Portugal’s top firms: Why private client work will pick up the slack from M&A

Portuguese firms had a record-breaking year in 2015, posting high revenues boosted by divestments, asset sales, high-stakes litigation and M&A activity.

But what does the 2016 financial year hold for independent Portuguese firms? Economic instability in Europe as well as the lack of a government in Spain could have hit the Portuguese market by association. But it does not look as though that has been the case.

According to a source in the market, things have “heated up” because of real estate investment and the promised Horizon 2020 framework, while litigation and arbitration are expected to continue to provide a high level of work for Portuguese firms.

The prospects for M&A are not as promising.

“Firms are reliant on their relationships with clients to overcome any lack of M&A activity,” one source says.

“A lot of work is coming from ‘Golden Visas’, which allow foreign investors who spend €500,000 (£450,000) on a property here the right to live in Portugal,” another source claims. “Private client work is booming. People are coming from Brazil or China with assets.”

Despite denials from Portuguese firms that they are in the market for a merger, rumours about consolidation in Portugal have not abated thanks to a perceived problem in succession planning within certain firms.

The only international firm still in Portugal since the 2008 crisis is Linklaters, which appointed partner Antonio Soáres as managing partner earlier this year to succeed Pedro Siza Vieira. The firm launched in the region because it thought it would be able to tap into the Iberian market, but the reason it has remained is the gateway Portugal provides to lusophone Africa. Last year Linklaters’ Portugal office posted its highest ever revenue, driven by African work in infrastructure and energy, financial services, insurance and banking, and litigation.

Other firms, such as MLGTS, Vieira de Almeida, Cuatrecasas Gonçalves Pereira and PLMJ have also focused on Africa as a key area of growth. The opportunities from oil and gas and renewables deals are expected to boost revenues even further.

Below, experts in the Portuguese legal market talk to The Lawyer in more detail about their outlook – and what will keep their revenues floating – in the coming year.

2015 proved to be a record-breaking year of revenue growth for firms in Portugal. What are your expectations for 2016, and how do you think firms will be affected by Portugal’s economic outlook?

Joao Vieira de Almeida, managing partner, Vieira de Almeida: We have high expectations for 2016, with both our top and bottom lines showing double-digit growth. Although the economic outlook seems uncertain – the public deficit is under control but growth is nowhere to be seen – workflow has kept to the high 2015 levels in most practice areas.

“Workflow has kept to the high 2015 levels in most practice areas” Joao Vieira de Almeida

Nuno Galvão Teles, managing partner, Morais Leitão Galvão Teles Soares da Silva & Associados (MLGTS): Portugal has a forecast for 2016 of moderate growth, as high corporate leverage and weak bank conditions have been holding back investment. The restructuring of the banking sector, the increasing needs of Portuguese businesses to have access to the international market to grow and the need to restructure them internally to become more efficient are conditioning our economic outlook. Despite these market conditions there are opportunities in the market in areas such as corporate, tax, real estate, banking and litigation. MLGTS is proud to have been working on most if not all of the high-profile transactions, deals and litigation cases.

Some trends are here to stay, such as the boom in venture capital start-ups that is contributing to increased work opportunities in areas such as compliance and data protection. The increasing market for start-ups and SMEs, business angels, venture capital and private equity also promotes opportunities for law firms.

MLGTS has been playing an important role, with a significant market share, with the work done by our ‘Team Genesis’ group. Also, Portugal has positioned itself as the hub for doing business in African Portuguese speaking countries. Lisbon works as a platform or hub for foreign investment, in Portugal, in Africa and wherever MLGTS has partnerships through MLGTS Legal Circle.

Despite the ongoing economic crisis there are interesting opportunities for law firms, and we are playing an important role in these areas.

Law firms in general have to adapt to market trends. There is increased pressure on price, new competitors arising, an excess of offers and a decrease in demand. Clients are more demanding in terms of quality and efficiency, and they are not showing any signs of slowing when it comes to results. The biggest challenges law firms are facing are related to increases in efficiency, profitability, innovation and talent retention.

“The boom in venture capital start-ups is contributing to increased work opportunities” Nuno Galvão Teles

Retaining talent is vital. We need to cut the gap between old generation partners and young lawyers (the Millennials), that have a whole new vision of what it means to be a lawyer, have new demands, need a proper work-life balance and face the profession with ‘360-degree’ perceptions. Innovation and technology are essential to increase efficiency, as well as the introduction of new tools, along with a fresh approach to clients, with a structured client care policy and a strong business development strategy. Flexibility is key if we want to face all of these challenges. We are proud to say that MLGTS has been developing initiatives to cover the above issues.

Antonio Villacampa, partner, Uría Menéndez-Proença de Carvalho: To date, 2016 has provided us with yet another record-breaking year in terms of revenue growth. We are very satisfied with our performance in the Portuguese market. We assume our competitors have also experienced positive results. As regards the impact of the economic outlook on law firms, we are conscious of the fact that clients remain sensitive on costs, meaning a return to previous fee levels is unlikely.

We are also witnessing a decrease in the volume of very large transactions in the market. Nevertheless, we remain optimistic about prospects for the economy, given the prevailing trends.

Luís Pais Antunes, managing partner, PLMJ: So far, 2016 is running well and we anticipate that this will be the case for the rest of the year. Although the Portuguese economy is growing at a slower pace, initial expectations of political instability did not prove to be right and the main indicators tend to confirm that Portugal’s economic outlook is stable.

