Republic of Ireland: Waiting for ‘Tiger two’

Firms in Ireland are now facing an all-time high in terms of regulatory burden, as the country fully embraces super-regulation — but lawyers fear that this could lead to a stifling of the market

Last month the New York Attorney General Eliot Spitzer addressed Irish businesses on a visit to Dublin. His message was clear: in line with the rest of the world, Ireland needed to heed warnings on business integrity. He reserved special criticism for the executives and bankers globally, who were damaging the market by continuing to see themselves as above the law. But there was some light at the end of the tunnel. The scourge of Wall Street wrong-doers said there were now enough regulations and that concepts such as honesty and transparency could be reintroduced using simple methods.

With the Irish regulatory burden at an all-time high, Spitzer’s words will resonate with lawyers who are now vociferously complaining that Ireland has embraced super-regulation all too enthusiastically.

They point to the Companies (Auditing and Accounting) Act 2003 as evidence that the legislative agenda is in real danger of stifling risk taking. This Act requires directors of all public limited companies and some private companies to sign annual compliance statements that they have complied with all the relevant laws — a task seen by businesses and lawyers as particularly onerous. Arthur Cox managing partner, Padraig O Riordain, says: "Over-regulation is not good for business. Some of the regulation is a knee-jerk reaction to events that have happened."

He is backed up by A&L Goodbody managing partner Paul Carroll. While acknowledging that good governance was necessary, he complained about the "puritanical zeal in overreacting to a few growing pains".

Despite this, the increasing amount of regulatory business has seen law firms busy setting up departments to provide advice. A&L Goodbody’s head of compliance and corporate governance, Kevin Allen has developed a business tool which he is currently demonstrating to companies as a compliance model.

Meanwhile, McCann Fitzgerald has hooked up with KPMG after the two discovered just how much work was out there when working on a compliance project for Allied Irish Bank. "We launched a joint unit to identify legal obligations and work out what companies need to do to fulfil their company law, tax and other legal obligations," partner John Cronin says.

Despite all the talk of too much regulation, Ireland is continuing to attract new businesses. Amazon is basing its European business in Ireland while a host of others are expanding including Pfizer, Merrill Lynch, IBM and Dell. Intel was recently refused state aid to expand its presence, although the IT company is going ahead with its plans. The reason given was that the company was not able to demonstrate technological innovation. It is an indication that the European Union (EU) is taking a firmer stance on state aid, says Helen Kelly, head of competition at Matheson Ormbsy Prentice (MOP). "Some would say it was a crisis waiting to happen," she says. "It was no surprise. The European Commission is opposed to state aid and there is not a lot of sympathy for Ireland. When Ireland said no to Nice 1, it lost some support and Nice 2 did not exonerate us."

Dublin is also continuing to build its financial services market. Hedge funds are the latest "very big business". With Dublin administrating 20% of the world’s hedge funds, it is increasingly being seen as the preferred European jurisdiction for the domiciling of regulated European hedge funds, says Mark Thorne, managing partner at Dillon Eustace.

While the International Financial Services Centre’s special tax rates of 10% officially end this year, Brian McDermott of A&L Goodbody believes it will not make a difference as general corporation tax is now only 12%. "In fact Dublin is stealing a march on other offshore jurisdictions," he says. "Dublin has the advantage of being a centre for fund administration and this is complemented by the fact that it is also a fund listing centre for both Irish and non-Irish funds."

Insurance products are also becoming important in the Dublin marketplace. According to David Cantrell, managing partner of Eugene F Collins, Ireland is attractive for insurance companies and, for example, has recently seen a number of Italian insurance companies arrive as the regulator is less stringent than the UK’s Financial Services Commission.

But while activity is as busy as ever, most believe talk of ‘Tiger two’ is still premature. "The economy is very active," says O Riordain. "The pipeline of transactions is very strong but with a little bit of a fragile edge. While activity levels are not on a par with pre-2000 levels, they are still very strong. However, there is not the same confidence it will go on forever."

Although M&A is not the stellar performer it once was, according to Carroll, nonetheless there is still a good pipeline of deals for law firms as evidenced by Mergermarket’s 2004 league tables. The first quarter of 2005 is also proving active.

The Irish Stock Market only saw two flotations last year — Eircom and C&C — with two others deferred. The heavy regulatory burden in the US is focusing the attention of some US companies on Europe. "I have a US company which wants to delist from the US and list in Ireland," says Brendan Cahill, managing partner at William Fry. He says it cost one of the firm’s clients $2m (?1.04m) to comply with Sarbanes-Oxley in the US. But the Irish Stock Exchange is also coming under pressure from the UK Alternative Investment Market (AIM). Already this year information and communication technology firms Calyx and broadband firm Mediasat have announced plans to list on the AIM. Last year six companies went to the AIM compared with the two IPOs on the Irish Stock Exchange (ISE), bringing in total the number of companies listed on AIM at the end of 2004 to 16. Most companies cite an abundance of receptive investors and a highly receptive market, which has led the ISE to set up a new forum for small to medium companies — the Irish Enterprise Exchange.

Efforts by the Irish Stock Exchange to re-invigorate the Irish marketplace in general has not gone unnoticed. "It has been of great assistance to people and in terms of bringing business to Ireland. They are out in Europe saying this is what we do and what we can do. They have gone out and sold it," McCanns’ Cronin says.

