by Ben Miller

Ever larger international players – both foreign and homegrown – increasingly dominate financial transactions in Latin America’s deepening financial markets. As M&A, equity, debt, structured finance, real estate and other deals grow and draw more foreign interest, the lawyers of choice are those that are most readily available and knowledgeable, according to a recent poll of LatAm corporate general counsels (GCs) conducted by LatinFinance.

Despite a rough patch in the markets over the past 12 months, demands for financial lawyers has boomed in recent years along with the region’s economies. International deals will still require the services of a Cleary Gottlieb – which is by far the most popular international law firm – or a Milbank Tweed, but most business in markets like Mexico and Brazil goes the way of local shops that have made a name for themselves over decades.

The number of specialist shops is increasing, along with the overall number of local firms, explains Paulo Garcia, GC at Brascan Brasil. But the key to winning a Brascan mandate, for a Brazilian firm of any size, is availability.

“We prefer to have personal assistance from the partner and from the lawyer involved in the transaction, instead of being one additional client among others,” Garcia says. “If you can find a small law firm with a good partner with a good lawyer, they will typically be involved in the transaction from the beginning to the end. Sometimes at a bigger law firm you start with the partner and end up with a mid-level lawyer.”

Fees, expertise and a solid track record are important in choosing a counsel, says Eduardo Lavini Russo, legal manager at VCP. But availability is the conglomerate’s top concern. This includes both having senior experts work on your transaction, and access to them when needed. Some larger firms might be a bit more likely to have availability issues, but he says his company works with large firms as well as smaller specialists.

M&A and PE Pick Up Slack
Brazilian firm Pinheiro Guimarães is one such specialist, and was tapped to help VCP’s $1.7 billion purchase of a 28% stake in pulp and paper producer Aracruz, which was agreed in August. The “boutique” tag is often applied to the firm, partner Plínio Pinheiro says, given its size of about 60 lawyers. However, he points out that few large firms have 60 lawyers dedicated only to finance. Scale, he says, makes it easier for the firm to ensure partners with specific specialties – debt, tax, M&A – can combine to work on a single transaction.

A steady stream of M&A has kept Pinheiro Guimarães busy this year, despite a lag in debt, a specialty that has seen the firm placed first among Brazilians in the debt and securitization expertise categories of the LatinFinance survey. The poll drew 45 responses, including GCs at some of LatAm’s leading issuers.

“A lot of companies in Brazil are highly capitalized,” Pinheiro explains. “There is a huge amount of M&A work we’ve been doing as a result of the IPOs last year.”

The middle market – which Pinheiro defines as transactions between $100 million and $300 million in size – accounts for the bulk of the firm’s work, though he claims to have a few in the pipeline north of $1 billion. In June, Pinheiro Guimarães represented Citi in the acquisition of broker-dealer Intra and represented existing shareholders of Vale as they sought to maintain exposure to the mining company following its $12 billion follow-on.

M&A also accounts for the lion’s share of work in other countries. Federico Santacruz, partner at Ritch Meuller – which wins in the debt category – has seen M&A and real estate business pick up, while Mexican capital markets slowed a bit in the second half of the year.

“There are still a lot of family-owned businesses that are good targets for bigger entities,” Santacruz says of Mexican M&A. Deals in the $60-$300 million range offer the most opportunity, he adds.

Foreign capital still chases these types of transactions, as well as private equity (PE) deals, explains Manuel Galicia, partner at Galicia & Robles, another popular choice of GCs. He is particularly optimistic about the infrastructure deal pipeline. His firm advised Intergen on its $304 million purchase of Mexican generation assets owned by Transalta, for example.

Incoming Cash
In general, Galicia finds that the main source of work for Mexican law firms specializing in finance comes from foreign interests investing in Mexico. This has widened the sector and brought more competition.

“In M&A work, firms are representing lenders or private equity funds,” Galicia says. “There is a lot of opportunity and many roles for different firms.” The extra business PE brings is important, as there is a decline in business from financial firms, and other clients may be looking to cut back what they spend on transactions and legal fees.

