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On the Way to Recovery: Testing Strategies
Market Intelligence 2017
As market sources have described our editorial “a deep analytical section” in the most demanded spheres of legal practice as well as “a great instrument for market structuring and organizing of the professional industry”, every year we meet the challenge to produce a true concentrated overview, known on the market as the Handbook, or simply ULF.
To quote one Ukrainian lawyer: “It is very important to see where you are in order to decide where to move forward”. That is why, in addition to being a guide for clients seeking professional legal services in Ukraine, this fifteenth edition of the legal directory puts forward some ideas to upgrade both the strategies and tactics of law firms.
The research is based on a combination of conventional tools: corporate submissions, individual feedback by practice areas, interviews by phone and one-to-one meetings, as well as available open sources that have been carefully analyzed by the editorial team.
Prior to the launch of the research, we asked market players for feedback and received a request for more precise market segmentation in the production of editorial contents. For example, we were recommended to draw attention to retail, hospitality, sports law, private clients and wealth management. The available data collected from the market enabled us to produce an overview of legal advisors operating in the retail industry, but was not sufficient to reflect the relevant market landscape for other noted fields.
At the same time, the International Trade section was structured into trade remedies and WTO, and commodities trade areas. The long-expected insight into cross-border litigation was sufficiently strong to be highlighted in the current edition.
The current Handbook contains 18 surveys and 25 rankings.
As the initial methodology of the Handbook was designed to create so-called shortlists, it was focused in the main on the high-end market. In the current edition we extended our findings and identified “Other established practices” in those areas where market development performed the relevant necessity. And more, we extended shortlists for the most widespread legal practices like Corporate and M&A, and Litigation.
The criteria of inclusion in the shortlist included a mixture of presented project portfolio throughout the research period, the complexity of matters, client profile, practice diversity, team capacity, reputation.
The category “Other established practices” has demonstrated accomplished teams, human capacities, track record over the research period, peers’ reference and expertise recognition.
Where appropriate, we continued to single out market authorities — top individuals with unrivalled expertise, exceptionally strong and referred on the market as authorities, establishing certain standards of work. Most of them may be involved in managerial functions and social activities.
In those practices where the shortlists either firms or individuals were inappropriate due to practice specifics or insufficient data, we produced the list of notable firms and individuals in alphabetical order.
Traditional deal-making activity for a year-long period is usually presented in a complete and comprehended manner (see Tables 1-4). However, it is not always easy to get hold of information on foreign law counsels, which is perhaps the most valuable part of the league tables for law firm strategists.
The year of 2016 forced business leaders to move out of their comfort zone, introduce a mature management approach and substantively change their partner mindset. It became a period of testing organizational models and partnership financial formulas, rethinking market positioning, sales and HR policies.
The major full-service law firms put their efforts into retaining market shares. Meanwhile, the fashion for legal boutiques is becoming more vivid on the market. Deep expertise allows them to compete with full-service counsels and often determines their victory. Accordingly, the Ukrainian legal market is undergoing a process of reorganization and repositioning. Contrary to merger mania as a global trend, in Ukrainian realities law firms split rather than merge. Repositioning of the already established players is caused in the main by ever-growing competitive pressure from the new budding firms. The latter showcased good dynamics of projects, increased quality, higher speed and lower cost. This is eventually a big advantage in terms of strong budget constraints on the client side. Consequently, new entrants put significant efforts on redefining certain market segments.
Competition. In the last couple of years the intensity of price competition has become taut. Severe dumping by big players became a subject of scandals and discussion in social networks. The implementation of the public procurement system based on the ProZorro platform revealed the scope of pricing differences and responsive ability to reach the bottom.
There is no doubt that flexible pricing is the “must-have” of legal counsels in the current volatile market conditions. Clients, especially local ones, are very cost sensitive, requesting to fix the price as caps and in local currency.
Having faced budgetary restrictions, clients are willing to negotiate a success fee and push for discounts. In turn, client retention was in many instances more important for external counsels than earning profits from the services provided. At the end of the day, all these factors influence the profit of law firms.
