In the context of economic and political uncertainties, coupled with the depreciation of the currency, interesting dynamics are unfolding within the Turkish legal landscape.
“Although it is true that Turkiye has been enduring economic and political uncertainties, the Turkish legal market has overheated in the last 12 months,” Gokce Attorney Partnership Managing Partner Gorkem Gokce says. “The Turkish market always finds itself in high demand due to its innovative investment climate full of dynamic individuals and incentive opportunities. This pro-investment approach first generates a large number of start-ups, many of which are very successful in a wide range of industries, next, financial and strategic investors invest in Turkiye, and finally, the cycle repeats.”
ADMD Mavioglu & Alkan Law Office Managing Partner Orhan Yavuz Mavioglu underscores that their firm has experienced an increase in workload, with the firm’s “volume of work having increased by 23% in the last 12 months.” He adds that “new investments into Turkiye by Chinese and Russian companies could be considered as the main reason.”
Pekin Bayar Mizrahi Senior Partner Selin Bayar and Norton Rose Fulbright Global Head of Corporate, M&A, and Securities and Head of Istanbul Office Ayse Yuksel Mahfoud stress that internal developments within their firms have also played a pivotal role in increasing their workloads. “Pekin Bayar Mizrahi’s volume of work has increased in the last 12 months, mainly due to our alliance with Norton Rose Fulbright,” Bayar says. This strategic collaboration, according to Mahfoud, “expands the team’s offerings in providing full-service capabilities.”
Yet, the Turkish legal market has its challenges despite its growth. Abcoo Partner Erdogan Oksak draws attention to “the current economic situation in Turkiye,” as a factor hindering Turkish law firms’ work. Similarly, KECO Legal Partner Berk Cin adds that “the volume of work in the Turkish market has decreased during this period.” The main reason for the decrease, according to Cin, “is the presidential and parliamentary elections held in Turkiye in May. The uncertainty driven by the elections affected the Turkish economy as well as the number of new deals. Another significant reason is the macroeconomic instability in Turkiye.”
The Practices in the Spotlight
Among the most active practices, Corporate/M&A appears to be dominant.” M&A transactions, especially in the start-up ecosystem, are on the rise,” Gokce says. “Sizable transactions have been completed in the last 12 months, and there are more in the pipeline.”
“M&A and banking & finance matters are staying at the forefront of what we do,” Mahfoud agrees while noting that this year their team has been “busier in emerging areas like digital banking and fintech.”
Oksak highlights a surge of activity in the retail sector. “We mostly provided legal services to our clients operating in the retail sector,” he says. “Despite the high inflation rate, pre-election and earthquake-related spending caused a growth in the retail sector.”
However, not all sectors have experienced such growth. “Our practice in real estate, infrastructure, and construction is currently going through a period of relative calm,” Gokce notes. The construction sector, in particular, has slowed down, with Oksak explaining that “given that the bank loans were out of the table, the construction sector shrank – e.g., house sales decreased by 44.4% year-over-year in June.”
Additionally, Mahfoud mentions a slowdown in renewable energy projects. “While we are doing a bit less in renewable energy, we have not had any major projects in the infrastructure sector in the past twelve months,” she notes. “The main reason behind this trend is the extended period of elections, which might have temporarily slowed down the implementation of new projects.”
Price Pressures
Considering the challenges, Cin and Bayar highlight how these have affected the legal services sector, particularly in terms of pricing. “The depreciation of the Turkish Lira has substantially heightened client concerns regarding costs,” Cin says. “This currency devaluation has made it more difficult for the firm to maintain competitive pricing and has led to increased pressure on the firm’s profit margins.” According to him, “the fluctuating value of the currency has created an environment where clients are cautious about managing their legal expenses.” The primary challenge, as explained by Bayar, “has been serving Turkish clients and pricing services in Turkish Lira, especially, when the projects are long term and payment is made at the end of the project.”
Gokce adds that “currency fluctuations and runaway inflation led to a decrease in legal services fees, and the law firms entered into a ‘fiercer’ price competition with each other.” According to Gokce, “excessive depreciation has now led to the convergence of the prices of medium-sized and large-sized law firms. This resulted in a demand for law firms that were previously seen as overpriced, as they did not have to increase their fees as much.”
Mahfoud emphasizes that this heightened price competition is not solely a consequence of currency fluctuations. For Mahfoud, price competition can also be attributed to the “increasing spin-offs in the legal sector.”
Flying the Nest
Another noticeable trend is that of spin-offs, with Mavioglu noting: “It is generally the nature of the legal business for experienced Partners to seek out new and independent firm ventures.” Bayaralso adds, that “the number of lawyers in a firm does not exceed 100 in any firm,” and that “it has been a common trait for lawyers to spin-off after a few years to establish their own practice.”
Cin points out that the increasing trend in spin-offs is particularly noticeable after the COVID-19 pandemic. “I believe that the ‘great resignation’ period and changing working habits during the post-COVID-19 era have had a profound impact on the approach of experienced senior and partner lawyers toward traditional big law firms. Many have re-evaluated their priorities and sought greater flexibility and autonomy in their careers.”
“Except for a few instances, the concept of large and institutional law firms has not quite taken hold in the market yet,” Mahfoud concludes. “So far, we have mostly seen spin-offs. However, given the challenges in the business environment, we do not necessarily anticipate significant structural changes in the next 12 months.”
This article was originally published in Issue 10.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
