2021 turned out to be a surprise and many 2020 predictions concerning the legal market have not come true (luckily!). Despite predictions, legal advisors continue to be extremely busy. This is especially the case in M&A, real estate, and restructuring.
Let’s go back to 2020 when the COVID-19 pandemic was spreading throughout Europe. Poland, like other European countries, experienced lockdowns that impacted the country’s economy, in particular in the case of leisure-related industries.
At that time there were voices saying that the legal market would be heavily hit by the pandemic’s consequences. And clear signs were visible in the second and third quarter of 2020 that those voices might be right. Many M&A and real estate deals were put on hold or slowed down, and, in some cases, the buyers decided to walk away (notably from transactions involving office buildings or those in the leisure industry). In preparation for difficult times, some law firms in Poland downsized or decreased salaries.
There were hopes that the decrease in transactional workload would be balanced with an increase of restructuring/public aid assignments and distressed assets deals. Indeed, law firms were able to generate more fees from these projects, but it did not compensate for the reduced income from other advisory areas.
Finally, some believed that the pandemic would result in great opportunities for buyers – a healthy business willing to sell at a discount or businesses turning into distressed assets and being put up for sale.
These predictions, while being a logical consequence of the signs seen in the middle of 2020, did not materialize. Poland, like the rest of Europe, is showing a significant increase in deal flow and other projects in 2021, thus keeping lawyers extremely busy.
In my view, wages came back to pre-pandemic levels and law firms are desperately seeking talented juniors and associates. The increase in M&A work is not due to the price of businesses being discounted or to some companies getting into financial turbulence and being put up for sale as a bargain.
On the contrary, sellers of healthy businesses have been requesting higher valuation multiples, and few distressed opportunities appeared on the market, while in the leisure-related industries, where the number of insolvencies grew significantly, buyers are still reluctant to pursue those deals.
So why are law firms in Poland as busy nowadays as they were before the pandemic? There is one basic reason. Continued low interest rates and availability of helicopter money are driving activity worldwide, including in Poland. Clients are taking advantage of cheap money and funds injected by central banks to grow both organically and through acquisitions. This, in turn, generates substantial amounts of work for law firms.
In summary, 2021 will be a good year for law firms in Poland and these trends should also continue in 2022. Concerns persist that inflation could spike in 2022, triggering a hike in interest rates and an end to the increased business activity of law firms’ clients, but, for now, we are all keeping busy.
By Marek Swiatkowski, Partner, Domanski Zakrzewski Palinka