A planned merger between London-founded Allen & Overy and New York-founded Shearman & Sterling would be one of the biggest law firm tie-ups in decades, creating a 3,900-lawyer firm with a combined $3.4 billion in revenue.
The proposed new firm A&O Shearman, which the firms announced on Sunday, immediately got the law firm world buzzing. "Already I’ve heard from chairs of firms and influential partners saying, 'Where are we in our efforts and can we speed them up?'" said Kent Zimmermann, a California consultant who advises on law firm mergers.
But eagerness or anxiety inspired by the news won't be enough to spark a major wave of supersized law firm combinations, industry experts said, even as merger activity seems to have accelerated with the passing of the pandemic.
Large transatlantic mergers have been rare — other examples include Lovells merging with Hogan & Hartson in 2010 and Norton Rose's combination with Fulbright & Jaworski in 2013 — partly due to client conflicts and lack of partner buy-in. Allen & Overy itself weighed a merger with U.S. firm O’Melveny & Myers before talks fell through in 2019.
Mismatched expectations about compensation are another big obstacle. Large U.S. firms have historically boasted larger profits per partner than their UK counterparts, as well as more flexibility to pay their biggest rainmakers outsized rewards.
There is "no question" that other major UK-founded law firms would like to merge with a U.S. firm, given the size of the U.S. legal market, said Tony Williams, founder of UK legal management consultancy Jomati Consultants. But that has long been the case, he said, with no easy path forward.
In the case of Allen & Overy and Shearman & Sterling, “it's an alignment of the stars,” Williams said.
Allen & Overy has been aggressively growing in the United States for years but craved more scale and depth, especially in New York. With more than 270 U.S. lawyers already, the UK firm has a strong foothold to build on.
Shearman, meanwhile, used to be the “bluest of the blue chips,” said Bruce MacEwen of law firm consultancy Adam Smith Esq. The 150-year-old New York firm has more recently become a “tarnished brand,” he said.
Shearman and international firm Hogan Lovells abandoned merger talks in March. The firm has seen a series of partner-level departures since last fall and at least two rounds of layoffs affecting lawyers, staff members or both this year.
Leaders from both firms were unavailable for interviews on Monday.
The merger with Allen & Overy is not a done deal. It will require a vote and 75% approval from partners at both firms, the American Lawyer reported.
If it succeeds, other firms will have to contend with a new rival, but the calculus driving legal industry consolidation will be the same.
"The mere act of merging doesn’t change the market," said David Barnard, a former Linklaters partner who now runs the consultancy Blaqwell Inc.
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