- Debt restructuring, compliance fuel increase in legal activity
- Most of Brazil economy is reeling as unemployment surges
The economic implosion and corruption scandal that crippled Brazil’s job market have been a boon for one industry: lawyers.
Top law firms that once made the bulk of their income on mergers and share sales are now focusing more resources on debt restructuring and compliance. Demand is booming for so-called forensics teams -- squads of crack legal investigators who carry out extensive audits to certify companies are following corporate governance standards.
It’s a silver-lining side effect of the worst economic slump in a century and a spreading graft investigation known as Carwash that has led to over 100 arrests and prompted foreign investors to flee. That’s all but shut down the market for stock and bond sales, hurting job prospects for bankers and brokers (Deutsche Bank AG, for example, is planning to cut about half its local staff, people familiar with the matter said Wednesday). The jobless rate in Brazil’s six biggest metropolitan areas reached a six-year high of 7.9 percent in October, then retreated to 6.9 percent by December.
But two of Brazil’s biggest law firms -- the dominant players in the mergers and acquisitions field -- are both hiring.
“It’s not a bad time for lawyers,” said Joao Ricardo de Azevedo Ribeiro, a partner with Mattos Filho, Veiga Filho, Marrey Jr. & Quiroga Advogados.
Mattos Filho, Brazil’s top legal advisers on M&A over the past decade by the number of transactions, added about 55 lawyers last year, bringing its headcount to around 420 as revenue rose by 14 percent, Ribeiro said. The No. 2 firm, Sao Paulo-based Pinheiro Neto, boosted revenue by 7 percent and added 25 lawyers for a total of 390, said Alexandre Bertoldi, a managing partner. Most of the new hires were in compliance, restructuring and forensics.
"Everyone is following Carwash," Ribeiro said. "Companies are afraid of getting involved, unintentionally even, in matters that could lead to criminal consequences."
As the scandal paralyzed more and more companies, the recession deepened. Business bankruptcies have surged, and economists surveyed by Bloomberg project Brazil’s economy will contract 2.8 percent this year after shrinking an estimated 3.7 percent in 2015.
Those same headwinds are proving to be a boon for lawyers. The federal probe into a vast kickback scheme has exploded since prosecutors first uncovered a pay-to-play scheme at state-run oil giant Petroleo Brasileiro SA almost two years ago. The spread of the investigation into the construction, shipyard and banking industries has coincided with the implementation of new anti-corruption legislation that’s prompting companies to tighten their internal controls to ensure all rules are being followed, Ribeiro said.
Once the world’s second-biggest emerging market for initial public offerings, Brazil didn’t even crack the top 15 last year, putting it behind even Trinidad & Tobago and Vietnam, data compiled by Bloomberg show. Guilherme Paes, head of investment banking at Grupo BTG Pactual, the most-active equity offering underwriter last year, said in an interview earlier this month that he expects 2016 could be even worse. “There are no equity issuance transactions expected in the first quarter, and it’s very likely there will be none in the second,” he said.
While M&A fell 33 percent to $49.9 billion last year, the number of transactions slipped less than 10 percent, data compiled by Bloomberg show. That was another buffer protecting lawyers over bankers. Lawyers typically bill by the hour, while bankers’ fees are usually based on the size of the transaction.
“Clearly, everyone would prefer to be working with a more positive agenda, doing IPOs and infrastructure projects," Bertoldi said. "But there is work to be had."