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Foreign law firm expansion into Israel drives local industry consolidation

mergermarketThe foreign media covered earlier this year the Foreign Law firms’ conference, a first-of-a-kind event in Israel, which brought together under one roof the leading Israeli law firms along with leading international firms

Among other media representatives, reporters from the well known financial magazine of MergerMarket covered the event. The full article below (for the Hebrew version please click here) – Enjoy

August 2nd, Mergermarket Magazine: Israel

A change of regulation allowing foreign law firms to begin practicing in Israel could spur consolidation within the country’s legal sector, several industry participants have said

Since the reform to the Bar Association Law, 5721-1961, came into effect in August 2012, foreign law firms have increasingly created presences in Israel, either through M&A or by opening offices or placing representatives on the ground, said Zohar Fisher, founder of Robus Legal Marketing. At the same time, local firms are turning to mergers, either with local firms or with foreign firms, to better compete with the deluge

The entrance of foreign law firms into Israel is natural, said Efi Nave, head of the Tel Aviv and Central District of the Israel Bar Association, adding Israel is a global market and most deals are international. Israel’s strong activity in the technology sector and its membership in the OECD make it important that local law firms have connections with law firms around the world, he said. Foreign firms also realize this and are interested in opening practices in the country, he added

M&A among local firms is starting to occur, Fisher said. He pointed to the recent merger of China’s second largest law firm, Yingke, with Israel’s Eyal Khayat Zolty, Neiger & Co. to form Yingke Israel – Eyal Khayat Zolty, Neiger & Co., the merger of local firms Pearl Cohen Zedek Latzer and Baratz & Co. to form Pearl Cohen Zedek Latzer Baratz was also cited

israel law firmsTo stay competitive, Israeli law firms need to become one-stop law firms, Fisher said. While the top 30 firms would offer services such as M&A and corporate law, and refer other firms to areas such as labour law or IP litigation, they now need to offer everything to compete with foreign firms. They are looking to merge with boutique firms in areas such as competition/antitrust, environmental law, taxation, and IP, Fisher said

Top 30 firms such as Shenhav and Gornitzky and firms with strong IP practices such as Naomi Assia & Co. and Amar Reiter Jeanne Shochatovitch & Co. are the types of firms that could look to merge, said an industry source. In addition, several Israeli firms including Sendak Law Office are looking to merge with those in the US and elsewhere

Sendak, which has high-tech clients that deal primarily with the US, would consider merging with a mid-sized US firm of 50-100 attorneys. Such a merger would provide Israeli clients with more of the services they need in their main market and foreign firms with an entrance into the Israeli market, said Shemer Sendak, partner and founder

Despite the growing activity in the sector, mega-mergers are unlikely in the near term, for instance between the likes of Herzog Fox Neeman and Yigal Arnon and large firms with representatives in Israel like Freshfields, White & Case, and DLA Piper, representatives of local and foreign firms said during the recent Foreign Law Firms Conference, organized by the Tel Aviv district of the Israel Bar Association and Robus Legal Marketing

One reason is that the robust referral system between local and foreign firms reduces the need for a foreign law firm to come in and practice local law, Jeremy Lustman of DLA Piper said during one panel. Geopolitics and cost-effectiveness are other considerations, Joshua Kiernan of White & Case added. While the trend in the past was for large firms to merge, since the financial crisis there has been a shift from expansion to profitability, he said

Local firms have been reducing their fees to remain competitive, which plays a role in deterring the large international firms, Fisher said. While reduced fees deter large foreign firms from entering the market, it is another reason why local firms are merging, he continued. By merging, local firms are able to reduce costs by cutting redundant partners and administrative staff, among other things, he said

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