Magic Circle law firm Allen & Overy is merging with New York’s Shearman & Sterling in one of the largest transatlantic legal partnerships in history.
The merger, which would require votes from partners at both law firms and would create one of the world’s largest law firms by fee revenue, comes just months after 150-year-old Shearman abandoned merger talks with Hogan Lovells .
The newly combined firm, Allen Overy Shearman Sterling, will have nearly 4,000 attorneys spread across 49 offices.
The proposed deal is the first between London-based Magic Circle and a US rival since law firm Clifford Chance merged with Rogers & Wells in 2000. It’s also a big step forward in Allen & Overy’s bid to conquer the lucrative U.S. market, following its merger with California firm O’Melveny four years ago after the two failed to agree on a valuation. & Myers’ merger attempt fails.
The partnership follows a turbulent period for Shearman, which has lost some lawyers and has been going through a difficult restructuring after talks with Hogan Lovells aborted earlier this year.
“We believe A&O Shearman will be a firm unlike any other in the world,” Allen & Overy senior partner Wim Dejonghe said in a statement.
Speaking to the Financial Times, de Jonge explained that the tie-up would give both companies critical scale in both London and New York. Allen Overy Shearman Sterling will “take in over $1 billion in the US, 30% (from) the UK, 40% from the rest of the world, and I don’t think anyone has that,” he said.
London-based Allen & Overy – with revenues of £1.9bn for the year to end-April 2022 and employs around 5,800 people globally – has long sought to gain access to the lucrative US market, which has proved to be an important option for London. It’s hard – base companies crack.
Meanwhile, Shearman — which has 1,350 employees and revenue of $907 million in calendar year 2022 — has been looking for ways to grow and improve profitability, finding its existing global network to be more costly and insufficient in scale.
Allen & Overy’s “prime strategic focus (always) has been to acquire law firms of the same depth and strength in the US, particularly in New York, and that allows us to do that in one go,” said de Jonghe of the new firm. Will boast. He added that both companies “have quality, but we don’t have enough back-up talent — we don’t have enough back-up talent in the US, and Shearman doesn’t have enough back-up talent elsewhere in the world”.
Both companies said they were looking to build stronger expertise in private equity, life sciences and energy transition. Shearman will assume a global leadership role at the combined company.
Adam Hakki, a senior partner at Shearman, said the two firms “know each other very well and have explored it for many years” but had moved closer to a serious proposal through “focused discussions in recent weeks”.
Sherman, once one of the most powerful advisers on Wall Street, has been laying off staff in recent months due to falling demand. It’s also undergoing a restructuring that aims to focus on its more profitable regions, such as the U.S., and profitable divisions, including private equity.
The company lacks economies of scale in its network of offices and struggles to compete with more profitable U.S. rivals that can offer partners higher compensation. Allen & Overy has faced similar problems as it seeks to grow in the U.S. market, having overhauled its compensation system in recent years to allow it to pay star partners more.
Equity partners at Shearman made an average profit of $2.48 million last year, while partners at Allen & Overy made just under £2m. Both companies said it would not be difficult to combine their compensation structures.
The deal is expected to be presented to the companies’ partners by the summer, with the goal of closing within six to 12 months.