Portuguese law firms are
reporting growth in revenue as transactional work increases –
however, with some of the country's major assets being acquired
by foreign investors, the long-term outlook for Lisbon lawyers is
uncertain
Workflow has increased for law firms in Portugal partly due to
increases in M&A activity driven by foreign investors targeting
the country's real estate and banking sectors. The financial
results of the top firms in Portugal give reasons for optimism
– the three biggest firms in the country (MLGTS, PLMJ and
Vieira de Almeida) all reported double-digit increases in revenue
in 2016. However, there are also causes for concern among lawyers
– there is a view that with significant portions of the
nation's banking sector falling under foreign ownership, Lisbon
firms could start losing potential instructions to international
firms. Yet, some lawyers argue that this fear is unfounded and that
Portuguese law firms will have no trouble in successfully competing
with foreign law firms.
Economic recovery
The good news for law firms in Portugal is their workload is
increasing, according to Duarte Athayde, managing partner at Abreu
Advogados. "There has been an economic recovery, real estate
is strong, particularly commercial real estate, there has been an
increase in M&A, and there has also been significant private
client activity," he adds. Athayde says high-net-worth
individuals from Brazil have been purchasing assets, while
compliance and data protection are two areas offering significant
opportunities for law firms.
During the period 2008 to 2015, Portugal was a bridge to other
markets like Africa and Brazil, but now foreign investors are
targeting opportunities in Portugal itself, according to Domingos
Cruz, partner at CCA Ontier. He adds that there are opportunities
to acquire distressed assets in the banking sector as well as real
estate assets. "Pension funds and international funds find
such assets very attractive," Cruz says.
Law firms in Portugal have adapted well to changes in the economy
and benefitted from new sources of work, according to Nuno Azevedo
Neves, partner at DLA Piper in Lisbon. "Banks continue
deleveraging assets and there are new sources of finance, such as
fintech."
Filipe Lowndes Marques, partner at MLGTS, rejects any suggestions
that, with an increasing number of Portuguese banks becoming
foreign-owned, law firms in Portugal could start losing banking
work to foreign law firms. "Foreign-owned banks are here, but
they are supervised by the Bank of Portugal, and law firms in
Portugal are in no way inferior. Often the services they offer are
superior to the services offered by international firms and there
is no loss of quality."
Spanish
advantage
However, increased Spanish ownership of Portuguese banks is an
advantage for Spanish law firms, says Gonçalo
Anastácio, partner at SRS Advogados. "Spanish firms
have strong finance practices," he adds. Advice to Chinese
investors is an important source of work, says Anastácio, as
well as matters related to data protection. He adds that
competition law is another area of opportunity in that US law
firms, for example, need advice from Portuguese law firms in
relation to the issue of cartels.
The Portuguese economy has been boosted by the fact that the cost
of borrowing has reduced, says Jorge Brito Pereira, partner at
Uría Menéndez-Proença de Carvalho. "Five
years ago, the cost of debt for large companies was at 6 or 7 per
cent, but now it is between 2 and 3 per cent," he says.
"Consequently, the value of assets and the attractiveness of
investments is now very different." Brito Pereira says there
has been a lot of activity in regulated sectors, such as energy and
telecoms, as well as real estate. He continues: "There has
been consolidation in the banking industry and there has been a
second wave of Spanish investment in agriculture."
The banking sector has been one of the main sources of work for law
firms in Portugal, according to Vieira de Almeida partner Paula
Gomes Freire, who adds that the European Union Payment Services
Directive 2 – which comes into force in next year –
will create opportunities for new players in the market. She also
says that the deleveraging of banks as well as financial
sector-related M&A has generated a significant number of
instructions for law firms.
Litigation and arbitration are growing areas of work for law firms,
according to PLMJ managing partner Luís Pais Antunes. He
adds that tax planning advice is another major opportunity, while
the Portuguese banking sector as well as real estate and tourism
will generate "a lot of work for the next decade".
High risk of failure
Meanwhile, the start-up sector has significant potential for law
firms, according to Cruz. "Start-ups have a high risk of
failure, but there is an incredible number of them in Portugal and
they have the potential to be global and they are interesting US
and UK investors." One managing partner adds that his firm
offers reduced fees for start-ups. Pais Antunes says that start-ups
are often looking for different legal services in that they need
"start-up law firms". He adds: "It is not a question
of great income from start-ups, though they do have the effect of
re-shaping the way law firms provide legal services." 
Banking and finance, M&A, real estate and tax have been the
most active areas of practice for law firms in Lisbon, according to
Cuatrecasas' Portugal managing partner Maria João Ricou.
She anticipates that this trend will continue and, with reference
to banking and finance matters, she says the activity has been very
diverse, including the sale of assets and non-core businesses,
business restructuring, debt restructurings and regulatory matters.
Ricou adds: "Both on the M&A and real estate side the
market has been very active, as a consequence of the improving
economy and the increasing interest of international investors in
Portuguese assets."
Greater stability in the Portuguese economy has generated interest
among both foreign and domestic investors in the real estate,
tourism and finance sectors, says Garrigues' Portugal managing
partner João Miranda de Sousa. He adds: "We have also
witnessed increasing interest in the digital business sector
– related to the internet and to information technology in
general – which is experiencing increased momentum due to,
among other reasons, the Web Summit and the entrepreneurial
ecosystem built in Portugal."
