Allen & Overy and Shearman plan to merge to create $3.4 billion law firm

“Magic Circle” law firm Allen & Overy is merging with New York’s Shearman & Sterling to create a practice with combined revenues of $3.4bn in one of the largest transatlantic legal tie-ups in history.

The merger, which is subject to a vote by the partners of both firms, would create one of the world’s largest law firms by fee income and comes months after Shearman, 150, abandoned merger talks with Hogan Lovells.

The new combined firm, known as Alan Overy Shearman Sterling, will have approximately 4,000 lawyers spread across 49 offices.

The proposed deal represents the first merger between the London-based Magic Circle firm and a US rival since Clifford Chance joined Rogers & Wells in 2000. It’s a big step forward in Allen & Overy’s bid to conquer the lucrative US market. Following the collapse of its attempt to merge with Californian firm O’Melveney & Myers four years earlier, the two sides failed to agree on a valuation.

The tie-up follows a tumultuous period for Shearman, which earlier this year lost several lawyers following its aborted talks with Hogan Lovells and is undergoing a difficult restructuring.

Wim Dejonge, senior partner at Allen & Overy, said in a statement: “We think A&O Shearman will be a firm unlike any other in the world.”

Speaking to the Financial Times, Dejonge explained that the tie-up would give both firms significant scale in London and New York. Alan Overy Shearman Sterling “will have over $1 billion in revenue in the US, 30 percent (coming from the UK) and 40 percent in the rest of the world, and I don’t think anyone has that,” he said.

London-based Allen & Overy – which had revenues of £1.9bn in the year to the end of April 2022 and employed around 5,800 staff globally – has long sought a foothold in the lucrative US market, which has been difficult for London. Proven-based firms to crack.

Meanwhile, Shearman – which has a total of 1,350 employees and recorded revenue of $907mn in calendar year 2022 – is looking for a way to grow and increase its profitability, after bringing down its existing global network at high cost but insufficient scale.

Allen & Overy’s “number one strategic priority[has been]to get the same depth and strength of the bench as in the US and especially in New York, and that delivers to us all at once,” the new firm said in terms of the number of attorneys. Dejonghe said about boasting. He said that both firms “had quality but we didn’t have enough bench – we didn’t have enough bench in America, and Shearman lacked bench in the rest of the world”.

Both firms said they were seeking to build strong expertise in private equity, life sciences and energy transition. Shearman will be represented in global leadership positions in the merged firm.

Shearman senior partner Adam Hakki said the two companies “know each other very well and have had years and years figuring things out”, but have been getting closer to serious offers through “focused discussions in recent weeks”. Gone.

Shearman, once one of Wall Street’s most powerful advisors, had been getting cut in recent months because of low demand. It was also undergoing a restructuring aimed at focusing on its more profitable areas, such as the US, and on profitable areas including private equity.

The firm has suffered from a lack of economies of scale in its network of offices, and has struggled to compete with more profitable American rivals who can offer higher salaries to partners. Allen & Overy faced a similar problem when trying to grow in the US market and, in recent years, has made changes to its remuneration system that allows it to pay more to star partners.

Shearman’s equity partners took home $2.48 million in average profits last year, compared to slightly less than £2 million for Allen & Overy’s partners. Both the firms said that it would not be difficult to merge their pay structures.

The deal is expected to be put to partners in both firms before the summer, with the aim of completing it within six to 12 months.