Celso Costa (Machado Meyer): "If Brazil is able to make the necessary adjustments it can realize its potential and achieve las

Leaders League. What are the reasons behind the country’s difficult current situation and what is your mid-term prognosis?

Celso Costa. The political and economic challenges we are currently facing not only reflect our internal politics, but also echo foreign aspects of a globalized world. From a domestic perspective, the issue relates mainly to the gap between the government’s earnings and spending up to the end of last year. At the same time, countries all over the world have seen growth rates slow down. For instance, a few months ago we received information from Merrill Lynch Bank of America stating that around 25% of fixed-income global assets were being invested in negative return securities, such as German, Japanese and Swedish bonds. This is an indication that experienced investors are actually predicting a difficult time for the international economy. The Brazilian economy depends heavily on the global markets, and it is also deeply affected by the way its export ratings develop. Let us take China for example, one of our country’s biggest trading partners. China has seen a deceleration in its economic growth, which has significantly - and negatively - influenced the Brazilian trade balance. Due to both the international and the domestic factors, the Brazilian growth rate started to slow down and the government had to start financing its own public debt through higher interest rates and austerity measures. This action led to more troubled times, and the economy entered a vicious cycle . How long we will remain in this cycle really depends on how successfully the government can reduce public spending and reformulate the budget. It is a very intricate situation as one of the biggest obstacles to a country’s growth – debt – is still very much present in the Brazilian economy. I believe things will start to get better from now on, though, especially as the acting government has so far shown encouraging signs of budget adjustment. Currency devaluation, such as the one we are currently facing, is usually good for Brazilian industry, as it provides us with more competitiveness in the international markets. Furthermore, despite the crisis, Brazil is still one of the most interesting investment destinations. If the country is able to make the necessary adjustments it can realize its potential and achieve lasting stability.”

Leaders League. How does Machado Meyer deal with times like these?

C.C. It is part of our strategic plan to foster the development of counter cyclical practices. On the top of that, we highly value a light and agile structure, while closely monitoring our revenues and understanding the financial difficulties our clients might be facing. Within this context, we adopted several actions back in 2014 focusing on enhancing our efficiency in general. When this crisis hit, Machado Meyer had already done its homework, thanks to this ever-present policy. Nevertheless, we pay just as much attention to our operational practices and the changes they face during troubled economic times. For instance, we noticed a demand rise in litigation, labour, antitrust, compliance, and even in our M&A practices. We accelerated our investments in such practices. The area that significantly suffered in the process was the equity capital market. Still, we believe this happened across the board and was not particular to Machado Meyer. Out of the six equity transactions conducted last year in Brazil, our firm was an adviser on four of them. This means that, despite a market deceleration, we are still very well positioned. In the medium term, if the government is able to lower interest rates, the stock and private equity markets will be able to gain strength again. The debt capital markets practice, on the other hand, has been very active. Although this segment in particular is already highly competitive, Machado Meyer has been able to stand out due to our pioneering investments in internal process optimization when dealing with standardized contracts and due diligence procedures.

Leaders League. What about more general changes to the legal market? Do you see trends from abroad affecting the legal landscape in Brazil?

C.C. Machado Meyer pays a lot of attention to what happens to law firms in the international market, especially in England and the US. Our current view on the legal market evolution, which we draw from news and conversations, after the necessary adjustments to the Brazilian culture, is what guides our main strategy as a firm. We always try to incorporate international trends into our four-year strategy cycles, analysing how they can affect and interact with the Brazilian legal scenario. We believe the legal market has many options – traditional counselling and mass litigation among them – but our strategy is to focus on complex and high responsibility work, including transactions and litigations that observe those requisites, in which our clients see the most relevant value. We shaped our working model to fit this ambition.

Leaders League. In this context, how is Machado Meyer positioned?

C.C. We understand that we are part of a very select group of firms that provide high quality services for complex matters and transactions. Analysing the current scenario in Brazil, politically, economically and legally speaking, we believe that as time goes on it will become more complicated to enter this highly specialized market, as the competition becomes even more qualified. The best-ranked firms, which usually are the ones prepared to render top-notch services, will on each occasion compete harder among themselves and will take part in the most significant value-added work. The “upand-coming group” will face aggressive market and price competition and will have to fight to get the remaining transactions. Our strategic plan aims at strengthening our position within this leading group. We believe that in order to achieve this goal, we need to focus on maintaining highly trained professional, as well as the efficiency and agility of our structure. Machado Meyer is not focused on developing a typical full-service structure. It is true that we have almost all practices across the board and, thus, we are prepared to assist different needs of our clients. Machado Meyer aims at building a platform that is prepared to handle complex and high responsibility work, one recognized by clients for its capability to provide top legal solutions. All our practices are committed to providing services with excellence, effectiveness and empathy to what the client is experiencing regardless of the transaction, litigation, issue or challenge they might be facing.

Leaders League. What specific sectors and industries do you expect to fuel growth in the new Brazilian economy?

C.C. In the current scenario, distressed assets, M&As and debt restructuring seem to be keeping the economy going, with constant opportunities rising in these sectors. Nonetheless, infrastructure has always been a pillar of the Brazilian economy and that should continue as the economy starts to pick up again. The new President has also signalled in this direction with his first Provisional Measure, which is intended to stimulate the growth of investment partnerships in federal concessions, the so-called PPI. According to this Provisional Measure, the goal is to expand the Brazilian infrastructure with quality and at reasonable prices. If this Provisional Measure becomes law, this could be an excellent opportunity for local and foreign investors.

Leaders League. What is your view on the recent activity in lateral hiring? Could that be symptomatic of an important change in the market?

C.C. As mentioned, we consider that the competition between high quality services firms should grow in the coming years, making it even more difficult for new and established practices to obtain market share and win new clients. Lateral hiring could be an interesting alternative in this race, as extremely prepared and experienced professionals take on new challenges. Therefore, lateral hiring could be viewed more as a consequence of an ongoing market transformation, then the cause of this change. A cultural adjustment is always necessary in the case of a lateral hiring, but it can be identified even before the hiring terms and conditions are finalized and should be addressed in the first months of a new addition to a team.

C.S.