João Caiado Guerreiro, managing partner at Caiado Guerreiro,
highlights real estate, tax, energy and pharmaceuticals as sectors
offering significant opportunities for law firms. He adds that the
increase in real estate activity has been driven by the Golden Visa
and non-habitual residence (NHR) tax regime, as well as the
emergence of property rental companies such as Airbnb and Homeaway.
Guerreiro adds that data protection and the TMT
(telecommunications, media and technology) sector will "surely
generate big opportunities, partly due to the new data protection
regulation and Lisbon's hosting of the Web Summit."
Falling
unemployment
In the view of Antas da Cunha Ecija managing partner Fernando Antas
da Cunha, there are three indicators that the Portuguese economy is
recovering: GDP is growing; the government deficit has been
reduced; and the unemployment rate has been gradually falling. He
adds: "During the last 12 months we have seen rapid growth in
the tourism sector, a huge surge in real estate work and an
increase in international private equity firms investing in the
country." Antas da Cunha says the biggest opportunity for law
firms in the near future will be the General Data Protection
Regulation (GDPR) as companies will need advice on how to comply
with the new regulation, which will come into force in May
2018.
Firms in Portugal are investing considerable amounts in artificial
intelligence, says one managing partner. However, another partner
at a leading law firm in Lisbon says: "It is costly, it is
easier for the bigger law firms to make such investments, but firms
in Portugal are facing other challenges, such as keeping their
talent. Fifteen to 20 years ago, it was wonderful to be a trainee,
it was my idea to be at the firm forever, but now keeping the best
lawyers is difficult - 20 years ago, partners wouldn't move
between firms. One of the obstacles facing Portuguese law firms in
relation to using artificial intelligence is that "98 per cent
of AI products are in English", one managing partner points
out.
Lowndes Marques says artificial intelligence (AI) is "a little
bit 'the flavour of the month'", but it will not be
replacing lawyers in Portugal anytime soon. He adds: "In
Portugal, AI will take longer to replace lawyers than it will in
other jurisdictions, which does not mean that we do not have to
keep up with the latest developments in this field in order to
enable us to be more efficient."
Driving down fees
Decreasing fees is another major problem facing Portuguese law
firms, according to one partner. "Companies on the Portuguese
stock exchange are not comparable to those on the Spanish stock
exchange, for example," the partner says. "Also,
competition between law firms in Portugal is fierce and this is
driving fees down – legal fees in Portugal are half what they
are on Spain and a third of what they are in the UK." Azevedo
Neves says that firms are increasingly having to adopt a
sector-based approach to providing legal services. Meanwhile, one
managing partner points out that there is already competition from
companies providing services to banks that were previously done by
law firms. 
With regard to the issue of talent retention, one partner at a
leading Lisbon law firm comments that one of the key issues is that
young lawyers today "don´t want to stay in the same
place for 20 years". Another partner adds that firms choose
the best trainees, but "when they get €200,000 or
€300,000 in the bank, they say 'I'm going to
India' – in Portugal 30 years ago, being a lawyer meant
status, but in those 30 years everything has changed, our work is
now much more commoditised". However, other partners argue
that though the new generation of lawyers has "a different
mindset, it is not a problem". One managing partner argues
that members of the 'millennial' generation, as it is
known, are actually more dedicated when they are working at a law
firm because they know they are not planning to stay there for very
long. However, he adds that having lawyers with this mindset does
create a problem for law firms in that they have to "invest a
bigger amount of money in a lawyer now than they did in the
past". Another managing partner laments the fact that he
"still does not know what makes the new generation
tick".
Other partners argue that, even given the advent of the millennial
generation, there is "no shortage of people in law firms that
want to be partners". However, another partner counters that
those that want to be partners are "not necessarily the best
lawyers".
Game-changer?
Recent changes in the Lisbon market included the arrival of
international firm DLA Piper. With regard to the future, there is
speculation that there could be more alliances between Portuguese
firms and international firms, perhaps in the form of the Swiss
Verein structure used by some firms. "We could see more soft
alignments in the Portuguese market," says one partner. Gomes
Freire says there is growing competition from the legal arms of the
'Big Four' auditing companies in Portugal, though she says
it is unlikely that other 'Magic Circle' firms will open in
Portugal because they do not find the market attractive
enough.
The possible entry of new players into the Portuguese legal market
– whether that be foreign law firms or the legal arms of the
auditing firms – may be a "game-changer" for
Portuguese law firms, says Lisbon-based Gómez-Acebo &
Pombo partner Mafalda Barreto. In such a scenario, Portuguese law
firms will have to compete with "truly global entities that in
some cases may offer multidisciplinary services," she
adds.
One managing partner at a Lisbon firm says the fact that the
shareholder structure at a number of Portuguese companies is
changing – in the sense that the number of international
shareholders is increasing – could provide an incentive for
more international firms to open in Lisbon. Another managing
partner adds that "brand awareness is crucial as a way of
getting new clients". Meanwhile, partners at Lisbon law firms
are continuing to call for a change to Portugal's tax laws in
order to enable law firms to be subject to the general tax regime,
which would enable them to be taxed like a corporation and
therefore build up reserves to invest in their
infrastructure.
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