When merger talks between struggling New York law firm Shearman & Sterling and its transatlantic rival Hogan Lovells collapsed in March, Shearman’s Adam Hakki knew who to call.
A few days after becoming senior partner last month, Hakki picked up the phone to call Wim Dejonghe, the longtime leader of Allen & Overy, one of London’s elite Magic Circle law firms. In just a few weeks, the two men sat in isolation in a Manhattan office to discuss a $3.4 billion merger that, if voted through, would be one of the largest ever in the industry.
For Belgian-born Dejonghe, A&O’s first foreign senior partner and before that managing partner, the partnership with a Wall Street firm will be the culmination of a two-year project aimed at Break into the most lucrative legal market in the world, leaving UK competitors in the dust. For Shearman, it offered a way out of a difficult period of partner exits and difficult restructurings.
“I’ve known Sherman for a long time. (Hakki) got into the role, (and) he knew we were interested,” de Jonghe, 62, told the FT. “The initial conversation was between me and him. After the two of us met many times, we thought: ‘This might actually work’.”
Shearman, a well-known 150-year-old firm that once advised corporate America’s elite, is much smaller, with $907 million in revenue last year, about half of A&O’s 40-plus offices. But it has long been a potential suitor for de Jongho because of its intersection in banking and finance.
The two companies have also learned from previous failed mergers: In A&O’s case, talks with California-based O’Melveny & Myers collapsed after 18 months of negotiations 2019 came to a standstill.
“Before we went to our partners, we knew (if) this got out, we were screwed,” Dejonghe said. “So we agreed that the only way we could deliver something to (partners) was to sit in a room together for a few weeks and hammer out all the details.”
Sherman declined to comment.
Hakki and Dejonghe took a small core team — including advisers from heavyweight Wall Street law firms Simpson Thacher & Bartlett and Davis Polk & Wardwell — to the Manhattan offices of investment bank Lazard to put together Sunday’s release , as a sleek announcement, complete with a website, customer FAQs and videos.
De Jonghe’s predecessor, David Morley, credited him with the speed of the Sherman talks, which were executed within weeks. “Very few people can do that, but Wim has had this clear strategic vision for a long time.”
Morley, who led the firm with then-managing partner Dejonghe for eight years until 2016, said: “Wim didn’t wake up yesterday and say: ‘A merger would be great’…. For at least two decades, the firm has been Thinking about it and debating it and looking at the options . . . so when that situation arises, they are ready to act quickly.”
Morley and Dejonghe, seen as the modernizing forces of A&O, spent years after the financial crisis strutting the sidewalks of New York and the US West Coast, dining with law firm leaders at Manhattan powerbroker hotspot Estiatorio Milos.
“Some people will see us,” Morley said. “Others were even afraid of being seen eating at a restaurant with us in case their partners saw us or were covered by the media.” . . We weren’t asking people: ‘Do you want to merge? — just building relationships and gaining insight. That means de Jonghe has built a “pretty good list of American companies,” he said.
A&O has long had offices in the United States. But growing up there has not been all smooth sailing. Like its international rivals, A&O has struggled to break into a market dominated by a group of highly profitable domestic companies with greater firepower to pay star partners. Wall Street’s top firms tend to be highly focused, with only a handful of international offices and plenty of lucrative private equity and finance jobs.
In contrast, A&O and its UK-based Magic Circle counterparts have a vast global network, offering clients a wider range of work. That makes them a one-stop shop for many companies, but with lower margins than their U.S. counterparts. For example, partners at Wall Street firms such as Simpson Thacher and Davis Polk earned an average of more than $5 million last year, while partners at mergers and acquisitions giant Wachtell Lipton Rosen & Katz earned more than $7 million. By comparison, A&O’s partners earned an average of £1.95 million ($2.4 million) last year.
“The strength of the US economy over the past decade has challenged the magic circle,” said Tony Williams, a consultant who was managing partner of Clifford Chance’s merger with US firm Rogers Wells in 2000. . . and Brexit won’t help: GBP is currently at $1.23. ”
A former A&O senior partner said: “Every company in the past 30 years has been looking to enter the US market. Merger has been the most logical way, but it has been extremely difficult. The profits of the top US companies have always been much higher. , which represents excellence for them.”
He added: “The Hillmans have had some difficulties over the last few years and suddenly they are available and have the opportunity to play.”
Wide disparities in partner pay make it difficult for British firms to compete in the US, a problem exacerbated by a stronger dollar. So, under de Jonghe’s leadership, A&O has gradually eliminated the so-called lock-step compensation structure, in which partners are paid based on hours of service, in order to pay star actors more money.
De Jong, described by another former partner as “charismatic and entrepreneurial”, is no stranger to outbound M&A and bringing together two different cultures is crucial to success. The corporate lawyer with five sons joined A&O while working as part of Loeff Claeys Verbeke, managing partner of Brussels-based Dejonghe firm.
Like the deal, the Shearman merger is a “merger of equals,” he said. “You can’t tell your future colleagues that we’re buying you,” he said. “That’s not the mindset . . . it doesn’t work that way.”
Becoming managing partner of A&O means stepping away from Belgium’s cobbled streets and many bike races. Dejonghe, who bikes to the A&O’s Spitalfields offices every day, is a veteran of amateur events such as the Etape du Tour and the Tour of Flanders.
“I’ve been riding up and down hills in his slipstream for years,” Morley said. “We used to make fun of him and say he was fine in the apartment . . . he used to retort that in Belgium you always cycle against the wind. We always joked with each other; it was a metaphor for the way we work together.”
“Mountains are not my favourite, to be honest,” admits de Jonghe. “Give me a trip around Flanders anytime.”
The Shearman deal ahead of him could be a very different kind of challenge and could be the culmination of his 15 years. But De Jonghe is optimistic: “I have always thought ahead. I may be a little more optimistic than some lawyers.”