Vienna’s position as a gateway to Eastern Europe goes back centuries. The Austro-Hungarian Empire stretched north into what is now Poland, east into what is now Romania and south into what is now Serbia. The Austrian capital is, after all, less than 100 km from the borders of the Czech Republic, Slovakia and Hungary.
“Many people in Vienna have Central European roots,” says Dorda Brugger Jordis’ Martin Brodey, whose surname is Slovenian. “It’s one of the reasons we are so capable of understanding the way our neighbours think and act.”
After the Berlin Wall came down, it did not take long for many of the old cross-border business ties to be resume. The former communist states boomed and Vienna retuned to its historical role as the region’s central business hub.
From 1990s onwards, Austrian banks such as Erste Bank, Raiffeisen Bank and Bank Austria invested heavily in the CEE region and many Austrian companies, involved in everything from insurance to real estate, followed. This created an enormous amount of work for Austrian law firms.
“The fact that so many neighbouring countries had to build everything from scratch provided tremendous opportunities,” explains Horst Ebhardt, managing partner at Wolf Theiss. “It was natural for Austrians to go in and do business in these countries.
Austrian banks had the courage to move in a big way and other businesses followed.” Austrian firms have targeted the wider region through greenfield operations, ‘best friends’ alliances and mergers. Over the last 15 years, Wolf Theiss has undertaken an aggressive international expansion strategy. It now has 11 offices across the CEE region and 330 lawyers. “Today, most of our lawyers are outside Austria.We’re a regional firm,” says Wolf Theiss’ Ebhardt.
A little over a decade ago, ENWC Rechtsanwälte was a mid-sized domestic-focused Austrian firm. But as the region opened up, many long-standing Austrian clients expanded into nearby countries. In the last few years, ENWC has opened small offices in Budapest, Prague, Brno, Bratislava, Warsaw and Kiev.
The firm has strict principles about how it should undertake international expansion. “We have a saying: the box that has ENWC on it must have ENWC in it,” explains Raimund Cancola, managing partner at ENWC Rechtsanwälte. “When we enter new markets we don’t use ‘best friends’, we don’t use co-operation agreements, and we never take over an established law firm.
“We start small with lawyers that we have trained in Austria first. Initially the greenfield operation might have a couple of partners and 2-3 associates.We develop offices slowly and carefully.”
Vienna-based law firm Fellner Wratzfeld’s approach contrasts sharply with that of ENWC. “We have followed Austrian and non-Austrian clients into the wider region. But we like to play the role of lead counsel in Austria and work with the best local law firms,” says Fellner Wratzfeld’s Paul Luiki, an American who has lived in Vienna for 20 years. “We handpick the best firm for the particular project. There is, after all, no one law firm that will cover every single area.”
For example, the firm recently did a deal in Hungary representing an Austrian client that had acquired shares in a Hungarian company. “We conducted a beauty contest for the client and looked at who was the best local firm for the specific deal.We have an established network of ‘best friends’, but our approach is flexible and depends on the project,” Luiki explains.
The deal – which closed in late 2009 – needed a firm that had expertise in certain kinds of oil and gas permits and Fellner Wratzfeld ended up using a small boutique firm, Burai-Kovács & Partners, that had the right expertise.
Dorda Brugger Jordis, which has one office in Vienna, also operates a ‘best friends’ system. “We prefer to work with leading firms who are well entrenched in their markets,” says Martin Brodey at Dorda Brugger Jordis.
The firm created an informal network of independent firms in ten jurisdictions in the CEE region. The countries include: Poland, the Czech Republic, Slovakia, Bulgaria, Romania, Hungary and the Yugoslav successor states.
“We have regular meetings to deepen the ties between the firms.We have secondments and joint pitches and joint work on the transactions. The work relationship has become so intertwined that we are in a position to act as a virtually integrated firm on any given project,” says Brodey.
“One firm subcontracts the other firms and they render their services via the leading firm and bill their services via the leading firm. For the client it is like using one firm. They only have one point of contact.”
For many years, Saxinger Chalupsky & Partners had a long-standing Austrian client base based around heavy industry and utilities. But as the business environment changed, its clients expanded into the wider region.
“Our strategy was always to follow our clients, so when they went into the Czech Republic and Hungary, we started relationships with local law firms there. In time, we opened our own offices,” says Saxinger’s Franz Mittendorfer. In addition to its 65 lawyers in Austria, Saxinger now has 12 lawyers in the Czech Republic and Slovakia and five in Hungary.
Clients expanded into new areas across the border, for example utilities. But buyers in the former Eastern bloc sometimes couldn’t buy a utility outright: they had to strike a deal with the public authorities. The solution lay in publicprivate partnerships. Over time, Saxinger developed expertise in joint ventures, particularly with relation to public entities.
In one representative deal, a long-standing client, Austrian utility Energie Oberösterreich – together with Energie Bohemia – recently acquired the activities of a water utility in the Czech Republic.
The financial crisis hit the former Eastern bloc countries particularly hard. Last year, the region plummeted into recession, with an average drop in gross domestic product of about 7%.
Austria remains the most exposed Western country. Its banks’ assets in Central and Eastern Europe account for 70% of Austrian GDP. Austrian banks have about €200 billion of exposure to the CEE region and have written down €15 billion since the start of the crisis, according to Austria’s central bank.
Erste Bank and Raiffeisen Bank, Austrian lenders with heavy exposure to the CEE region, received €1.2 billion and €1.75 billion respectively from the Austrian state in 2008 as the government attempted to shore up confidence in the banking system.
In December, Austria nationalised Hypo Group Alpe Adria, the country’s sixth largest bank by assets. The bank had a lot of exposure to the Balkans.Wolf Theiss advised Hypo Alpe Adria Group in negotiations between the Republic of Austria and the bank’s shareholders.
Austria’s fifth-largest lender, BAWAG bank, recently received EU approval for €550 million in state aid. Vienna-based firm Fellner Wratzfeld advised the bank. The firm negotiated with the Republic of Austria on the terms and conditions of BAWAG’s state aid package. “The package, which had to be approved by the EU commission, combined €550 million of government money in the form of participation capital and also state guarantee for €400 million,” says Fellner Wratzfeld’s Paul Luiki.
The financial crisis may have created huge ruptures in the business environment but many Austrian law firms claim to have weathered the storm well.
Dorda Brugger Jordis, for example, recently advised IMMOEAST, a regional real estate investor, on its €4 billion restructuring of its investments in Russia, Ukraine, Poland, the Czech Republic, Bulgaria and Romania.
Fellner Wratzfeld, meanwhile, has a prominent restructuring and insolvency group which has been very busy. “It’s been extremely exciting times, we have not had any kind of downturn in work,” says Luiki. “We’ve been involved in a lot of distressed sales on the seller side.”
Its fair to say that the financial disaster that some analysts predicted would hit the CEE region has not materialised. In January, The European Bank for Reconstruction and Development raised its average growth forecast for the region this year to 3.3%.
The evidence suggests that Poland, the Czech Republic and Slovakia are emerging from the crisis in relatively good shape. The demand generated by a recent $1.8 billion share issue by Polish state-controlled banking giant PKO Bank Polski illustrates returning investor confidence.
But the outlook for other CEE countries remains more uncertain. Hungary, which was in economic trouble even before the global crisis, is still struggling to regain investors’ confidence, and Romania and Bulgaria, where the global crisis came late, face continuing recession in 2010.
“It has been a turbulent year and there has been less transaction activity. But things improved in the second half of 2009,” says Wolf Theiss managing partner Horst Ebhardt. “Overall, the crisis has not affected our long-term regional strategy.”