Youngsters. A challenging business environment is usually a prime time for ambitious lawyers to launch their own firms. The recent splits and fragmentations on the market resulted in the emergence of a number of legal startups that have niche expertise and usually a non-traditional approach to doing business. The last couple of years brought new names like Trusted Advisors, Axon Partners, Gentls, Leman international law group, ESQUIRES.
Big Four. The presence of the “Big Four” advisory firms on the legal market is growing. First and foremost, clients often prefer integrated service providers who offer more than traditional legal advice. Accordingly, there are changes in the purchasing patterns for legal services, as the Big Four service providers ensure a seamless synergy of business, financial, legal, tax, and operational expertise. Thus, a multidisciplinary practice has an advantage over mono-service law firms. Even more, international networks are further targeted as a strong advantage of geographical reach, and their legal practices are further developed on a stand-alone basis, but not as only ancillary assistance to other service lines. In a sense, the Big Four are very active in terms of hires and use these turbulent times for completing their legal teams with talented professionals.
Referrals. In highly internationalized transactional activity, cross-border capabilities are the key advantage to win a mandate for multijurisdictional work.
On 1 March 2016 Kinstellar launched its office in Kyiv, headed by Kostiantyn Likarchuk.
The same month Axon Partners, the IT-focused firm (former IT practice of Juscutum) announced its launch. It is headed by Dima Gadomsky, a renowned trendsetter in Ukrainian IT law.
In May AstapovLawyers International Law Group announced its merger with Baltic Business Group, a European full-service law firm with offices in Germany and Latvia. The companies signed a strategic partnership agreement to operate together in European and CIS markets under the common brand of Eterna Law.
In July there were changes in the organizational structure of Law Offices of OMP, namely spin-off and establishment of a separate company named OMP Tax & Legal and headed by Dmitriy Mikhailenko.
In August LEMAN International Law Group was founded by two partners: Artem Atepalihin and Volodymyr Vorobiov. In terms of practice areas, most attention is paid to international financial law, corporate, contract law.
In September 2016 the new dispute resolution boutique firm GENTLS was founded by Oleh Gromovyi.
ESQUIRES was established in November 2016 by a group of lawyers, namely Oleksandr Shkelebey, Opanas Karlin, Artem Saprykin, and Viktoria Kovalchuk. Some of the team was previously members of EVERLEGAL, another Ukrainian law firm. Among the firm`s practice areas are dispute resolution, corporate and tax banking, finance and capital markets, business protection, white collar defense and investigations.
In December 2016, Ilyashev & Partners opened an office in Tallinn, Estonia, extending its practice in the EU. The office is headed by Vitali Galitskihh, an Estonian expert in corporate, tax, labor law and dispute resolution.
On 1 February 2017 Axon Partners opened its office in Lviv and launches the new practice areas of international tax, corporate and M&A, with a general focus on the IT sector.
Since March 2016 the criminal practice at Ario Law Firm has been headed by new partner Yevgen Grushovets (who worked for state law-enforcement authorities earlier).
In May 2016 Arzinger promoted Kateryna Gupalo, Andriy Selyutin and Oleksander Plotnikov to partners. Kateryna Gupalo continued to develop white collar defense practice, as well as tax and customs disputes. Andriy Selyutin is head of the South Ukrainian Branch. Oleksander Plotnikov led banking and finance.
Pavlenko Legal Group announced the return of Oleksandra Pavlenko to the partnership of the founding partner of the team in connection with the end of her career as Ukrainian First Deputy Health Minister (2014 — 2016).
The Kyiv office of CMS Cameron McKenna promoted Olga Belyakova to a partner. She advises on corporate/commercial and competition matters with a special focus on the technology, media and communication sector.
In June Redcliffe Partners launched a full-service compliance practice by hiring a new by counsel, Ario Dehghani, who is an EU-qualified lawyer.
Marchenko Danevych expanded its partnership with Oleksandr Aleksyeyenko (competition and IP) from September 2016.
In October DLA Piper announced the appointment of Olga Vorozhbyt as partner and head of the litigation and regulatory practice. She joined the firm from CMS Cameron McKenna, where she was a dispute resolution and compliance partner.
In December 2016 Asters welcomed back Constantin Solyar after his secondment to Luxembourg, where he practiced international tax in a Big Four firm. In his role as partner he focuses on advising clients on a variety of international tax matters.
