According to the CEE Legal Matters CEE By The Numbers report, between 2019 and 2021, Ukraine saw a large decrease in the number of ranked law firms and lawyers at ranked firms. While in 2019 the number of Ukrainian law firms ranked by Chambers & Partners and Legal 500 was 95, in 2021 the same number decreased to 69. Similarly, the number of ranked-firm lawyers decreased from 1,579 in 2019 to 1,338 in 2021. The decreasing trend is particularly visible in comparison to other CEE countries.
Key Trends in the Ukrainian Legal Market
While some law firms notice an obvious trend of the decrease in the number of registered law firms through consolidation, others explain the statistics by the ranking methodology.
Integrites Managing partner Oleksiy Feliv and Asters Co-Managing Partner Oleksiy Didkovskiy believe that the COVID-19 pandemic-related shrinking workload was the main driver for the decreasing number of ranked law firms. “The decline in the number of law firms and lawyers might be explained by ‘natural selection,’” Feliv says. “Smaller firms had to leave due to the challenges imposed by the pandemic but those with a long market track record and substantial clientele remained,” he explains. For him, a good example of such a trend is “three teams joining the Integrites over the last five years.” In addition, he names DLA Piper’s merger with Kinstellar and Agreca law firm’s merger with Arzinger as examples of a noticeable merger trend last year.
Didkovskiy highlights the drastic change in terms of the number of registered new law firms. In 2021, “the number of registered new law firms compared to the number of the closed ones was equal to 3:1 while in 2019 this proportion was 20:1.” He believes that this change is largely influenced by the pandemic, forcing small and medium-sized law firms to leave the market. According to him, “big law firms were more capable to rearrange their operations, rethink strategies, and optimize budgets,” and similarly, “boutique law firms with strong presence also managed to overcome the challenges.”
Avellum Managing Partner Mykola Stetsenko and AGA Partners Partner Iryna Moroz agree that there is an obvious trend of law firms merging, and the main driver for the merger trend is profitability. For local firms, according to Stetsenko, “mergers provide an opportunity to grow their revenue and, potentially, increase their margins.” Moroz adds: “During 2018-2019 there was a certain merger trend, mostly inspired by the idea of attracting more clients and work when operating as a full-service law firm.”
Taylor Wessing Local Managing Partner Olena Stakhurska, Everlegal Managing Partner Yevheniy Deyneko, and Peterka & Partners Partner Taras Utiralov say that the consolidation trend was particularly noticeable with small or boutique law firms. Stakhurska says that large national firms tried “to gain additional expertise and partners by taking over strong but small law firms specialized in some specific areas.” According to her, there is also a tendency of small law firms “to seek for a union with larger national law firms that provide infrastructure and a stable client-portfolio.” Deyneko agrees that there is a trend of Ukrainian law firms absorbing local boutique firms to start or boost new practices. “Some examples include a pharma and healthcare legal boutique joining CMS and a transport/infrastructure-focused legal boutique joining Arzinger,” he says, noting that “the trend can be explained by the increasing significance of such industries in Ukraine and resulting increase in the associated legal work.”
Ilyashev & Partners Law Firm Managing Partner Mikhail Ilyashev, on the other hand, points out that “there was a demand for the establishment of boutique law firms, but it seems that it did not work. The boutiques must compete with full-service law firms and, in fact, in years boutiques eventually became full-service law firms too.”
International Law Firms Leaving
Utiralov and Stetsenko also highlight a trend of international law firms leaving the Ukrainian legal market. For Stetsenko, this can be explained “by the fairly low profitability of the legal market for large international firms.” Utiralov agrees but points out that these international firms that left Ukraine in the past few years, were not so well represented on the market. “Some foreign firms opened their offices in Kyiv, but these firms have usually less than 5 offices globally, so are mostly focused on one native jurisdiction, while their other offices usually support its activities. So those international clients seeking international law firms with clear international standards and other related characteristics still have limited choice,” he says.
Baker McKenzie Managing Partner Serhiy Chorny, on the other hand, is skeptical about the decrease in registered law firms. According to him, “there were some significant movements in the legal market in Ukraine over the last year, but these were singular rather than indicating a trend.” Chorny says that “DLA Piper left Ukraine and substantially all of their local team moved to Kinstellar,” however, except for DLA Piper, international or foreign law firms have not left Ukraine recently. “This does not seem to be a trend, at least not as yet and regardless of high-security concerns in Ukraine in view of the continuing threat of escalation of the Russian aggression,” he adds.
Similarly, Hillmont Partners Partner Valentyn Zasukha and Mamunya IP Managing Partner Oleksandr Mamunya point out that the legal market has not changed as much. “The market has not witnessed many mergers during the last two years,” Zasukha says, noting that some transformations and exits are rather single incidents. Mamunya agrees that “neither the firms merging trend nor the trend for the massive leaving the market” was noticeable in recent years in Ukraine.
