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Legal Business March 2012 November 2010 Legal Business 3 Despite political and economic upheaval, intensied by pressure coming from the eurozone, the Balkan region is providing a rich diet for the diverse law rms operating there CAROLINE HILL BALKANS 74 Legal Business March 2012 Photograph SHUTTERSTOCK T u MIXED FORTUNES 76 Legal Business March 2012 u u BALKANS March 2012 Legal Business 77


  • November 2010 Legal Business 3

    BALKANSLegal BusinessMarch 2012

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  • Photograph SHUTTERSTOCK


    74 Legal Business March 2012

    Despite political and economic upheaval, intensi ed by pressure coming from the eurozone, the Balkan region is providing a rich diet for the diverse law rms operating thereCAROLINE HILL

    H O L D I N G

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  • The signs had been positive for the Balkan states until very recently. Not only have countries in the region shown great commitment in pushing through reforms to bring domestic

    legislation in line with the rest of Europe, but many have also shown exemplary discipline in complying with International Monetary Fund (IMF) austerity measures. All this contributed to the IMFs forecast last year that growth in the Balkans by 2013 would be three times that of western Europe.

    However, the knock-on effect from the rest of the continent has been severe. With the eurozone crisis showing no signs of abating, forecasts for growth in the region have suffered amid fears that, as western Europe further tightens its belt and its major banks shrink outside of their home markets to help beef up capital levels, already low levels of liquidity within the region will drop even further.

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    76 Legal Business March 2012

    Ratings agency Fitch cut its 2012 growth forecast for the wider emerging Europe from 4.1% in June last year to 2.8% in December 2011. This was largely to re ect the downward revision to GDP growth in the eurozone to just 0.4% in 2012, but also on the back of fears for the stability of public nances, the inaccessibility of global capital markets and sluggish lending growth among eurozone banks, which account for a large majority of banking assets in the Balkan region.

    But while law rms active in the Balkans attest to all of these trends and to the large number of deals that never make it off the ground they are strategically aligned to take full advantage of the pockets of very real opportunity that exist across the region.

    MIXED FORTUNESMost local and international lawyers describe the short-term outlook for the regions economy as bleak. Schnherr Belgrade partner Matija Vojnovic, one of the rst equity partners to come from outside of the rms Vienna headquarters, says: My personal impression is that in the short to mid-term, the outlook for the countrys economy is quite gloomy, [partly] because of the general illiquidity of the market and interrupted ow of fresh nance since the foreign banks have stopped pumping money into their subsidiaries in Serbia.

    The latest crisis of con dence in the global markets has inevitably seen a ight from illiquid assets, and with the exception of regions such as Montenegro, real estate has suffered again, if it ever recovered. Elsewhere, M&A levels have dropped alongside overall foreign direct investment levels. Fresh elds Bruckhaus Deringer Moscow-based, CEE-focused corporate partner Sebastian Lawson says: Undoubtedly our deal activity level has decreased as it has for everybody else. There is not much appetite for equity issues and little debt capital markets work.

    Rumours of deals abound in the market, particularly in the energy and telecoms sector, but Lawson adds: We are not expecting a major upswing this year in M&A or capital markets work and I am a bit sceptical about privatisation deals talked about for so long. Its a question of whether governments are able to succeed in getting those projects off the ground.

    There is a huge need for projects work across the region and EU funding is available to help oil the wheels, but the complex regulatory framework of many Balkan countries and

    the unrealistic price expectations of their governments are still very much deterrents or deal breakers for foreign investors.

    Conditions may be tough but the regional players who have weathered the crisis since 2008 are serious contenders in this market. It is notable that, despite widespread fears of further economic contagion from the eurozone crisis, law rms feel well placed within themselves to face any contraction. DLA Piper Bucharest managing partner Marian Dinu says: If Romania gets hit as a result [of the eurozone crisis] everyone is hoping that activity has stabilised at a low level and that there will not be a dramatic change for the worse in the economy or the legal market.

