In August 2012 the rules of the Israeli Bar Association were amended to allow
foreign law firms to conduct business in Israel. Many wonder whether
international law firms based in the United Kingdom and the United States will
invade Israel, swallow up the large local firms and come to dominate the local
market, as they have dominated so many other jurisdictions. The big accountancy
firms invaded Israel some 15 years ago. Why should the big law firms not
There are a number of structural, financial and even political
reasons why this invasion, though much feared, is unlikely to occur for at least
First, the appetite for expansion has waned since 2008.
But this is a temporary factor. The international transactions which drove
law-firm expansion in the past, will return in due course.
firms are now fixated with “profits per partner” or PEP. Any Israeli
merger/takeover will add the PEP of Israeli partners, which will bring down the
average across the firm. Since PEP is the glue with which firms attract and then
keep their best talent, lowering PEP will need to bring big advantages, which
are not to be had in Israel.
The flip side of this coin is that the
founding partners at the top of the leading Israeli firms retain excessive
shares of the equity of the firms they built. Those founders retain control and
will not relinquish it if their equity share is to be eroded – as it surely
would be – by the invading giant.
Third, the Israeli market has little to
offer. Until the crash in 2008, the large M&A law firms would deem any IPO
for less than $1 billion as simply too small to bother with. Israel has few
deals of that size in its local market. Money would be better spent by the
international firms in Russia or China where there are mega-deals hanging from
every oligarch’s belt.
Fourth, the international firms have little value
to add. In most of Europe, the Far East, Russia and South America there were
virtually no truly international or sophisticated law firms when the big law
firm invasion began in the 1990s. Sophisticated international firms were only to
be found in the US by dint of the size of America’s economy, and in the UK where
firms grew on the back of international companies choosing English law as their
law of choice. The giant law firms brought real sophistication to almost every
jurisdiction they entered.
Israeli law firms, while tiny compared to
these giants, in fact have relatively little to gain from them. Israel’s economy
is export-led; all the main Israeli law firms have lawyers trained at the top US
and/or UK firms and have departments dedicated to international
Fifth, Israeli law firms enjoy referrals from all the major London
and US firms. The moment they merge with one of them they lose business from all
the others. This would devastate their international business. Unlike
accountancy firms, no single law firm has sufficient market share to make it
worthwhile for the Israeli firms to give up on the rest of that lucrative
market. A tiny niche Israeli firm might make this sacrifice, but such meager
bait is unlikely to attract a big fish.
Sixth, there is a political
problem. The Middle East promises riches beyond imagining. Having an Israeli
office just might make the difference between getting an instruction and missing
it. Few firms would risk losing clients in Dubai, Saudi Arabia, etc. for the
less lucrative pickings to be had in Israel.
Further, many will view
Israel as a “country risk.”
A mid-sized US law firm recently canceled
quite advanced negotiations with an Israeli boutique when the latest spat in
Gaza occurred. Lawyers are very risk-averse.
Seventh, a growing number of
international firms are opening representative offices in Israel, usually
staffed by young Jewish lawyers torn between their love of a Western income and
Some 10 large UK and US firms now have a marketing shop in
Israel, normally a single lawyer.
They will not actually do the legal
work in Israel, but they will send it “back home” and hold the hand of the
Finally there is yet a further model, pioneered by our
firm, Asserson Law Offices, which has built an international UK and US firm with
its center of operations in Tel Aviv. Asserson is the only Israelbased
international firm of any size so far, but others are bound to follow. When top
quality UK or US legal advice is available locally, the need for international
firms to establish branches in Israel diminishes yet further.
one should never say “never.” The international law firms might yet seek to
invade the Israeli market. But there are many impediments.
The new Rules
of the Israeli Bar Association in relation to foreign law firms unlock the gate,
but there will be few firms eager to push their way through.
Asserson is the founder of Asserson Law Offices, Israel’s largest foreign law
firm. Previously, he was global head of litigation at a leading international UK