In September, German law firm GSK Stockmann announced a significant milestone in its history. The firm revealed it would be launching an office in the City of London, its first outside of Continental Europe and second international office after opening in Luxembourg five years ago. It was a bold statement of intent for the 25-year-old law firm that started with just five lawyers back in 1997 (2021: 237).

GSK is amassing some big guns for London. The launch of its new City base is being overseen by Luxembourg-based international partner Andreas Heinzmann and will be co-led by corporate partners York-Alexander von Massenbach, a recent recruit from rival German firm Noerr, and corporate partner Andreas Dimmling. The pair will be joined by regulatory partner Mark Butt who, along with Dimmling, will relocate from GSK’s Munich office to be based permanently in London. Although primarily based in Berlin, real estate partner Olaf Schmechel will also spend roughly half his working week in the City.

The firm’s primary ambition here is to consolidate a position as the go-to German funds practice and this process of internationalising through Luxembourg and London lays those plans bare for all to see. This is an outward-facing move, but its real intent is to differentiate itself from its domestic competition.

German competition, international collaboration

GSK’s strategic investment in the funds market comes amid an explosion of fund structuring in Germany in recent years, particularly post-Brexit. The UK’s exit from the European Union has combined with a boom in the German venture capital market and huge amounts of private wealth going into proprietary funds, creating a perfect environment for funds-focused German law firms to thrive. However, there weren’t that many of them. According to JuVe, the leading international firms in this space include Clifford Chance, Linklaters, CMS, Debevoise, Dechert and Simmons & Simmons; among the independents the big names are Poellath, Ypog, Luther, Flick Gocke Schaumburg – and, of course, GSK.

The sheer fact of having an office in Luxembourg already offers GSK a point of differentiation to many of its German counterparts. In the latest edition of The Lawyer’s annual Euro 100 report ranking the 100 largest law firms in Europe on a revenue basis, 18 German firms were featured and of those just three had Luxembourg offices. Rödl & Partner and Luther are the only other German Euro 100 firms present in Luxembourg, so GSK has two direct rivals in this space.

Both Rödl & Partner and Luther had difficult periods during Covid-19 compared to many firms around the world. Luther, especially, was hit hard by the onset of the pandemic. Between 2017 and 2019, the firm’s revenue grew by more than two-thirds (68.3 per cent) to €218m from €129.5m, but has since fallen by 4.5 per cent in the following two financial years to €208m. Rödl & Partner did grow during the pandemic though it was much slower. Between 2019 and 2021, the firm grew revenues by an estimated 8.6 per cent to €255.2m from €235m.

That these two major players in the German legal system have both seen revenue growth will give younger, more nimble firms heart that market share can be stolen if they can get the delivery right. However, neither are really seen as true funds competitors.

Poellath has traditionally been seen as the leading firm in the German funds market and it is its hegemony that GSK will be looking to challenge. Poellath, however, is yet to break out of Germany. The firm boasts offices in Berlin, Frankfurt and Munich but must rely on law firms in other territories for different bits of work. By opening in Luxembourg and now London, GSK is looking to steal a march against a formidable domestic competitor.

That German firms have been so hesitant to enter Luxembourg speaks of underdeveloped funds practices at major firms or that they are simply yet to pull the trigger. It also points to the close relationships that have been developed down the years. Heinzmann tells The Lawyer that GSK has always focused on German funds clients and asset managers, listing Art-Invest Real Estate Funds, Immutable Insight Capital Management and Real IS AG Gesellschaft für Immobilien Asset Management among its clientbase. These don’t fit the description of household names in the funds space, but Heinzmann says they’ve been critical clients to develop GSK’s name.

Looking farther afield, GSK is adamant that it can’t succeed in this funds plan alone. It needs to ensure a steady flow of mandates from major US and UK firms whose expertise in their domestic funds markets are incredibly mature.

So who will it look to work with? When The Lawyer’s City Signal channel published a report into the most prominent funds practices in the City, it highlighted the practices of 29 firms. Of those 29, 14 now have offices in the City, Luxembourg and Germany. We can, therefore, assume that GSK won’t be aligning particularly closely with Addleshaw Goddard, Ashurst, Baker McKenzie, Clifford Chance, CMS, Dechert, Dentons, Eversheds Sutherland, Hogan Lovells, Goodwin Procter, Linklaters, Pinsent Masons, Simmons & Simmons and White & Case.

But this leaves plenty of firms involved in big-ticket funds deals that GSK will be particularly interested in. A further 15 firms featured in that report do not have offices in Luxembourg, and a third of those don’t have an office in either Luxembourg or Germany. Funds heads at those five firms (Simpson Thacher & Bartlett, Proskauer Rose, Travers Smith, Macfarlanes and Ropes & Gray) will all be high on von Massenbach’s hitlist, while the firm will also be looking to handle the Luxembourg elements for the likes of Kirkland & Ellis, Latham & Watkins and Weil Gotshal & Manges just to name three.

