Seven former DLA Piper partners leave Kinstellar

ВідДіма Гадомський

Seven partners leave Kinstellar. This is way too much, even for a large galley. Let’s figure out what has happened.

All former DLA Piper partners leave Kinstellar
  • Two years ago, DLA Piper closed its Ukrainian office. The entire team of 60 lawyers, 7 of whom were partners, went to Kinstellar. It was almost the largest merger of law firms in Ukraine.
  • But at the beginning of May, three former DLA partners left Kinstellar: Natalia Kocherhina, Alla Kozachenko, and Oleksandr Kurdydyk.
  • Now it has become known that absolutely all partners who previously came from DLA Piper are leaving Kinstellar.

What happened

After the publication of our May text, we received additional information that not only these three partners had left but the fourth partner – Olha Vorozhbyt – as well. And last week, we received information that Margarita Karpenko (co-head of the Kinstellar office), Halyna Zahorodniuk, and Illya Sverdlov are also leaving. In other words, all ex-DLA partners are leaving.

The reasons for leaving are not known for sure. I could not talk to the DLA partners because they are under some harsh NGO and cannot comment even on the question “how are you?”. But I got Kinstellar’s comment, and I talked to some smart people who know a little bit about the situation. because none of the participants in the process comments on anything.

But before moving on to hypotheses, it is necessary to mention the background of the Ukrainian offices of DLA Piper and Kinstellar.

Why DLA Piper left Ukraine

Why DLA Piper decided to leave Ukraine in 2021 is also unknown. According to external and somewhat internal signs, everything was fine with them here. Two years ago, when the merging took place, there were two hypotheses: because of Russia or because of money.

The hypothesis about Russia was the following. The DLA office in Russia was almost the same as the Ukrainian one (about 70 lawyers), but the clients in Russia were much larger: there, DLA worked for Gazprom and Rosneft. It is clear that not only DLA worked for them; for example, even I also worked on the Gazprom project at the end of the 2000s. But after 2014, working for state-owned Russian corporations began to become toxic, even for the not-so-repulsive.

Well, in fact, there was a rumor that either the Ukrainian office of DLA Piper and the Russian one had some kind of tension because of all those Gazproms and Rosnefts, or there were some nuances with client acceptance/conflict check, or maybe one led to the other.

Accordingly, the global DLA Piper needed to decide in which market they wanted to work further; they chose, as you understand, to remain in Russia and to leave Ukraine. Although as a result, after the Russian invasion, Russian offices were also forced to close.

The second hypothesis then concerned the self-sufficiency of the Ukrainian office: the market in Ukraine is small, and why keep 60 people in Ukraine if you are able not to keep them? This hypothesis was difficult to test without having the financial statements in front of our eyes, which, obviously, no one will ever show. But open data on the turnover of DLA Piper Ukraine said that the turnover of the Ukrainian office in hryvnias grew every year: in 2016, they earned 175 million hryvnias, in 2017 – 176 million, in 2018 – 218 million, in 2019 – 258 million, and in 2020 – 270M.

Kinstellar’s Backstory (Avellum and CMS Cameron McKenna)

The Kinstellar firm appeared in 2008 as a result of the spin-off of the Prague, Bratislava, Budapest and Bucharest offices of the English Linklaters. But don’t be misled by the word spin-off because Kinstellar has been an independent firm from Linklaters since its inception. There was no exclusive either. Although, perhaps, there were still some agreements about “best friends” because Kinstellar and Linklaters worked together on large deals from time to time: in 2017, they worked on the issuance of Eurobonds by Kazakhstan’s KazMunayGas, and in 2020, they together supported I Squared Capital in the deal regarding the acquisition of GTT Communications.

Now the firm has about 200 lawyers in 10 offices. Like Asters, only spread across Eastern Europe.

In Ukraine, this brand was established in 2016 by Kostiantyn Likarchuk, who also headed the Ukrainian office. Prior to that, Kostiantyn was the deputy head of the State Fiscal Service, where he headed the customs department. And even earlier, he was a partner of Avellum.

In the summer of 2020, Konstantin resigned from the position of managing partner, and in January 2021, he returned to the position of partner at Avellum.

And the last touch in this story: around the same time, one of the giants of the legal market of Ukraine, partner Oleksandr Martynenko, transferred to Kinstellar from CMS Cameron McKenna.

How the DLA Piper team merged into Kinstellar

Imagine yourself in the place of the Ukrainian partners of one of the largest law firms at the moment you find out that the head office is shutting you down. You have one hell of a salary, one hell of rates, the same – for lawyers, but no rainmaker in the team because most of the orders came from other offices.