Real estate and tourism are still growing and some other areas – such as tax law (particularly tax planning and tax litigation), general litigation and crime (especially white-collar crime and domestic and international compliance), M&A, banking and finance, and capital markets – have generated demand in terms of legal work. Furthermore, private equity is still enjoying huge success and playing an increasingly important role in M&A activity in Portugal.

Recent inquiries show the IT sector as a driver of Portugal’s growth in the near future, and R&D, manufacturing and logistics as the areas most likely to attract foreign investment.

Portugal needs a more competitive and sustainable economy, and a more favourable environment for investment. We hope that 2017 will bring more focus on investment and exports.

We anticipate that Portuguese law firms will continue to reinforce their teams in the areas mentioned above, as well as their internalisation strategies, making some partnerships with global and local law firms.

PLMJ will continue to focus on innovation, quality and diversification of services in the domestic market, as well as on the consolidation and strengthening of its international project. We are focused on improving our services in Portugal, Africa (in particular Angola and Mozambique) and in any other international market where our clients want to be present. We will continue our step-by-step approach, knowing there is still room to expand our activity both internally and abroad.

João Miranda de Sousa, managing partner, Garrigues Portugal: 2016 will be a good year in terms of activity for firms in Portugal. Portugal has experienced a slight economic growth over the past 10 months, and the signs on the political front seem to confirm a scenario of stability and of compliance with the EU orientation. Banking and finance, private equity and real estate are all seeing a number of significant operations and transactions. Last year Garrigues Portugal’s turnover grew compared with the previous year and we believe it will not decrease this year, and could eventually grow again, albeit moderately.

How has your private client work been affected by the increased interest from Brazil and China, and the change in the tax regime?

Vieira de Almeida: Private client work has been growing consistently, mostly in real estate-related matters, and we expect this to continue, with British nationals joining the client pool of Chinese, Brazilians and French investors. The recent changes to the tax regime should not affect this trend.

Galvão Teles: Most of the work that comes from private clients is through non-habitual tax residence and Golden Visas. And it’s not only clients from Brazil and China but also from France and other nations. Our firm has special foreign desks (French, German, Russian, Indian and also Spanish) to address all kinds of foreign investment in our country when it comes to private clients, and it has had quite an impact at the firm. Considering the political instability and economic uncertainty, several Brazilian individuals opted to leave their country and take up European residence. Portugal is commonly recognised as their first destination, combining tax advantage, simplicity of the process and the increasing willing to invest in Portugal.

Nowadays, the non-habitual tax resident regime is attracting high-net-worth individuals to reside in Portugal. This regime has been working for the past years. Several of the individuals taking up residency in Portugal are investing not only in real estate (namely refurbishing historic city centres) but also in economic areas such as agriculture or architecture. Some of these high-net-worth individuals also occupy management positions in Portuguese or multinational companies, contributing to the enlargement of private investment in Portugal. And that also impacts our work in other areas as we are a full-service law firm. This non-habitual tax resident regime grosso modo may enable tax exemptions on foreign sourced income and reduced tax rates for certain types of Portuguese sourced income.

Several Brazilian and Chinese individuals have opted to invest in Portugal through the Golden Visa regime, which enables them to also benefit from the residence permit (and tax advantages if both regimes are applied together). For non-EU nationals to apply for the regime a residence permit is required. All in all, if an individual invests in Portugal through certain types of investment he may acquire the Portuguese (and Schengen area) residence permit. The most common eligible types of investment are the acquisition of real estate in Portugal and the investment of funds in a Portuguese financial institution (minimum €1m). This Golden Visa regime does not need to be necessarily combined with the non-habitual tax regime but if it is, individuals may benefit from a win-win situation.

Villacampa: In recent years our work with ultra-high-net-worth individuals (in particular, from Brazil) has considerably increased, motivated by the internal and international context.

At an internal level we highlight the Golden Visa scheme (based on certain investments, with the perspective of gaining Portuguese citizenship within six years) and the non-habitual tax resident regime (with reduced rates and exemptions for new residents in Portugal for a period of 10 years), as well as the favourable tax environment resulting, among other things, from the absence of inheritance tax, wealth tax or declaration of assets.

On the other hand, from an international perspective, fiscal austerity programmes and the economic difficulties experienced in certain countries have also boosted the demand from high-net-worth individuals for attractive jurisdictions, such as Portugal.

In our case, the work with Brazilian clients who are changing their tax residency to Portugal has been particularly relevant, as they are our principal source of foreign private clients. As a rule our work involves not only assistance on investments in Portugal and the change of tax residency, but also assistance at the level of the international restructuring of their assets: converting existing holding structures into efficient international onshore structures that are adapted to the Portuguese legal and tax framework.

Nuno Cunha Barnabé, head of tax, PLMJ: Private client work originated in these markets in the past three years has been mostly driven by the Golden Visa and the non-habitual tax resident programme. It concerns the acquisition of visas and, in the in particular case of Brazil, also pre-immigration tax planning and citizenship acquisition, although this is less frequent. Chinese clients are essentially foreign investors looking for a visa, while Brazilians are often interested in relocating with their families. We’ve also been seeing an increase in estate planning and family governance-related work from older clients who relocated to Portugal in the early years of the programmes.

“Brazilian and Chinese clients are particularly interested in real estate investment” Miranda de Sousa

Miranda de Sousa: We have noticed that Brazilian and Chinese private clients continue to be, in line with what has happened over the past few years, particularly interested in real estate investment opportunities. The changes to tax regimes under discussion in the Portuguese parliament don’t seem to have a significant impact on their investment decisions.