Healthy growth

GSK declined to provide a detailed split between how much of the firm’s revenue is derived from Luxembourg versus what it is generated through the firm’s five German offices, but the overall upwards revenue trend suggests the last five years have been a very good period in the firm’s short history.

In the 2017 Euro 100, GSK reported firmwide revenues of €66m placing it 64th in the revenue rankings. By 2021, the firm’s revenue had grown 45.8 per cent, reaching €96.2m and rising 13 places narrowly missing out on a top half spot to sit in 51st.

The average Euro 100 firm grew its revenue over the last five years by 28.3 per cent so posting revenue growth 17.5 points clear of that shows that GSK has done something right.

Comparing GSK directly to its German peers, the firm also outstrips the average five-year revenue growth among that group. The average revenue growth rate among the 17 German firms since 2017 was 27.81 per cent, meaning GSK outpaced that rate by almost 18 points. Only three firms had higher five-year revenue growth figures than GSK: Flick Gocke (68.5 per cent), Luther (60.6 per cent) and Graf von Westphalen (50.7 per cent).

The caveat to this, however, is that the bulk of GSK’s revenue growth came in the last two fiscal years with the firm growing by 30.9 per cent from the €73.5m between 2019 and 2021, after having grown by 11.4 per cent between 2017 and 2019. This suggests that the firm has been a major beneficiary of the Covid-19 pandemic’s corporate boon. This owed much to various governmental responses aiming to stimulate economies that had virtually ground to a halt due to the pandemic lockdowns.

The underlying metrics of revenue per lawyer (RPL) and revenue per partner (RPP) have told different stories since 2017. The firm’s RPL fell 6.2 per cent since 2017, dropping to €406,000 from €433,000, while RPP ticked up by a healthier 10 per cent, growing to €1.1m last year from €1m then.

The RPL figure’s decline is mitigated by the firm’s boost in lawyer numbers since 2017 which grew to 237 from 153.

Off the back of these positive results, GSK joint managing partners Oliver Glück and Uwe Jäger both won re-elections to third terms in their roles in 2021, the former in April and the latter in November. To continue growing, Glück, Jäger and Heinzmann felt that the time was right to add another international office to the network.

And so to London

GSK never had plans to stop in Luxembourg, though it does not intend to have a sprawling, global footprint. The firm’s office opening pattern follows a strand of thinking that money follows out of the US and into Europe via an initial stop-off in London. From London, if that money, particularly for venture capital and funds clients, is going to find its way to Germany it will then flow into Luxembourg. So, having a base in the City was always going to be a prerogative.

At the time of the office opening, Heinzmann said: “Following the firm’s decision in 2018 to redefine its international strategy and to position itself as a leading independent European corporate law firm, the opening of the London office plays a key role in moving our firm’s international strategy forward.”

But the firm is in London for a specific reason and that is not to challenge the major UK or US firms, far from it. What GSK wants to do is to establish a wide, fiercely non-exclusive network of law firms that it can work with to ensure as seamless a service for the firm’s client, old and new.

It is understood that the firm previously had a very close relationship with legacy Nabarro, which saw them becoming increasingly close. That accord ended when the tripartite merger of Nabarro, Olswang and CMS was signed. The psychological scars from this are evident in the firm’s decision to establish a wide network of friendly firms, rather than a close cabal of best friends.

To this end, von Massenbach’s hire from Noerr was a crucial play. His contact book is as valuable to GSK as his legal quality. His primary goal is to be the guy who knows everyone in London.

While the relationship with law firms is the very top-level strategic piece, there is also the associate picture to think of and the attraction that having an office in London presents for GSK.

The office is expected to be refurbished and fitted out by mid-November with the aim of enabling GSK’s junior lawyers to work in London for a maximum of three months either in the firm’s office, in the office of a client (preferably a fund) or the office of another friendly firm. It is also anticipated that German associates will be able to complete part of their clerkships – the German equivalent of one seat of a training contract – in London. Von Massenbach also holds a British passport having taken citizenship, allowing him to act as a sponsor for these junior lawyers visas which, in a post-Brext world, was another tick next to his name.

The creases are still being ironed out of this plan and it is hoped that the first crop of GSK associates will come to London by the start of H2 2023 at the very latest, but the removal of freedom of movement means that these things are more of a headache than they once were, but the intention is there to get this in motion as soon as possible.

GSK has succeeded in the last five years to grow its revenue, footprint and ambition to the extent where it is now present in three major European jurisdictions. A period of consolidation will now inevitably follow as the economic realities of spiralling interest rates and the continued frustrations of Brexit reveal themselves. The London office and integration thereof presents GSK with a new challenge. The City is not Luxembourg; even as a referral play, it is an altogether more challenging beast.