Busy Munich blows cold for City leaders…

German lawyers often joke that the best thing about Frankfurt is that it is very easy to leave – a reference to the city's drab aesthetics and easily accessible airport. By contrast, Munich – with its eloquent, high baroque architecture, close proximity to the Alps and fairer weather – represents a more tempting proposition for many lawyers.

Similarly, the Bavarian capital has continued to cement its reputation as Germany's most dynamic legal market during the past year, witnessing a series of noteworthy partner hires and continuing to attract the attention of foreign law firms.

In February, Freshfields Bruckhaus Deringer corporate partner Hans-Joerg Ziegenhain defected to Hengeler Mueller in a rare lateral appointment for the elite independent, just a month after the firm had made its debut in the Munich market.

His departure was a blow for Fresh-fields, whose local office was hit by the shock loss of a heavyweight private equity team in 2004 comprising global practice head Peter Nussbaum and partners Rolf Fueger and Norbert Rieger to Milbank Tweed Hadley & McCloy.

"We would have rather not lost Ziegenhain," admits Freshfields co-senior partner Konstantin Mettenheimer, "but the Munich office is developing well without him."

The firm responded to the loss of Ziegenhain by relocating respected Duesseldorf-based corporate partner Axel Epe – the relationship partner for key Freshfields clients including E.ON, Linde, Man and MTU Aero Engines – to Munich on a part-time basis.

While Epe's credentials are not in doubt, rivals are unconvinced that the 56-year-old can single-handedly restore momentum to an office which now numbers 25 lawyers, including nine partners. Indeed, Freshfields may yet look to parachute in more partners from other offices to further bolster the office.

"[Epe] is well connected in industry and many industrial companies are headquartered in Munich," argues Mettenheimer. "He offered to help and his experience and contacts are an enormous asset. He is a learned hand and has gelled very well with the younger partners in the team."

Earlier this month, Epe led a Fresh-fields team alongside corporate partner Barbara Keil advising Siemens on its €4.2bn (£2.9bn) acquisition of Bayer's US-based medical testing arm. The deal marked Epe's first major deal in Munich and suggests Freshfields is far from finished in Munich.

Meanwhile, another established London firm was adjusting to the loss of a key partner after US giant Latham & Watkins snared respected Ashurst private equity partner and German co-head of corporate, Joerg Kirchner, late last year to spearhead the launch of its third base in the jurisdiction.

Observers have drawn parallels with the defection of Paris-based Ashurst private equity heavyweight Thomas Forschbach in 2004 – again for Latham – after 11 years with the UK firm.

Clients including Bain Capital, Cinven, Orlando, Carlyle and EQT are all believed to have followed Kirchner to his new firm, while Meiko Zeppenfeld is now Ashurst's only German-qualified corporate partner in Munich.

The firm is understood to be combing the market for potential replacements, while German head and corporate partner Simon Beddow, formerly based in Frankfurt, will now work primarily from Munich.

…as Hengeler finally comes to the party

Hengeler Mueller opened its doors for business in Munich on 1 January this year, although it was early July until the firm threw its official opening party. As one Hengeler partner says, "work first, party later" has always been the way for the Slaughter and May ally.

Last July the firm unveiled a heavyweight three-partner team for the launch of its fourth national practice, comprising corporate specialists Gerhard Lang, Achim Herfs and Wolfgang Grobecker. Senior Duesseldorf partners Michael Hoffmann-Becking – one of Germany's most respected corporate lawyers – and Maximilian Schiessl also work from the office on a part-time basis.

The high-profile launch was soon followed by the hire of Ziegenhain and four associates from Freshfields, boosting the number of lawyers in Munich to 16 and handing Hengeler access to an impressive book of business featuring clients such as Deutsche Bahn, HypoVereinsbank, Hypo Real Estate Bank and Siemens.

While rivals were quick to brand the Munich launch as a defensive move designed to head off dwindling market share in the region, Hengeler argues that it was simply a case of waiting for the right people to become available.

"I do not consider the move to open here as defensive at all," says Ziegenhain. "It always takes a degree of boldness to open in a new location and now we have the critical mass to attract the big-ticket work here in Munich."

US and them

To date, US entrants to Munich have focused on building their transactional profile, in contrast to the full-service ambitions of some UK rivals, with Weil Gotshal & Manges and Skadden Arps Slate Meagher & Flom among those making their presence felt in the region.

