Wolf Theiss: A Sum of Its Parts in 2014, 2015, and Beyond

Overall, Wolf Theiss has done significantly (but not dramatically) better revenue-wise in 2014 than we did in 2013. The year end is shaping up strong, as, although we have seen growth in our transactional base, our disputes practice continues to constitute an ever larger portion of our book of business. 

The year has certainly dealt us some notably large transactions. Recent examples include the reported sale by state-owned Austrian bank Hypo-Alpe-Adria of its SEE network to a US private equity firm, and Enel’s contemplated sale of its stake in the Slovak Republic’s Slovenske Elektarne.

The Hypo deal is emblematic of this year’s trend of finally addressing financial institution balance sheet issues and of new players arriving on the scene for clean-up transactions. For example, sales of non-performing loan portfolios have been especially active in many of our jurisdictions, notably Romania, with Anglo buyers participating more than the traditional Austrian/German interests. This trend should continue and accelerate, and the sales may morph into securitizations if countries like Serbia enact more accommodating legislation. The multiple-jurisdiction nature of many of these deals plays to the advantages of regional firms like Wolf Theiss.

Borrower-side restructurings have also been active. In Slovenia we represented Pivovarna Lasko in a EUR 330 million debt restructuring. Similar work is occurring regularly in all of our markets, and we expect it to continue for the immediate future.

We have been fortunate enough to see growth even in one of our most competitive markets, the Czech Republic. Prague has been home to an abundance of fine international firms for many years. Some have simply not been able to adapt to changed circumstances, as evidenced by the closures of Norton Rose and Hogan Lovells (which may also be explained as a simple recalibration of their worldwide priorities). A number of Prague firms are clearly on the ropes, so we do not believe the changes have come to an end. Other firms seem to thrive on the current Czech scene, Havel Holasek being a shining example.

One driver of Wolf Theiss’s Czech growth is the ascendency of firms like EPH, a leading Central European energy investment group which actively invests internationally. For offices outside of Vienna many of our traditional clients have been foreigners investing into the region. Now we are seeing clients within the region reaching outside their national borders and demanding the higher level legal help that is necessary for success with such deals. The sophistication of these clients (including sophistication in the selection of lawyers) is really world class. We also see a lot of this phenomenon in Poland, our most mature market outside of Austria. It is generating exactly the type of work we want, and we expect the trend to continue.

Business has been good even in markets where you might not expect it. We are holding steady year on year in Ukraine, and 2013 was our best year ever there. Ukrainian opportunities abound, particularly in the IT/IP, energy, and agricultural sectors, but a degree of political certainty is a condition precedent to really moving forward on a sustainable basis. If we don’t see that certainty within the next six months or so, long term damage may well be done to that market.

Serbia finds itself in an interesting position amidst the current tensions between the US/EU and Russia. Although beginning the EU candidacy process, the country also has a free trade agreement with Russia which is of a great benefit to investors into the country. That agreement may be extended to the automotive sector, making it all the more useful.

Less dramatic politics have had an impact in other parts of our region. Hungary has not been business friendly for some time. Recent elections have extended the current government’s mandate for another four years. Although the players remain the same, we see a more positive environment for business arising out of this stability (notwithstanding the recent Internet tax dust up). We are guardedly positive about governmental developments in Albania, Bulgaria, Serbia, the Slovak Republic (although we note recent negative changes in rules relating to the purchase of agricultural land by foreigners), and Ukraine. Next year’s elections in Croatia will undoubtedly be disruptive, however.

The regional focus on privatizations has generally been positive for us. We were on the buy side of the sale of Slovenian car parts manufacturer Letrika and on the sell side (representing the government) of the sale of Croatia Osiguranje (an insurance company). The privatization push should continue in those jurisdictions and in Serbia, the Slovak Republic (e.g., Slovak Telecom), and Bosnia-Herzegovina, as well. In Slovenia we also represented a Chinese interest that bid on the Lublijana airport privatization. Chinese interests are already prominent players in Serbia and Bosnia-Herzegovina, and we expect their role to become increasingly prominent across the region. Also involving governments, PPP projects – particularly in infrastructure and healthcare - remain brisk in Poland for us. Governments everywhere are talking infrastructure and we hope to see more than just talk in the future in markets like Bosnia-Herzegovina, Romania, and Serbia.