Zasukha and Mamunya explain the numbers by pointing to rankings methodologies and firms’ drives. According to Zasukha, “several small law firms have switched to a closed format of work, they are no longer interested in any marketing activities, including rankings.” Zasukha adds, that “the admission strategies cultivated by the top legal rankings have changed drastically,” making it difficult for local law firms to be ranked internationally. Mamunya also explains the data by pointing out that Ukrainian law firms attempt to reduce costs, “inter alia, by reducing the back-office staff, including those in PR and marketing functions.” As a result, he says, “Ukrainian firms mostly aimed at domestic clients failed to file their Chambers and/or Legal 500 submissions in 2020 which could result in the decline in the number of ranked Ukrainian law firms.” And Didkovskiy argues that international legal rankings “like Chambers & Partners and Legal500, have high entry criteria that many law firms fail to meet. Even a law firm that is already in the ranking needs to prove its expertise annually. If a law firm does not provide undisputable performance evidence, it disappears from or falls in the ranking.”
Ukrainian firms mostly aimed at domestic clients failed to file their Chambers and/or Legal 500 submissions in 2020 which could result in the decline in the number of ranked Ukrainian law firms.”
Competition Is in the Air
The great majority of law firms reported that the Ukrainian legal market remains at least as competitive, as it was before. Some law firms, on the other hand, feel that the competition has been even higher recently.
Feliv, Chorny, Utiralov, Deyneko, and Moroz believe that competition among law firms has been constantly growing, especially in specific practice areas. “Definitely, there is no less competition,” Chorny reports. On the contrary, “because of a decrease of the volume of work in certain areas, the competition has increased dramatically. This is especially the case for transactional practices, such as finance,” he says. “My personal feeling is that the legal market constantly gains new opportunities from the economic and political situation in the country,” Moroz agrees, noting that the development of new practices, such as white-collar crimes, criminal law, intellectual property, and IT law, has led to more competition. “Ukrainian firms get stronger by merging in the local branches of international law firms or picking up partners and teams with international experience,” Feliv points out. “This brings them into competing with the international firms on the market for international clients.”
Entry for new players, either from abroad or from existing firms, is very hard, Utiralov adds. “The market of the legal labor force is also very competitive: it is always a challenge to find a talented English-speaking lawyer, either a post-graduate or an experienced one.”
Zasukha believes that competition levels might differ depending on a law firm’s practice area. “Cross-border dispute resolution and international investigations keep leading as the most profitable areas of legal work,” he says, noting that “local litigation work, advisory support of corporate/commercial activities, and counseling on regulatory matters see the highest competition.” In contrast, commodity legal products, such as “registration of legal entities, trademarks, and patents, etc., face even more competition and lose to automated legal solutions and legal marketplaces. Such legal work turns cheap and is no longer economically viable,” he concludes.
On the other hand, CMS Managing Partner Graham Conlon and Mamunya believe that there are no significant changes in the Ukrainian legal market, in terms of competition. “We feel neither less nor more competition. Just the same,” Conlon says. “The market isn’t changing much in terms of big picture items. Corporate/M&A and energy continue to generate the majority of work, with technology and IT being a strong growth sector in Ukraine.” Mamunya agrees: “My feeling is that there haven’t been any significant changes on the market since 2019. Some market players gradually lose their market share and some firms, including new ones, are gradually growing.”
EPAP Ukraine Managing Partner Oksana Ilchenko, however, reports that competition has decreased. “As more clients started having panels and ultimately, for them, the selection of legal advisors is happening once in a couple of years, which was generally not the case in the past, which contributed to decreasing the level of competition,” she explains. According to her, some clients are “reluctant to try new advisors as they believe that the risks related to new collaborations are higher these days. The same is true with respect to the previously established cross-border collaborations between the law firms.”
My feeling is that there haven’t been any significant changes on the market since 2019. Some market players gradually lose their market share and some firms, including new ones, are gradually growing.”
The Prognosis for the Coming Years
While assessing the potential evolution of the Ukrainian legal market, the vast majority of lawyers highlighted the instability and security challenges faced by the country.
“Ukraine now is completely different from what you may name as ‘stable situation’, so we are rather pessimistic for the upcoming year,” Ilyashev says. “2022 is really hard to predict for Ukraine, because of the potential Russian aggression factor,” Stetsenko agrees, saying that “it already chilled the business activity in January and may have a chilling effect through the summer.”
Stakhurska and Zasukha also point out that smaller law firms might have to face an increasing number of challenges. “The gap between large law firms and small or alternative legal service providers will increase,” Zasukha says, adding that the same will happen with legal fees. “We expect that smaller law firms will continue to search for ‘safe harbors’ with larger national law firms while concentrating on their specific areas of interest and knowledge,” Stakhurska agrees. “For reputable law firms, this would be a win-win situation by receiving access to potential new clients as well as expanding their professional services for existing clients or gain new clients interested in specific legal services.”
Finally, Stakhurska and Deyneko are rather pessimistic about international law firms entering the Ukrainian legal market. “We do not expect an increase in international presence by foreign law firms as many of them are happy with the existing partnerships with the national advice received locally,” Stakhurska says.
“We also do not expect the entry of new international players into the market,” Deyneko agrees, adding that to see that Ukraine will need several years of significant and steady economic growth and inflows of FDI.
Consequently, the active development of the legal market is expected, Moroz concludes, noting that the “forecast is that this trend is provisional,” and dependent on “the political situation in Ukraine, which influences the Ukrainian legal market.”
This article was written before the advent of the war in Ukraine and was originally published in Issue 9.2 of the CEE Legal Matters Magazine on March 1, 2022.