�The institutional �tick boxes� were all full and people began to arrive,� he says. �Institutional money started coming, so there was a whole new level of investors � the amount of money they represented was quite extraordinary.�
Indeed, private equity and real estate are the two big success stories of the past few years in Romania. The road and house-building evident on the journey from the airport to the city centre is testament to the real estate boom, driven by a shortage in housing and investor interest in commercial real estate projects.
While many US and UK firms that do not have a presence in southeast Europe do still win sizeable mandates in the region � often advising the underwriters on major projects � the evidence shows that Romanian banks are now prepared to do the lending, meaning a presence on the ground may rise up the list of strategic priorities. Furthermore, last November saw the first float of a Romanian business on the London Stock Exchange in what could the beginning of a trend in Romanian companies� buying power taking them overseas. A D Pharma Holdings made a e400m (£269m) initial public offering with Linklaters and Salans taking the lead roles.
Despite inevitable rumours of imminent foreign launches, Clifford Chance�s (CC�s) 2006 tie-up, with local outfit Badea Asociatii has not been followed by any other major firms. Name partner Daniel Badea confesses that the magic circle firm�s decision to declare its interest in Bucharest �came as a surprise�.
�Many did not believe the market was mature enough,� says Badea, who predicts having the CC brand in the market will encourage more foreign firms to come, partly to use Bucharest as a hub for the cross-border transactions in the region. Badea says his practice has concentrated on the complex transactions in real estate and finance � presumably to generate the fees required to convince CC to fully commit to Romania � but at present the office is an association.
However, many believe that the region is not suited to the magic circle as local partners find it difficult to generate the level of fees expected by top London firms. For a firm such as Camerons, though, the region has provided rich pickings. The firm�s tie-up with Hayhurst Robinson has by consensus taken the Bucharest practice to a new level, winning mandates from the bluechip clients that were sometimes absent previously.
Austria�s backyard
While magic circle firms might not find their natural home in southeast Europe, Austria�s legal elite have for many years been advising Austrian investors in the region.
While Germany was focused on investing in its own underdeveloped east after reunification, Vienna�s lawyers were travelling east to the Black Sea and the Balkans in the 1990s. Characterising southeast Europe as Austria�s backyard may be something of a platitude, but it rings true in many cases.
Wolf Theiss has been at the forefront of this strategy, with the number of lawyers in its branch offices this year outstripping the numbers in the firm�s Vienna HQ for the first time.
�CEE is at the centre of our attention. We are really making a transition from being perceived as an Austrian firm to being regional,� says partner Markus Heidinger proudly.
The opportunities of CEE expansion are obvious for major Austrian law firms; the wider region has a population of 100 million compared with Austria�s eight million. Heidinger says that much of the advice that has been road-tested in Austria is being used to similar effect in the region, for example, in the development of financial products.
�This kind of work is huge; we are even looking at jurisdictions such as Kosovo. We can develop a new product for the market that has been tested here and there is consequently a lot of know-how within the firm that local firms might not have.�
Dorda Brugger Jordis, with its network of friends and contacts in the region, is also reporting a surge in work from the Balkans.
�We start out representing investors going into the Balkans and then win our share of work of the privatisation work advising on the government side,� says partner Andreas Mayr.
Several countries in the region have adopted Austrian or German-inspired legal codes and, in many cases, in particular the Balkans, Austrian legal professors wrote the laws. In addition, there is the �soft cultural fit� between Austria and southeast Europe, as Mayr puts it.
The corruption issue
The economic prospects for the whole of the region are bright, but with some lingering doubts. There is no hiding from the fact that corruption concerns are still haunting the country. Indeed Romanian president Traian Basescu recently made the candid declaration that �corruption has become our national sport� after a poll in which 85% of Romanians felt they would not get a fair hearing without paying a bribe.
This impression has been reinforced by the many ongoing court cases concerning the restitution of land lost under communism. An anti-corruption tsar, justice minister Monica Macovei has been appointed to oversee the ambitious reforms being introduced but there are many vested interests in the country�s vast civil service that will resist change. Change is also needed in the courts, to support the growing needs of the business community.
Salans� Moore is a passionate advocate for reform: �A big inadequacy is a lack of competency among the regulators and judges to understand how complex business deals work � the bar associations need to be more active in this respect. And do not underestimate law firms� and clients� abilities to influence the process for the greater good.�
These worries aside, those emerging markets specialists and local leaders who showed early commitment to the Romanian market, and the wider southeastern Europe region, are most definitely reaping their rewards. �I see very good prospects for everyone in the market,� says Daniel Badea � �we have had some pretty wild growth.�
Related: Central and Eastern Europe: Testament to youth
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Central and Eastern Europe: Testament to youth: from www.legalweek.com
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