Some areas remain very slow. Real estate is a prime example in just about all of our markets, with Prague being a notable exception. Renewable energy projects have suffered greatly due to legislative changes, particularly in the Czech Republic, Hungary, and Romania. Renewables have never really gotten off the ground in Poland due to the lack of appropriate underlying legislation. However, renewables have had something of a comeback in Bulgaria as a result of a mid-year favorable judicial ruling on a tax issue.

Legislative changes in our markets have also had an impact, but generally not in a dramatic way. We have seen new civil codes introduced in the Czech Republic, Hungary, and Romania that certainly increased corporate housekeeping work and required us to freshen up our templates. New bankruptcy laws in Serbia, Slovenia, and Romania should help move moribund assets. We expect Romania’s new law to be applied to a number of renewables projects next year as the value of green certificate holdings will then reflect their unsold status. An exception to the “dramatic” standard might go to Serbia’s new notary act which has shifted legal work to that profession and has led to a country-wide lawyers strike that is being enforced by the local bar association! We don’t see similar fundamental legislative changes occurring in the near future in any of our other jurisdictions, although we are keeping a close eye on the “Fair Banking Act” currently coming together in Hungary. On the positive side there are new energy and capital markets laws that deserve watching in Albania. More employer/investor-friendly employment laws have also been enacted in Croatia and Serbia that should have good long term effects.

Croatia’s second year in the EU has led to a pronounced increase in competition-law work for Wolf Theiss, including dawn-raid counseling and general compliance work. Our lawyers and others are playing a critical role in helping ministries and the judiciary make the accession a palpable reality. We have seen no immediate increase in foreign investment, however, as a consequence of EU membership.

There are a few other bright stars. Croatia has begun a program of onshore and offshore oil and gas concessioning which has already been positive for legal work. Bulgaria and Romania are becoming major destinations for information technology and business-process outsourcing. In Bulgaria we have seen an increase in telecom work that necessitates specialized legal skills that firms like ours are equipped to offer. We are also hopeful that the “Belgrade Waterfront” real estate project being pursued by Serbia’s current government will get some traction.

Our business remains very competitive, particularly on pricing. For example, this year saw a return of large, more price-friendly transactions for us in Romania. However, such transactions seem to take longer to get going, are sometimes side-tracked by commercial issues, and often just don’t happen. There are many smaller transactions on the Romanian market that don’t seem to have these problems, but those deals are often priced at a level outside of what we have defined as our strike zone. Facing such pricing pressure truly tests your resolve on the type of firm you want to be. So far we have been able to stick to our mission. 

You can’t simply rest on your laurels. The challenge of getting it right never stops. A few of our competitors have given up on getting it right in some of our markets. In addition to the Prague exits, we have seen Chadbourne & Park, Beiten Burkhardt, and Noerr leave the ring in Kyiv. White & Case and Gide departed Bucharest. The fact that these departures have not dampened the competitive environment in those markets says something about either the supply or demand for legal services, or perhaps both. On the flip side, we know one or two additional firms will enter the Sofia market. It should also be noted that the competitive market is clearly strengthening some firms. I believe Wolf Theiss is one such firm. Dentons is, in my view, also a firm that is deepening its roots and growing its practice across the region. We expect them to generate a healthy amount of competition for us for many years to come. 

Having looked back on 2014, what can be said generally of 2015? We know the economic forecasts for Europe are hardly rosy and this will certainly affect us. Ukraine remains a wild card and, although a remote possibility, potential civil unrest in countries like Bosnia-Herzegovina and Serbia could dramatically change regional economic prospects. Faced with these realities, we will concentrate on things within our control. We want to focus on our existing geographic footprint and don’t expect expansion into markets such as Turkey (which many of us, including apparently DLA Piper, believe has lost at least a bit of its luster). We will continue to refine our firm’s collaborative culture, size ourselves correctly for the opportunities we target, and constantly work on improving on our execution. This is exactly what most of our clients will be doing, and we fully expect to succeed, no matter what, together with them.

Ronald Given, Managing Partner, Wolf Theiss, Zagreb

This Article was originally published in the Special Year-End Issue of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.