Chicago outfit and private equity leader Kirkland & Ellis has also benefited from this unashamedly narrow focus after following key US client Bain Capital to Munich in early 2005. Despite the hire of Ashurst's Kirchner, Latham faces an uphill battle to secure Bain's top mandates.

"You rarely see a relationship quite as close as that between Bain and Kirkland," concedes one rival partner. "Perhaps Simpson Thacher & Bartlett's association with Blackstone is a good parallel, but Simpson Thacher only does US law."

However, Kirkland has moved to broaden its Munich capabilities in recent months, launching a restructuring practice with the hire of partners Bernd Meyer-Lowy from Linklaters in January and Leo Plan from Broich Bayer von Rom in April.

Also operating in the increasingly competitive buy-out market is Milbank Tweed Hadley & McCloy. The New York firm, which also operates in Frankfurt, now numbers 17 fee earners covering corporate, private equity and tax work and advises locally-won clients including Apax and Carlyle, as well as clients acquired through the Milbank network, such as Goldman Sachs.

Private equity partner Peter Nussbaum claims this differentiates Milbank from US rivals in the market.

"Many of the US firms are here to do the local angle on a US deal," he comments. "This is not our model. We want to continue building a top-tier German practice, which in the long term will prove a more sustainable model."

Notably absent from Munich's growing list of US arrivals is Cleary Gottlieb Steen & Hamilton. The elite New York firm, which has some 60 lawyers across Frankfurt and Cologne, became one of the first US firms to set up shop in Germany in 1991 but has yet to make its Munich debut.

This is unlikely to change, according to Frankfurt-based Cleary M&A partner Christof von Dryander. "We can service our Munich clients out of Frankfurt," he reasons, "so there is no need to be on the ground there."

Last summer the firm advised Hypo-Vereinsbank on its €15bn (£10bn) merger with UniCredito – the largest cross-border banking deal seen in Europe – lending some credence to that view.

And while only a handful of US firms can realistically claim to have found the right formula in Germany so far, UK rivals and local advisers agree that the challenge will only get stronger.

Stuck in the Mittel with you

The influx of foreign private equity investors and multinational corporations has made it increasingly difficult for local advisers to concentrate solely on Munich.

Home to a diverse blend of potential clients including several major private equity players, growing bio-technology and media businesses and seven DAX 30 companies – including Siemens, Allianz and HypoVereinsbank – Munich is proving fertile ground for legal advisers.

"The whole dynamic of the German market has changed," confirms Munich-based Linklaters corporate partner Michael Lappe.

With an influx of major international firms radically altering the scenery for local advisers, Munich stalwarts such as Noerr Stiefenhofer Lutz and Beiten Burkhardt have in recent years looked to forge international alliances to maintain their market position. Both have non-exclusive alliances with UK firms, linking up with top 30 firm Macfarlanes and mid-market leader Berwin Leighton Paisner respectively.

"For many years, Noerr dominated the [local] market," says one Munich partner at a US firm. "It had heavyweight political connections and a big reputation. That all changed at the end of the 1990s, when Bruckhaus [Westrick Heller Loeber] opened in Munich. This was a big sign that the market was opening up."

Local firms have, however, retained close links with Germany's large band of family-owned Mittelstand companies.

Beiten corporate partner and managing board member Jack Schiffer comments: "We see the Mittelstand as our core client group. This is not to say we are not advising the DAX 30 companies – we have advised both Adidas and BMW in the past – but the Mittelstand work is more constant. They tend to have smaller in-house legal teams and require more external advice."

However, this does not mean that local firms lack ambition beyond the domestic mid-market. In addition to clients such as Allianz Capital Partners and US buy-out house Apollo Management, 65-partner Noerr has 11 offices across Central and Eastern Europe and Germany, as well as an office in New York.

Another Munich outfit to tie up with a UK firm is Heisse Kursawe, which joined the Eversheds international network last June and has since taken on the Eversheds brand.

"Munich is the most dynamic market [in Germany] and Heisse Kursawe was a good fit for us in terms of sectors we focus on," says Eversheds chairman Alan Jenkins. "Munich has a very large number of industrial companies headquartered there, as well as strong financial and media sectors."

Heisse has continued to grow this year, notably hiring McDermott Will & Emery corporate partner and former board member Joerg Kretschmer. The firm now has around 50 lawyers, including a dozen partners.

One Munich firm yet to follow that model is 70-lawyer private equity leader P+P Poellath + Partners. The firm, which also has offices in Frankfurt and Berlin and boasts clients including Apax, Carlyle and EQT, currently remains untied.

In the fast-evolving Munich market, that may not be the case for long.