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Wednesday, 6 February 2019

F. John Matouk — founding partner, Matouk Bassiouny

In barely a dozen years, Matouk Bassiouny has grown from a five-lawyer shop into one of the MENA region’s premier law firms with offices in Cairo, Dubai and Khartoum.As the firm continues to grow at rapid clip, the question high on the mind of F. John Matouk (LinkedIn) is how to preserve culture and ‘secret sauce’ in a professional services business across multiple countries — all while contending with more competition in his home market from foreign entrants. If you lead a professional services firm or want to make partner at one, this is the interview for you. Since its founding, Matouk Bassiouny has advised on landmark equity capital market and M&A transactions including EFG Hermes’ EGP 1 bn acquisition of Talaat Moustafa Group’s New Cairo-based portfolio of schools, Amazon’s USD 580 mn acquisition of, and Mubadala Petroleum’s acquisition of 10% stake in the Zohr gas field, a transaction valued at USD 934 mn. As one of the firm’s co-founders and as head of the firm’s dispute resolution group, Matouk has a track record of work before major arbitral institutions including the International Centre for the Settlement of Investment Disputes, the International Chamber of Commerce (ICC), and the Cairo Regional Center for International Commercial Arbitration (CRCICA).

2018 was the year of regional expansion, the year we transformed from being a national law firm to a regional law firm. We opened an office in Dubai and an office in Khartoum. This is the initial phase in our goal of building a regional platform for provision of legal services in MENA.

Why MENA? Basically we follow what our clients are looking for. There’s a huge demand for professional services in North Africa, including legal services. These markets are difficult to penetrate, but we believe we have the know-how thanks to our experience in Egypt over the past fifteen years. We think we can pretty easily export our know how to these other jurisdictions. The legal systems of most of these other countries are based on Egypt’s, and a significant amount of the lawyers in the region are Egyptian. Also, a lot of local lawyers in each jurisdiction came to Cairo to study, so there’s a natural nexus between Cairo and the region we’re looking to exploit. We also currently have operational country desks — lawyers in Cairo covering Libya or Algeria — and eventually we expect these country desks to evolve into full-fledged offices.

We’ve also invested in acquiring a regional headquarters in Garden City. We bought a building that we are renovating and are hopefully moving in this May.

Institutionalization kicking off in 2018 and continuing through to 2019: We’ve gone through a major rebranding exercise and also continue to focus on institutionalizing the firm, which becomes increasingly important the more one expands regionally. By institutional backbone, I mean all the elements of a professional service provider that a client does not necessarily see but that are fundamental for providing the service. From structuring partner remuneration to putting in the back office support systems that are necessary for a fully-fledged law firm to work. Keeping everything organized as one grows becomes more challenging if it is not done right. It’ll take us two years to finish phase one. Talent acquisition and retention also always remains our top strategic priority.

2019 will be about following up on the regional expansion — and AI. We’re looking to open up in Algeria in H12019. We also are delighted to have a new managing partner starting, Mahmoud Bassiouny — who also heads the Finance & Projects practice — took over on 1 January. Mahmoud is really focused on maximizing our value chain — AI is one thing where we intend to invest significantly in the field to be on the cutting edge of the legal industry. There are some pretty cool, pretty interesting AI program right now for the legal industry that are transforming due diligence, for example. Programs that can do 80-90% of due diligence, bringing down costs for the client and speeding up some processes to a few hours from a few weeks.

As a firm, our biggest challenge will be to keep growing while staying true to our roots. We started off as a five lawyer firm and now we’re above the 200 lawyers mark regionally. Not losing our secret sauce will be our biggest challenge as we grow and expand into different geographic locations. There will be distance between people and this is a people business, so how do we keep the teamwork and the back and forth of ideas — over geographic distances? We need to maintain a single, unified culture to be one firm. We need our capital markets team in Dubai to have the same culture as our projects team in Khartoum or as our corporate team in Algeria.

The regional play is our biggest opportunity as well as our biggest challenge. It’s the flip side that makes it so exciting.

On the wider economy, 2019 looks to me like the year of winners and losers. This is in terms of what I see our clients doing. I think there’ll be volatility and major opportunity. I see a lot of people going for it right now, which is great to see and exciting to watch. I think some will succeed and some will fail. It’ll be a very interesting year.