    Strategic positioning is key and at Schnherr, highly regarded by competitors in the region, Vojnovic says: If you are lucky enough to be well positioned in key industries, most notably energy, telecoms, insurance and a bit of pharmaceuticals, these industries provide suf cient projects work because they have not been completely hit by the crisis.

    This, combined with a huge amount of restructuring and workout deals, is more than enough to keep the rm busy.

    Schnherr is now present in ve Balkan countries Bulgaria, Croatia, Romania, Serbia and Slovenia but for international rms with no direct presence in the Balkans, many are working hard to ensure they hear about large deals ahead of the market. At Fresh elds, the rm services the region from its of ces in Vienna, Moscow and London, with one Balkan/CEE specialist partner in each jurisdiction. Lawson, a regional specialist himself, says: We dont have local of ces so that means we cant afford to sit back, we really need to be a bit more proactive in getting the deals. Even now there are a number of interesting deals we would like to be working on in the region.

    Fresh elds relies on its network of preferred local law rms in the region; its relationship with institutional investors; its own lawyers, often from a range of different backgrounds; and its clients to hear about deals at an early stage. There are a number of different nationalities represented within our trainee intakes and if they join the rm from, say, Serbia or Croatia, we really encourage them to stay in touch with the local press and when something comes up we can start pitching it to our clients, says Lawson.

    Transaction league tables for the region show, somewhat predictably, that advisers with a local presence including Wolf Theiss; CMS; Clifford Chance (CC) (present in Romania); and Schnherr are leading the eld in terms of the volume of deals but that the picture is inevitably much more mixed for the big ticket transactions. Leading by deal value is CMS, present in all key Balkan jurisdictions, with 1.3bn worth of deals. However, US M&A powerhouse Skadden, Arps, Slate, Meagher & Flom follows with 1bn worth of transactions from two announced deals in the region and Linklaters, privately said by competitors to have taken its eye off the ball in the Balkans, is in fth place with 703m of deals.

    CMS, led by partners Vincent Dirckx, Louise Wallace and Stojan Semiz, advised on the largest deal of 2011 the 816m acquisition by Brussels Euronext-listed food retailer Delhaize Group of Serbian retailer Delta Maxi. CC advised the seller, Delta Holding, alongside Belgrade-headquartered Jankovic , Popovic & Mitic, led by senior partner Nenad Popovic and partner Jelena Gazivoda.

    However, when last year Schnherr, led by partner Sascha Hdl, advised

    There is not much appetite for equity issues and little debt capital markets work.Sebastian Lawson, Fresh elds



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    Volksbank on the 645m sale of Volksbank International with subsidiaries in the top nancial institutions across the Balkan region and beyond to Sberbank of Russia, it was Fresh elds, with its top-tier Russian corporate practice that advised on the deal. It was led by Willibald Plesser, Maria P gl and Friedrich Jergitsch in Vienna and Mikhail Loktionov in Moscow.

    One local partner adds: It is not unexpected that Fresh elds is getting high-pro le deals; it is a major rm and in the good times wouldnt touch deals of less than $1bn. Whereas Fresh elds comes from the top, we are positioned more broadly and are building and improving our position.

    In the long term, lawyers are quietly optimistic that the vast potential for development of the regions energy, roads and railways infrastructure, and the huge state-owned energy and telecoms companies that have yet to be privatised, will still provide rich rewards. Vojnovic says: In the long term I really believe in the market and Im quite

    optimistic because the country has plenty of room for improvement and relatively higher growth potential compared to more mature European markets.

    BOOMING BELGRADESince the ousting of former Yugoslav President Slobodan Milosevic in October 2000, Belgrade, one of the largest cities in south-east Europe, has seen its gross domestic product per capita rise from $1,200 to $6,600 in 2011. The arrest last year of Bosnian Serb general Ratko Mladic is widely expected to clear the way for the country to achieve EU candidacy and law rms are lining up to assist domestic businesses unclear on what is expected of them.

    Kinstellar Belgrade M&A partner Branislav Maric says: Since 2011, parliament has adopted over 100 new laws and regulations in trying to meet its deadline for candidacy. These new laws span competition, capital markets and tele