Trading places

In 1998, Brosio Casati & Associati became one of the first Italian practices to join a major City outfit – Allen & Overy (A&O) – in what is regarded as the most successful UK/Italian merger to date.

The merger was driven by name partner Roberto Casati, who became A&O's most senior local partner and a figurehead for the firm. From the point when the deal went live, unlike many City rivals, A&O had apparently managed to keep the Italian branch – and Casati – contented.

Lawyers were working, deals were flowing and the Italian arm was given the freedom in terms of management and autonomy that the Italian market usually dictates. In April 2002, the Brosio Casati name was dropped in Italy as full integration kicked in.

But by May 2004, Casati had not only lost his name from the firm. He had lost his firm completely.

Despite having moved his way up to the senior ranks of A&O – including being one of the three members of the firm's corporate management board – in April 2004, Casati announced he was quitting for Cleary Gottlieb Steen & Hamilton.

Matters had come to a head in August 2003, when A&O overhauled its local management structure to finally complete the merger that it had agreed in 1998.

The previous system of appointing local managing partners for branches in Milan, Rome and Turin was scrapped and a joint managing partner for Italy, Massimiliano Danusso, appointed to work alongside Frankfurt-based partner Stephen Denyer. Casati was effectively sidelined from the firm he had created.

A&O also scrapped the traditional local practice groups structure in favour of four pan-Italian practices – banking, corporate, international capital markets and litigation – as part of a move to integrate the three offices more closely with the rest of the network.

Casati was not happy. He was known to favour the old structure of the firm, on the grounds that the Italian market operates more in geographic terms rather than according to practice areas. To compound things, London was getting more involved in the day-to-day management.

Within a few months, Casati had joined Cleary in a major boost for the New York firm, which is regarded as being a strong – if modest – practice.

"If you look at what the US firms have given Italy, the only true success has been Cleary, with its focus on antitrust and competition," says Gianni Origoni Grippo & Partners managing partner Francesco Gianni. "The firm has gone in on a specific area and built up a strong practice. Now, with Casati, it has boosted its corporate area."

The culture at 168-partner Cleary is a world apart from A&O. The firm has no overriding management structure, allowing Casati the autonomy he had previously enjoyed.

"Not many people at 56 years old get the opportunity to have a new challenge," Casati says. "Here, I have the chance to go back to my roots in terms of developing an Italian practice that focuses on the most complex and challenging transactions and arbitrations."

But a more pressing question for A&O is where its 200-lawyer Italian practice will go now after losing its local corporate star.

Luckily, the firm already has in place a generation of lawyers that have benefited from Casati's expertise.

Danusso observes: "Casati left with a smaller group and the core of the legacy Brosio Casati partnership remains. We have a lot of young partners who are now optimistic for the future."

For Cleary, Casati was a coup, but for a market that is so dependent on laterals, his success in building an Italian practice may be constrained by Cleary's conservatism in hiring.

If A&O can keep the younger lawyers onboard then the medium-term looks far more promising than the short-term.

New blood

After the initial influx of UK firms in the mid- to late-1990s, in which many entrants saw mergers collapse and senior partners quit, it has been the US firms that have dared to enter the tempestuous market over the past year.

The main entrants in 2003 – New York's Dewey Ballantine and West Coast leader Orrick Herrington & Sutcliffe – both hail from across the Atlantic Orrick opened first, in May 2003 and became the first San Francisco outfit to launch in Italy when it hired a team from the local legal arm of Ernst & Young.

Orrick already had a steady base in London and had secured a Paris launch with the bulk of Watson Farley & Williams' French practice less than a year before. The focus for Italy, which mirrors the other international offices, was to build on the firm's renowned finance and bond practice.

The seven-partner group was led by Alessandro de Nicola and certainly raised eyebrows in the market over the strategy for the office.

"The firm took the decision that it wanted to be truly international in 2000," de Nicola says. "In terms of Europe, Orrick has driven it based on its traditional strengths in the finance and the technology sector. That is no different in Italy."

The 23-lawyer team, which was based only in Milan, was seen as very large by US firms in Italy standards. Most entrants, like Cleary Gottlieb Steen & Hamilton and Willkie Farr & Gallagher, tended to have a couple of partners and a handful of associates rather than a bulkier practice.

However, any notion of Orrick ditching its traditional opportunism was soon discarded as the firm launched a second base in Rome on 9 February. The firm acquired the 16-lawyer practice Studio Legale e Tributario, which had previously been in talks to join Denton Wilde Sapte's ill-fated Denton International network.

This gave the firm an Italian practice that was particularly big, focusing on some of the lower-market work.

Dewey opened simultaneously in Milan and Rome in September 2003 with the hire of Simmons & Simmons senior Italian corporate partner Bruno Gattai.

Since launching, the smaller Dewey practice has carved out a profile, mainly due to Gattai's visibility at Simmons, with one rival even dub-bing the team "the best part of Simmons rebranded as Dewey".

