UK firms face up to challenge in punishing Moscow market

M&A deal drought puts City firms on back foot in Russian capital

Russia is continuing to prove a challenging location for City law firms struggling to occupy lawyers against the backdrop of an M&A market that has seen deal volumes nearly halve over the last year.

After Simmons & Simmons last month became the first major international firm to pull out of the market altogether following a partnership vote, partners at other firms have admitted that cracking Moscow is proving more difficult than many would have thought.

Simmons' decision to close the office and lay off staff two years after entering the market was attributed by the firm to the drop in structured finance activity, which the office had initially been built around.

Despite the closure coming as a surprise to many in Moscow, Simmons' position is indicative of the problems that many firms have faced, with Clifford Chance, Allen & Overy, White & Case and Denton Wilde Sapte among those reducing headcount in the region over the last year.

Figures compiled by Mergermarket for Legal Week highlight the Russian M&A drought, with just 227 deals with a total value of E22.2bn (£19.8bn) in the year from 1 November 2008 to 31 October 2009. This compares with almost twice as many deals - 419, worth a total of E80.7bn (£72.2bn) - the previous year.

One Moscow-based partner at a top 10 UK law firm commented: "I have a lot of respect for Simmons, but it is getting harder and harder to break into the Moscow market."

However, despite the problems, many partners insist that the market is improving, with a number of firms still hoping to launch in Moscow, including SJ Berwin and Am Law 100 firm King & Spalding.

Lovells Moscow managing partner Oxana Balayan (pictured) said: "The market is really picking up, but with a lot of pressure on pricing it may be difficult for some law firms' Moscow operations to remain profitable."

Herbert Smith Moscow managing partner Allen Hanen said: "There was a time over the summer when things seemed slower, but that has changed in the last weeks. We are beginning to see new activity and new mandates coming into the market."

Separately, a group of local independent firms in the CIS, led by Russia's Egorov Puginsky Afanasiev & Partners, are teaming up to take on international firms in the region.

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