One trend is the growing number of rich Irish who are clubbing together to invest internationally. The UK has seen them competing for prime properties such as the ?1.3bn acquisition by Quinlin Private and a consortium of investors for the Savoy Hotel Group followed by the sale of a number of these properties earlier this year. The deal was run by A&L Goodbody. Another consortium bought the prestigious Shelbourne Hotel in Dublin. "We are seeing a lot of high net-worth individuals combining for property investments," Cronin says. "The stock market has turned people off. They are very keen on property, but are looking for other opportunities."

Continued growth in commercial retail property developments, a recovery in the Dublin office market and increased land sales for development will underpin growth in the commercial property market this year, according to partner Sean Twomey, of Eugene F Collins.

The continued boom has seen firms beefing up their departments, although MOP has lost a number of its projects and construction and property teams to other firms. O’Donnell Sweeney has picked up partner Mark Varian and a number of assistants, while William Fry has hired MOP’s head of property, Andrew Muckian, to boost its property offering. "We are seeing corporate deals coming out of the property department. Property is changing. It is no longer a support service for corporate," says William Fry’s Cahill.

Despite the setback, MOP partner Andrew Doyle is bullish about the firm’s prospects, claiming that the firm wanted to build a primary property practice and that it has had an "epic year" in projects and construction. He also acknowledged that property was changing and that the successful firms were those that had "front-end property practices", particularly some of the medium-sized firms.

BCM Hanby Wallace has itself finally secured a head for its construction and property department when Tim Kinney, head of Mason Hayes Curran’s (MHC’s) Belfast office, joined the firm last September. Partner Colin Sainsbury said that the commercial property sector was booming, particularly with the completion of the Dun-drum Shopping Centre, the biggest commercial property development in Europe. With Phase two due to start in 2007, and another new greenfield town, Adamstown being built, business has never been better.

It is a view shared by Francis Hackett, managing partner of O’Donnell Sweeney, whose firm is also active in the property arena. He believes that while the outlook remains strong, in the medium term activity will move from new house completions to the completion of the infrastructure network, which in turn will mean a greater internationalisation of the work.

Tax is another area that is at the top of law firms’ agendas with several of the big players putting huge resources into building their tax departments. A&L Goodbody, Arthur Cox, and MOP have already gone down this road while William Fry is "continuing to look at it", Cahill says.

Dillon Eustace and MHC have announced plans in this area. Dillon Eustace recruited David Lawless from PricewaterhouseCoopers to set up a department last July, the first time that a partner has left an accountancy firm to join a law firm.

MHC has also made a high-level appointment — Suzanne Carter, Vodafone Ireland’s head of tax. Her brief is to create a leading tax practice. Managing partner Declan Moylan says the firm is planning to develop a full services tax planning service, making use of its London partner Nick Holt to bring in international investment work to Ireland. Holt was one of the major recruits of the year. The ex-KLegal managing partner has the task of "representing MHC in the UK and also to give us a helping hand through his very wide range of connections".

Holt will set up an office for MHC in London, the fourth Irish firm to have a presence on the ground. William Fry is still "keeping London under review", but has opened up in New York in the meantime with Peter Hooper, the former head of the Bank of Ireland in New York. Ireland’s mid-tier firms may not be heading anywhere, but there is fierce competition for the space in the middle. Ivor Fitzpatrick has recently reviewed its business plan, says chief operating officer Paul O’Grady. "We are not going to be a full service firm. We are not at the heels of the top four to five, but are a niche firm and very strong in the areas we specialise in," he says.

O’Donnell Sweeney is also on the move. Hackett believes the firm has hidden its light under a bushel for far too long. He says the firm has conducted a 365-degree review of the business through consultants Xavier BDO and were very focused on the way forward and not being a ‘me too’ firm. The recent hire of Jim Truick of Landwell and the team from MOP is evidence of its determination to move up a gear.

While most of the key Dublin firms have hooked up with Northern Irish firms, only one firm, Arthur Cox has gone the whole hog and taken over a firm. Ten years on, O Riordain says the amount of cross-border activity is "phenomenal". The firm has increased partners in Belfast from two to nine. He says: "From banking and property, we now have a very strong corporate team while our expertise in projects is particularly strong."

Meanwhile Johnsons, the Northern Irish firm, is also reporting a record year for its Dublin office, says partner Paul Tweed.

The deepening competition between Dublin firms has led them to increasingly specialise. Liam Quirke, managing partner of MOP, says he is trying to get people to focus on a market-led approach and think about the people who buy their services. This market approach could be skills or sector based he says, for example, life sciences. "You need to deeply understand the industry to service it," he adds.

However, recruiting specialists is not easy. Michael Benson, of Benson Associates, says there is a huge demand for commercial property lawyers as well as a big demand but no supply for construction lawyers. "It used to be dealt with under commercial property but is now increasingly specialist," he says.

Banking and financial services also have a strong demand for good candidates but the supply is low, Benson says. And there is always a significant demand for tax and trust work with an increasing need for wealth management advice for high network individuals, he says. Meanwhile, Yvonne Keane of Brightwater says in-house is no longer a graveyard for lawyers in Ireland. "Many organisations are setting up new legal departments in Ireland, hence the higher demand for in-house lawyers across all markets particularly banking, investment management, telecoms and IT."

And Paul Fahy of the Meaghan Group says the Irish market is different to the UK. "In London you can get the candidates but not necessarily the jobs. Here it is the opposite," he says.

Despite lower salaries than London, the opportunity to progress can be quicker in Dublin, he says.

Author: Legal Week Source: Legal Week Start Date: 28/04/2005