In January 2017 Asters strengthened its dispute resolution practice with the arrival of new counsel Dmytro Shemelin (previously — Ilyashev & Partners). He is particularly vividly known for international investment and commercial arbitration.
Artem Drozdov, attorney and deputy head of the criminal law department, became a partner of AVER LEX.
Kateryna Tkachenko, counsel, was promoted to partner at competition law boutique CLACIS.
INTEGRITES expanded its dispute resolution practice. Oleksiy Sluch joined as a partner and head of the team of lawyers specializing in banking disputes and disputes related to commercial contracts. Volodymyr Pavlenko’s team deals primarily with disputes related to bankruptcy and restructuring. Prior to joining Mr. Sluch was a counsel at Vasil Kisil & Partners, while Mr. Pavlenko headed the commercial disputes practice at KPMG Ukraine.
In February 2017 Redcliffe Partners announced that Anastasia Usova joined as counsel and head of the antitrust practice.
In March Vitaliy Kasko (Deputy Prosecutor General of Ukraine from May 2014 to February 2016) joined the firm as a partner to head the white-collar crime practice of Vasil Kisil & Partners.
DLA Piper announced that Illya Sverdlov, legal director, has been appointed as head of tax in the Kyiv office effective of 1 March 2017; and Alla Kozachenko, a legal director, and head of the Corporate and M&A practice from 1 May 2017.
Redcliffe Partners announced that Olena Polyakova has joined the firm’s banking and finance team as counsel.
In March Poberezhnyuk & Partners Law Group added new partner Valeriy Fedichin. He specializes in international transactions, including the use of English law, dispute resolution, including international arbitration and investment disputes.
In May 2017 Jeantet Ukraine announced that Igor Krasovskiy (banking & finance) and Illya Tkachuk (corporate and M&A) were named local partners.
As the Ukrainian market is reasonably unsaturated with international legal names, leading domestic firms consider foreign colleagues as a primary source of high profile work, putting huge efforts into developing international contacts and exploring membership in various networks.
Our traditional league tables have always been an extremely valuable source of information, especially from this strategic perspective. Nevertheless, the topic is very sensitive for local leaders, as referral is a subject of not only know-how but a competition. No wonder that such mandates alongside international majors often means high profile big-ticket instructions for sound clientele, often bringing a counsel who is top-ranked.
In order to identify the drivers of referrals, we provided special research.
Conducting the poll with international law firms that are not present in Ukraine (as part of researching regional desks presence in Ukrainian deals), we asked them to mark the criteria that are important for them when hiring a Ukrainian legal counsel. The most frequently named are the following criteria:
— Speed of response/availability,
— Industrial expertise,
— Experience in certain practice areas — credentials.
Secondary importance given to:
— Personal contact with appropriate partner, and
Leveraging these findings, we hope that law firms may rethink their referral marketing and streamline appropriate BD efforts.
There is a certain call for innovations in the management of law firms, leading the team, client relationships and brand thinking. Market sources admit that the conservative internal structures of law firms are changing slightly. Even agility is being pioneered in the Ukrainian legal business.
Legal Tech. The worldwide trend of Legal Tech is gaining momentum in Ukraine. Firstly, firms are attempting to reach operational efficiency and automate the maximum number of business processes inside the firm. Apparently, professional software and billing platforms, time tracking, CRM and financial analytics are now more important for business. In times when there is a lack of investment in extensive and/or intensive growth, a cost-cutting strategy is the most relevant thing on a shrunken market. Technology allows decision makers to achieve clarity in terms of performed metrics and their dynamics.
Other players invest in the development of new technological solutions and client care products, provide legal services online and share knowledge in the cloud with clients. There are precedents of building messenger bots, constructors of contracts, and other applications. Notably, the most well-known Ukrainian startups were actually built inside law firms — Juscutum, Sayenko Kharenko, AEQUO.
Sales, business development and PR. The increased competition is a natural incentive for self-identity and smart differentiation on the market. Competition transforms into the area of marketing activities and intensified BD.
With managing sales and services production, there is more understanding of the importance of creating a customer experience to win loyalty, referrals and cross-practice sales. Establishment of efficient sales channels, employment of professional sales managers and sales departments and special training for staff are all on the agenda for many law firms.