Like Orrick, Dewey also quickly increased its coverage by adding three-lawyer tax boutique Studio Dezzani in May this year to support the tax work stemming from its corporate base which, although not a mainstay on big ticket work, has had a healthy flow of solid instructions.

Gattai comments: "We offer something new – the right mixture of the structured operations of the UK firms and the relationship development between a client and a partner."

But the key to foreign firms succeeding in Italy is to focus on areas in which they are strong and – unlike many international players that have preceded them – to jettison any ambitions of becoming full-service, at least in the short term.

"Most of the international firms expanded into Italy during a boom period, focusing mostly on M&A and capital markets," says Bonelli Erede Pappalardo's Alberto Saravalle. "Whereas now the market has cooled down."

The cool-down has mostly affected the large UK firms in Italy. Only a handful of US firms are present in the market, most of which are dedicated and streamlined, and there is now a clear opportunity for them to put in place stable, profitable and modestly-sized practices.

But, after looking at the record of UK firms in Italy, the US firms would be wise not to take on the big boys at their own game – at least not yet.

Crossing the Rubicon

Despite new-found interest in Italy from firms like Cleary, Dewey and Orrick, one thing still remains quite a rarity – a sizeable US/Italian merger.

And when the biggest such deal in history came along in September 2003, if the size of the deal caught the market on the back foot, the firms involved positively rocked it.

The acquiring firm was 900-lawyer Chicago giant McDermott Will & Emery, which, despite having a sizeable and profitable US arm, still lacked the European clout of some of its New York rivals.

But the Italian firm involved shocked everyone. After years of protestation and pontificating about independence, one of Italy's oldest firms performed a massive strategy u-turn as Carnelutti said "I do" to McDermott.

The deal, which was voted through in July and came into effect on 1 September, 2003, saw Carnelutti's 22-partner Milan office become the local branch of Chicago-based McDermotts in the largest cross-border merger to hit the Italian market.

Prior to agreeing to get into bed with the US firm, Carnelutti had stuck resolutely to what were supposed to be its three core beliefs – "Italian, independent and competitive" – for years.

Carnelutti senior partner Marino Bastianini said at the time: "We have crossed the Rubicon and this deal is a shock for us also. The idea was previously to remain independent but we had to be realistic."

In truth, Carnelutti had been punching above its weight and, despite owning one of the most prestigious names in the Italian market, it was comfortably in the mid-tier alongside firms such as Pavia & Ansaldo and NCTM, well behind leaders likes Gianni Origoni Grippo & Partners and Bonelli Erede Pappalardo.

But the choice of opting for a US merger, although rare, is one that has quite a lot of sense – Italian lawyers are in many ways more attuned to the US legal culture than the British.

Italian firms are more typically built along the lines of 'eat what you kill' than the UK lockstep system, which has been the bane for firms such as Linklaters and Clifford Chance in terms of securing or bedding down mergers with Italian practices. In addition, US firms operate with less bureaucratic management structures.

If the package and cultures are right, then in a market where anything can happen – and usually does – do not be surprised if there are a few more shock US/Italian mergers in the next few years.

NCTM's managing partner Alberto Toffoletto says: "Internationally, we are always open to solutions and we are not vowing that we would never merge if we felt that it would benefit our clients. The main thing for us is to concentrate on our clients and the quality of our work."

A bridge too far

While the new US entrants to Italy have been enjoying successful mergers, launches and impressive lateral hires, one of the earliest US firms into the country has been having major difficulties.

In June 2004, after months of arguments and debates, 35-lawyer White & Case Varrenti – the New York firm's Italian arm – saw the departure of name partner Alessandro Varrenti, together with two of his partners.

Varrenti, who was executive partner for Italy, left with local partners Andrea Rescigno and Nicola Sterbini as – like Allen & Overy (A&O) with Roberto Casati – the international giant attempted to integrate its local merger.

The move follows Varrenti's decision to merge his five-partner firm, Varrenti & Associati, with White & Case in 2001.

Unlike with Casati and A&O, the tensions between White & Case and Varrenti took a lot less time to come to a head.

Less than two years into the merger, and with the firm experiencing integration problems, White & Case sent Paris senior partner and trouble-shooter John Riggs to Milan to take over as de facto managing partner from Varrenti. But by mid-2004, Varrenti had quit to start his own practice.

"Alessandro's departure with the local partners is a natural consequence of his concentration on local business," said Riggs at the time. "We, on the other hand, want to focus on a combination of international and high-end multi-jurisdictional transactional work."

Varrenti countered: "It is tough for all the firms that set up base post 9/11, but when people are not swamped with work they will look for different alternatives."

Varrenti's departure illustrates the fickle nature of the Italian market, and, although US firms are better structured in terms of management and compensation than their UK rivals, it proves that new entrants must understand the domestic market – and culture – of Italian law firms.

If the US firms can find the right people or firms with a similar mindset, and learn from the strategic and cultural mistakes that both UK and Italian firms have made over the past decade, the next wave of US entrants stand a good chance of cracking Italy.