Obviously, the best idea was to merge with an existing firm with such a rainmaker that can create financial stability for you and the team. If you think about it, there were not so many options because some of the top Ukrainian companies do not have a crystal-clear reputation, and some do not measure up in terms of quality of work and processes. I think they negotiated not only with Kinstellar, but the latter gave the best offer.

And here, as it seems to me, was the problem that surfaced now. The DLA team, in addition to the mentioned financial stability, needed a rainmaker who would create a flurry of work for them. Likarchuk could be such a person, but he left the company. Oleksandr Martynenko is an experienced partner, but he hardly fits the role of a wolf who runs around the world to feed 60 additional DLAs. Danylo Bilak was also at Kinstellar, a mastodon of the legal market, who was a partner of the Ukrainian Salans office when I went to court in a graduation suit with a plastic bag. But he doesn’t look like a wolf either, with all due respect.

Nothing personal, just farewell

Perhaps, if Russia had not started a full-scale war in Ukraine, everything would have settled down in Kinstellar: as a result of internal competition, part of the people would have been laid off, and someone would have learned not only to make but also to bring work worth 1-2 million dollars a year. Moreover, the agreement to join the DLA team provided, as far as I know, exclusive referrals from other DLA offices.

But during the war, everything is different. There is almost no expensive transactional work from DLA. Even the national firms, which became the top Ukrainian companies thanks to the fact that their partners gnawed away work from the least obvious places, feel in trouble. There is no need to talk about more sophisticated, high-minded, and, let’s be honest, a little more lazy partners of international firms.

The only logical step for Kinstellar management, as I understand it, was to wait until the end of the 2-year transition period provided for in the merger agreement and then ask the underperforming partners to reduce their appetites. To which the former DLA partners said something like holy shit, for these two years, we collected all the receivables for Kinstellar, which we earned while still being a DLA office, and now you offer us something to reduce?

If this is indeed the case, then Kinstellar’s partners clearly beat DLA in the short term because they at least received DLA’s receivables, a very high-quality DLA team, and exclusive referrals from DLA. But what this will turn into in the long run, I suggest you see after you read the comment that Kinstellar gave us.

Danylo Bilak’s comment

I asked Kinstellar to comment on this conflict, to which the chairman of the board of the Kinstellar office in Ukraine, Mr. Bilak, predictably said almost nothing interesting:

Obviously, in accordance with the firm’s policy, we do not publicly comment on the firm’s internal affairs. At the same time, what we are very happy to comment on is how proud all of the Kyiv partners are about the recent promotions of our partners across the firm, including the four new partners in the Kyiv office that were announced on May 1st. Please see our press release here.

We have a really great team in Ukraine, we value the contribution of all partners and are confident that our new partners will expand our capabilities in various areas of practice. Despite the challenges we all currently face in Ukraine, we are strong, resilient and optimistic about the future of our practice in Ukraine.

I do not claim to have perfect knowledge of the language of legal press releases, but it seems to me that Danylo Bilak said the following:

  • Yes, they left. But business is business.
  • In order to keep the firm after the departure of the partners, we promoted other (cheaper) lawyers.

What’s next

Here’s what I think about the long-term outlook for Kinstellar and the DLA team.

Even if Kinstellar keeps the exclusive got from DLA, it will not be easy for them to survive in Ukraine. Because transactional work in Ukraine will appear from the DLA network, at best, not soon. The situation is similar with the Kinstellar network: Eastern European clients may not be in a hurry to invest in Ukraine even more than European and North American clients.

But at the same time, former DLA lawyers remain in the Ukrainian office of Kinstellar: high-quality but not cheap people, some of whom want to work with their DLA partners more than with someone from Kinstellar. Therefore, if the unemployed partners of DLA create their own firm or get involved in a decent existing one, they may be able to take most of the team with them.

And the unfortunate DLA partners will definitely not be left without offers because there is a bit of a staff shortage in Ukraine at the moment, and the partners have a theoretical opportunity to take their team with them. Another question is whether there is a firm in Ukraine that is now ready to swallow 60 lawyers. If there is, then this new firm will quickly take away from Kinstellar the clients they got from the DLA team. And it is also quite possible to negotiate with DLA about an exclusive partnership, if they need such a partnership at all, or at least about the status of best friends.

If there are no merger offers, I think that the partners will simply disperse to different firms. Someone will take their people from Kinstellar, someone will also take part of the customers, and someone will also take a stapler and a stack of paper from the office.

I place an equally small bet on the fact that they will create their own company. Because if they felt the strength, they would do it in 2021.

And I place even smaller bets on the fact that another international firm, including DLA, will enter Ukraine through the DLA team (I sent a request to DLA Piper with this question, but they are unlikely to give an answer).