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Spin-Off City No More

Spin-Off City No More

Issue 10.4
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The Romanian legal market seems to indicate a substantial downturn in law firm spin-offs, of late. Musat & Asociatii Managing Partner Paul Buta, Popescu & Asociatii Senior Partner Gheorghe Buta, and Simion & Baciu Managing Partner Cosmina Maria Simion share their thoughts on this trend, the reasons behind it, and the likelihood of it continuing.

Are There Fewer and Fewer Spin-offs in Romania?

“I believe that the number of notable spin-offs has decreased over the last couple of years,” Paul Buta begins. While he says that the reasons behind this would be challenging to identify, he stresses that “as an underlying theme, however, we can see a shift in the perception of the added value provided by legal professionals to businesses, from a legal support position to more of a business consultancy position, thereby requiring a more integrated, multi-disciplinary perspective on the issues businesses face.” 

According to him, in a “more complex environment,” as Romania is right now, each issue warrants being “tackled from a wider array of perspectives, and leaving even one of those outside the analysis can have a severe impact on the outcomes. This means that the success of a project now requires a much more diverse range of inputs from more highly specialized attorneys working together in a close-knit project team.” As he explains, this is “much harder to provide in a new spin-off environment.”

Agreeing with Paul Buta is Gheorghe Buta, who adds that one of the reasons for such a low number of spin-offs might be found in the fact that “the legal market is already formed and mature, competition is high, and it is very difficult, as a result, to launch at the same level, or even at a level only slightly lower than you were before the spin-off.” Moreover, he adds that “law firms, and especially the larger ones, take much more precise and effective anti-competitive protective measures, thus preventing or hindering spin-offs with takeovers of clients, projects, or even lawyers.”

On the other hand, Simion feels that “the local market is one that constantly evolves, aiming at finding its identity and maturity, with clients engaging legal service providers that are best suited for a particular task or able to respond to a specific expectation, in a certain context and timeframe. This can lead to spin-offs or mergers – and our market has seen both in recent times.” Simion goes on to add that “such moves do not necessarily respond to economic factors exclusively, but also to particular situations and are neither a norm nor a rule in any market, but merely the signs of constant evolution and change, which should always be welcomed.”

Setting Up Shop Appears Difficult

Given the high levels of competitiveness in the Romanian legal market, there are many reasons why it is increasingly difficult to spin off. According to Paul Buta, it all eventually “boils down to the minimal scale that a new practice needs to be at, in order to be relevant. The challenges to establishing a new practice of sufficient scale to be relevant to more sophisticated clients are even harder to overcome now, given the difficulties with recruitment and the increasing costs of creating and maintaining a suitable working environment,” he elaborates.

“In general, we believe that the legal industry has become more competitive due to the different factors such as increasingly complex mandates, competition, etc.,” Gheorghe Buta chimes in. “All these have led to an increase in demand for specialized legal services, which has resulted in many new law firms entering the market, including the niche firms that are focusing on specific areas of the law.” Furthermore, Gheorghe Buta believes that “significant changes in the regulatory landscape” have only added to the myriad of difficulties making the lives of would-be newcomers more difficult.

“In my experience, predictability should be regarded as a desiderate and not a prerequisite,” Simion says, offering a different take. As she puts it, four years ago, when discussing the then-current affairs with colleagues, considering what “the next events that would define the history of our adulthood will be – no one mentioned a pandemic that would force many of us to dive deep into our beliefs and priorities, nor a war near our country’s frontier that would prompt us to re-evaluate aspects we normally tend to neglect and take for granted, such as the availability of basic resources.” 

And There Are Always the Clients

Looking at the board from a different perspective, it would appear that clients have altered their behavioral patterns as well. “More companies seem to have observed that the success of a project and its viability in the medium or long term can be severely impacted by risks that could have been internalized and mitigated from an early stage, if the risk analysis had been comprehensively designed and executed,” Paul Buta explains. “This does create incentives for companies to seek, especially for projects of note, a legal partner who can anticipate as diverse a range as possible out of those risks.” 

On the other hand, Gheorghe Buta feels like not much has changed in recent times. “Neither in our own work nor in our constant analysis of the market, in general, have we noticed any major changes.” According to him, companies and businesses have always been on the lookout for quality legal services “at a price that they consider to be suitable for them.”

Simion feels that “there is no straight yes or no answer to the question of if and how these habits change. To formulate a response that adds value, it all should be placed in the relevant context of a particular company.” According to her, “general counsels and in-house teams, as well as other C-suite level executives engaged in the selection and procurement of legal services, are increasingly expressing desire and satisfaction towards lawyers who demonstrate expertise that is relevant to a specific industry, and the ability to enclose non-legal expertise into their thinking.”

Split Decision: Trend To (Tentatively) Continue

“This trend is likely to continue, albeit at a fluctuating rate, given the underlying reasons for this change,” Paul Buta says. “The legal market could have an even larger gap between providers of legal support, advising a higher number of clients on limited mandates, and providers of business legal consultancy services, who, having developed a close relationship with a lower number of clients, attend to the furthering on the long-term of these clients’ business needs from an over encompassing perspective in order to lower their overall business risks.”

Gheorghe Buta agrees, adding that he believes “that the downward trend in [spin-off] numbers, especially of the notable ones, will continue. We also believe that the companies’ habits regarding selecting legal services based on the quality and the volume of requested services, alongside the criteria of the appropriate price for these services, will be maintained.” Moreover, given the current geopolitical context, Gheorghe Buta feels that there is a “state of uncertainty and difficulty in managing the crises and their effects on economic and social life, including the legal services and the whole activity of lawyers.”

Finally, Simion remains a tad more cautious in making a decisive prediction: “While we are not in the business of prediction – quite on the contrary – I would consider it fair to say that the foreseeable future will prompt us to a number of rather noteworthy repositions, including through spin-offs and mergers.” 

This article was originally published in Issue 10.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here