Compensation structure is crucial in a people industry: Again, professional services is all about people and your compensation structure is the driver. Compensation isn’t just financial, it’s also building a sense of ownership and identity, which feeds into a sense of culture and joint identity. We’re committed to making sure that we match compensation to performance, which we measure with objective and hard criteria as well as soft issues. It’s a science, it’s an art. And for the record, we are significantly increasing salaries this year.

Interest rates are not a direct factor for us. We have no debt and we’ve never had debt. While it doesn’t affect our own business, it affects our clients. Obviously, we like to see our clients investing in new business, but interest rates have to go down. Once they do, the Egyptian banking sector should pick up which will help our banking and finance practice, who have mostly worked with development finance institutions and international banks in the last couple of years.

Inflation has not been a major issue for us, frankly, other than salaries which is by far our biggest cost.

We have five IPOs in the pipeline. They’re all delayed now because of market conditions, which is not surprising. I don’t have any crystal ball on the market conditions.

In terms of M&A, we’re currently working on 48-50, which is about 20-25% above average, which I guess is substantial. The ticket size of the M&As is not necessarily as big, in both USD and EGP terms.

We’re not really seeing any trends in sectors that would be interesting at this stage. The M&A activity is opportunistic. There’s just a lot of volatility which is creating opportunity for M&A. Traditionally, M&A has been in defensive sectors like education and healthcare, which is standard, but it’s opening up across the board into other sectors as well. In the projects space, we think 2019 will continue to be a year for Egypt as well as Sudan where the utilities space will gather more interest and players.

We had that M&A boom in 2017 and then 2018 was kind of dry. The buyers shifted. In the old days, the buyers used to be from the UK, Europe, and the US. Then that shifted to GCC and Asian investors and now its shifting back a little bit and we’re seeing more of the classical players. For me, another indicator which is more important than M&As is greenfield projects. We are seeing a lot activity in this respect in infrastructure and energy in Egypt on the national level.

I don’t believe that locals have to commit to greenfield projects before we start seeing foreign direct investment, but there needs to be a local element to the financing. Even on the legal structuring, local banks have a significant role to play from a regulation, security, and enforcement standpoint. Foreign or offshore banks have a much weaker security position under current legislation. Local players are needed.

Then there’s the FX: if it’s all international and hard currency based, how does one hedge properly on currency risk? I think there needs to be an element of local financing for local projects to take off.

What brings FDI back in? That’s the mn USD question. From my point of view, a lot of it has to do with having the correct regulatory regime in place to provide potential investors with the visibility and comfort they need to take the plunge. I think there’s been great strides made in the past few years and we are now in a period of major legislative change. New laws are out and the regulatory authorities are applying those new laws very proactively and asserting their roles in the private sector. This is ultimately a very healthy thing. We’re going through a very natural grey area period which always tends to occur when new laws and regulations are rolled out. Once the dust settles and clarity and visibility is provided, investors will start coming in.

Hospitality and construction will outperform in 2019.

Underperform? Local banking and finance.

If I were to start a new business today, I would invest in tech. Probably fintech, but tech generally, on the AI end of it.

Our industry is changing. The landscape is transforming from a classic local market industry with a lot of family law firms or one man / woman shows to one where international players are entering the market. This is typical as the market gets more mature. We have two or three market entrants every year and I think that’ll be true next year as well. It really changes the landscape and I think it’s great for the country.

Why? It’s good because it increases competition. Not having competition is boring and leads to complacency. And it gives you reference points. On another level, having international firms here helps the legal market because it raises the bar and prices. By definition, international firms have a larger cost base. It’ll be interesting to see who stays and who leaves. The winners will be agile and respond very quickly to major shifts in market conditions, which are chronic in our markets here.

Part of growing while maintaining our roots is that agility. Being able to get a consensus with the major decision makers and implementing it immediately. With multiple offices, the guys on the ground in each respective market understand their conditions better than I do and if we chose the right person to be there and they say we need to make this radical move immediately, we can’t drag our feet on it. I don’t want to change to a pyramid structure. We’re not formal on our partnership structure, we don’t have rigid rules on voting, and we don’t apply our trade on ourselves. We keep it informal, it’s about the human relationships. Part of having built our own thing is we have the privilege of deciding who joins us as a partner, we don’t have partners forced upon us. That allows us to maintain that informal structure. Informality is a very powerful tool if used properly.

The most common question I get are those linked to the regulatory regime. What’s going to happen, how will VAT roll out, how will these new regulations be implemented in whichever sphere. And questions about visibility. Our clients and business need that to make an investment or business plan.

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