Leveraging costs to win new clientele, firms appeared to make more marketing efforts and expand product lines for existing clients.
On the PR front, last year the legal market demonstrated a boost in PR activity and media presence. This is a part of brand recognition efforts. Interestingly, not only are corporate brands promoted but the “personal brand” of leading lawyers too.
HR. The main trend in HR policy is closed to well-justified selective hires — in many cases revealed in targeted hunting. Even those companies that grew their headcounts extensively did so carefully with accurate financial calculations and targets for candidates. In order to expand their client base, firms are obviously looking for partners with an existing business caseload.
Another recent goal is keeping valuable practitioners on board, implementing bonus and incentive payments, but without expanding salaries and other compensation in overall terms. Law firms are investing more in the soft skills of their teams and sales capabilities than the financial side. At the same time, from the perspective of the employee, it is not only adequate compensation but the work-life balance that is gaining greater importance.
The Ukrainian legal market is definitely a market of young practitioners with average experience coming to 5-10 years. According to the latest research of 50 leading law firms of Ukraine, almost half of all legal staff have practiced law for no more than 10 years (see Figure 1).
The number of partners continued to grow, especially throughout promotions to non-equity partnership. This leads to a consequent decline in the ratio of partners to lawyers (for the record, the average ratio of partners and lawyers in 2016 was 1:4.5).
Practices and Industries: Money Talks
The structure of demand for legal services continues to change by reflecting the developments in the Ukrainian economy. Dispute resolution continues to the most stable and profitable niche (see Figure 2).
The main suppliers are large Ukrainian banks seeking recovery of non-performed loans and loading litigation practices with a significant scope of work. The state
authorities and national corporations (e. g., The Deposit Insurance Fund, Naftogaz of Ukraine, Ministries of Justice and Finance, Economy and Development) empowered the market with international arbitration, forensic and debt recovery areas, state debt restructuring, trade remedies and trade disputes. International financial institutions (EBRD, IFC) remained the main donors, leading the corporate sector for the last couple of years, and procured legal services related to drafting legislation and reforms.
Government reform activity entered its legislative stage, and is changing legal practice substantially in a variety of fields, like competition, corporate law, state procurement, energy. In light of the fall in tax disputes, tax practice leans towards advisory.
In the second half of the past year recovery of transactional activity is noted. Thus, the M&A activity in the agrarian sector is due to extension of land banks and boosting of industrial capacities for further export. The ongoing reform of Ukrainian healthcare entailed the interests of private investors to watch potential objects of investment in the near term.
The significant demand for the white-collar crime practice is down in the main to facilitation of the state’s anti-corruption policy and pressure on business. This specific practice became more visible in the offering of full-service market players.
The common view of market players is that it is impossible to make plans and predictions even for the medium term. Performance is closely tied to the volatility of the economic and political situation. At the same time, the market inherently follows economic stabilization and provides signs of modest growth, but albeit growth!
Great hopes are being put on ongoing judicial reform. The general market comment comes to expected enhancement of institutional capacity, but not a simple change in faces and pure populism. Another area of predicted growth is in enhancing enforcement of judicial decisions, triggered by the introduction of a private enforcement service in 2017.
Large domestic firms and international players are expecting a revival in investment that traditionally loads the legal market. Meanwhile, we would certainly see a big advantage for those domestic firms that have managed to establish cooperation with international powerhouses.
The new law on financial restructuring is likely to facilitate financial restructuring projects. The ongoing process of removing insolvent banks from the market and settlement of their debts will determine further demand for forensic, asset freezing and debt recovery projects.
2017 will hopefully be associated with privatization and corporatization of state-owned enterprises. As a result, corporate governance and compliance should receive impetus for development.
The growing number of investor-state arbitrations will prompt some players to develop their international arbitration practices.
As a legal market consists of profit-driven partnerships, the Ukrainian market is likely to continue to see splits and new entrants, mainly medium and small law firms. But until the revival of domestic growth, law firms may well continue to explore new markets and destinations.
Every crisis is a learning opportunity.
And the Ukrainian one was not an exception. The mission of the ULF is to review the lessons learned on an annual basis. So let’s consider together what happened in the legal business in Ukraine.