Law.com: Inside Germany’s Most Profitable Law Firm, M&A Powerhouse Hengeler Mueller

Elite training and slow reforms to traditional values keeps Hengeler profitable.

Sporting a pinstripe suit in the Frankfurt WestEnd Duo skyscraper, Thomas Mueller looks more like a banker than the managing partner of Germany’s most storied homegrown law firm.

Many of the firm’s lawyers live within a bike ride’s distance of the tower on the edge of a leafy residential district, he explains, which gives the firm’s 350 lawyers more of a close-knit feel than many Big Law rivals with huge headcounts. And people are what makes Hengeler Mueller stand out in the German market.

Hengeler appears regularly in the headlines, whether on this week’s €9.5 billion TenneT energy grid acquisition, or last week’s €4 billion Continental spin-off IPO. In Europe’s largest economy, major transactions are more often than not stamped with Hengeler’s name.

"While Germany has been, and still is, a very competitive market with many U.S. and U.K. firms on the ground, the top of the market is quite stable with Freshfields and Hengeler at the top for decades,” Mueller said. “The difference is it's now Kirkland and Latham rather than Shearman and Cleary nipping on the heels.”

Frankfurt newcomer Kirkland & Ellis has been on a similar winning streak to Hengeler, closing numerous large transactions this year, although Cleary Gottlieb Steen & Hamilton and Goodwin Procter left the city they once dominated earlier this year, leading to fears that Frankfurt was no longer the place to be for international law firms.

“Frankfurt continues to be the financial center of Germany and remains a very attractive place for law firms. Even so, most of Hengeler's large cap PE work comes from the London office of asset managers such as KKR and Blackstone,” Mueller said.

With an annual revenue of $412 million, the firm ranks at 156 on the ALM Global 200 and with just 354 lawyers and 95 equity partners that translates into a revenue per lawyer of $1.165 million dwarfing domestic rivals like Rödl and Noerr—and even international powerhouses like Hogan Lovells.

A German Stalwart

Hengeler Mueller is the result of a 1990 merger of two firms: Hengeler Kurth Wirtz (Düsseldorf) and Mueller Weitzel Weisner (Frankfurt). The firm now has six offices in Düsseldorf, Frankfurt, Berlin, Munich, Brussels, and London.

And though many German firms, including Bruckhaus Westrick Heller Lober, merged with either British and American law firms in the 1990s and 2000s, Hengeler resisted offers, leaving it as one of just four German-headquartered firms in the Global 200.

Hengeler is respected as a stalwart with a number of traditional German features. It almost never makes lateral hires, preferring to train its own associates from the beginning of their careers, meaning Hengeler practically has its pick of the crop from the country’s law schools.

"A cornerstone of our success is that we can still attract the best talent based on the firm's reputation,” Mueller said. Though other firms fight for top talent with salary wars amid gripes about young lawyers wanting a better work-life balance, Mueller said there’s little talk about it at Hengeler.

"The complaints about Gen Z are a bit of a lazy cliché. Our associates are still highly motivated and ambitious,” Mueller said. “In general, BigLaw as an employer has become more attractive in Germany, also because the salary gap to other legal professions [such as law professors] has widened."

Top of the Corporate World

The firm has strict criteria for their equity partnership—criteria some who don’t make the cut might dismiss as picky—which means some Hengeler alumni can also be found at the top ranks of the German corporate world as well.

“A lot of top positions in the German industry are filled with Hengeler alumni and quite a few of our most formidable competitors in other firms are former Hengeler associates,” Mueller said.This includes Kirkland’s star private equity partner Benjamin Leyendecker, as well as the outgoing general counsel of Deutsche Bank.

But since being elected co-managing partner alongside Düsseldorf-based Bernd Wirbel in 2022, Mueller and Wirbel have made a number of changes including the introduction of a salary partnership tier in 2022, a move seen as slightly ahead of the curve in conservative Germany.

“We are so far very happy with the introduction of our salary partner model,” said Mueller, despite the fact that this led to a rare lateral hire of a partner to Milbank. Hengeler introduced the salary partnership as a compulsory two-year step between associates and equity. Most, but not all, promotions will be grandfathered into the equity partnership. “It has always been clear that the new model will lead to some attrition among the partners who won't make it into equity.”

Hengeler doesn’t publicly comment on which partners are salaried and which are equity.

Gender Gaps

One area where Hengeler hasn’t had much success is in bringing more women into the partnership. “Like all our competitors, we are making progress but we are still struggling to retain and promote women proportionate to their male peers,” Mueller said, adding that although women and men join as associates at similar rates that tapers off as they have families of their own.

Despite having Angela Merkel at the helm as chancellor for 16 years, Germany actually has one of the worst gender pay gaps in Europe, behind only Austria, Czechia, Latvia and Hungary, with women earning 17.6% less than their male peers. “One of the reasons is that the childcare system in Germany unfortunately still lacks behind other European countries such as France,” said Mueller.

Diversifying and Expanding

The scope of Hengeler’s work has expanded substantially over the years. “We have developed from a mostly transactional firm to a firm that is equally strong and profitable in other areas such as litigation, compliance and regulatory,” said Mueller. The aim was to counter the cyclical nature of M&A, often focused on infrastructure deals with Hengeler boasting ties with utility giant RWE since the 1980s starting with its acquisition of Deutsche Texaco.

So where does this slow-changing but steadily profitable firm stand on the rapid changes to the legal market threatened by AI?

"While everyone seems to agree that AI will be a big disruption, the jury is still out whether this will result in an increase or decrease of legal work. Historically, technical quantum leaps have increased the work for lawyers” said Mueller, reminiscing about time spent in front of the fax machine as a young lawyer. “Top tier firms such as Hengeler may well profit from the increase in high-end sophisticated work resulting from the AI disruption.”Disruption may be coming, but Hengeler is built to profit from complexity, not fear it.

Author: James Jackson | Law.com