Galicia says restructurings are on the rise in markets like Spain, where real estate companies were overly aggressive before credit markets seized up. He has begun to receive inquiries on the subject in Mexico.

“We may be doing some workouts,” Galicia says. “We are already providing advice. We could see a pick up in the next six months.”

New areas will continue to absorb slack in debt and equity. Galicia & Robles, picked as the best for M&A and equity in Mexico, has worked on several Mexican share placements this year.

Securitization has suffered somewhat in Mexico, but Julian Garza at Jáuregui Navarrete says his firm expects deal flow to resume. The firm – top among Mexican securitization and syndicated loan specialists, according to our survey – is encouraged by diversification in the assets involved.

Issuers demonstrate greater maturity by moving to areas other than mortgage securitization, including trade receivables, auto loans and consumer loans. Jáuregui Navarrete has this year represented banks like Deutsche, ABN, and Dresdner in securitizations involving different issuers and underlying assets.

Local bonds continue to be issued in Brazil, where Pinheiro says he has not seen a slowdown, though his firm does not rule one out in the fourth quarter. He has not lost faith in Brazilian issuers doing cross-border bonds, and claims to have eight dollar bond issues in the pipeline.

Foreign Presence Grows
Indigenous specialists like Galicia & Robles and Pinheiro Guimarães dominate local transactions, but their clients will still need a foreign firm for ADRs and 144As. So far though, this has not led to all global giants putting boots on the ground.
Cleary Gottlieb, which placed first among international firms among each of the categories, continues to operate from New York. There, its large team of specialists in several areas can work close together and better identify regional trends, says senior counsel Roger Thomas.

Baker & McKenzie has had a local office in Mexico since 1961. White & Case meanwhile set up in Mexico in 1991, and commands an increasing share of the market. Neither, however outranked any of the indigenous shops in LatinFinance’s local expertise categories. Elsewhere, energy specialist Chadbourne & Parke recently set up an office in Mexico City, betting on the government’s infrastructure push.

Most US firms, however, find it easier to work in joint ventures on a case by case basis. Big foreign shops are better suited to deals where full service is needed, explains Ritch Meuller’s Santacruz, but locals dominate individual transactions. He says his shop will work with foreign partners where there is an opportunity.

Firms with significant exports and international operations need foreign firms as well as local specialists, says Cristóbal Mariscal, general counsel at Casa de Cuervo in Mexico. Cuervo has used Baker & McKenzie and White & Case, as well as local firms such as Galicia & Robles. Boutiques that specialize in intellectual property or environmental law are important on a case by case basis. Knowledge of the industry is a key selection factor.

Partner Poaching
Ritch Meuller gets 80% of its business from US and other foreign clients. Some other shops have formed joint ventures with foreigners. Santacruz says it is important to work with several different overseas law firms. Pinheiro notes an increase in linkups between local and international law firms in Brazil.

Pinheiro has also seen a surge lateral hiring in Brazil, particularly as some mid-sized firms try to become full-service. This type of transition is not yet the norm, and he says his shop has no plans to expand greatly beyond its specializations. But some are betting that the time is right to grow along with the market and the demand for their services. Competition for top talent is fiercer than ever.

“In the past two years it’s gotten harder to get good lawyers,” says Galicia. “Hiring has become complicated.” He adds that about half his firm’s partners are appointed through lateral hires. Not all Mexican firms are engaging in poaching from rivals, but he notes there is more of that than previously. Essential to drawing and developing top talent are compensation perks and partnerships with various American firms to send junior lawyers to the US for extended training periods.

It is difficult to predict whether specialist or larger firms will dominate the landscape in the region’s main markets. As more transactions become available, the amount of specialists needed should increase. However, as companies engaging in them become more sophisticated and globalized, they may prefer to rely on firms with a broader selection of products. For the moment, they will have to find the middle ground.

“The expectation of clients is an interesting balance,” says Jáuregui Navarrete’s Garza. “Being specialized in an area or specific type of transaction, and at the same time being a full-service law firm offering services and advice in related areas.” LF