Allen & Overy moves closer to the American dream with $3.4 billion Shearman deal

Allen & Overy has been trying to break into the American legal market for decades. On Sunday the partners of the London firm joined a hastily called call to learn that a transformative deal had finally been struck – a $3.4 billion merger with New York law firm Shearman & Sterling.

The tie-up, to be secretly brokered in a matter of weeks by the top ranks of the two firms, will be the biggest in the industry. If voted in by the partners it would become a legal giant with nearly 4,000 lawyers worldwide and mark the first time in more than 20 years that the UK’s “magic circle” firm attempted a major transatlantic tie-up Is.

“This is a game-changing move,” said Harvard Law School professor David Wilkins. However, he cautioned, “It’s not going to be easy. . . post-merger integration is really difficult. Clearly there is no such thing as a merger of equals, even though they are always billed as such.”

UK-US legal unions are notoriously troubled, with the complexities of weaving together competing cultures and payment systems often leading to partners being voted off their feet. The last significant effort, Clifford Chance’s merger with Rogers & Wells of New York in 2000, led to a string of exits and conflicts from the culture and served as a cautionary tale.

An alliance with Shearman, fresh from this year’s collapse of merger talks with Anglo-American rival Hogan Lovells, would be the culmination of A&O’s two-decade struggle to expand into the more lucrative US market, some Belgian-born senior partner Wim Dejonghe has prioritized his leadership.

Tony Williams, an adviser to Jomati who was Clifford Chance’s managing partner when he did the Rogers & Wells deal, said A&O’s move was “opportunistic and strategic” at a time when Shearman’s leadership was “under pressure to do something”. I was

The circumstances allowed a rare role reversal, he said, with a UK firm fighting back “after a decade of onslaught in its home market” by US rivals.

For Shearman, the deal could bring an end to a difficult period in which it has also gone through a brutal restructuring.

The US firm, which has 1,350 remaining employees after bleeding partners in recent months, will gain the firepower of a much larger business in A&O. Although both sides have characterized the deal as a merger, Shearman is dwarfed by A&O, which has 5,800 employees globally and revenues of £1.9bn by April 2022, against the US firm’s $907mn for the 2022 calendar year. Is.

“A&O is in the driving seat,” said a former partner at the London firm. “It can be a challenge.”

Shearman’s recent woes have resulted in average profits per equity partner slipping closer to A&O’s, where last year the figure stood at around £2mn.

While partner pay is one of the toughest issues in any integration because of the tumult over how to compensate star attorneys, A&O and Shearman said it won’t be difficult to weave together a new system. . The combined firm is expected to operate a so-called modified lockstep model, which includes performance-based and just-in-time service elements. A&O changed its payment system in 2020 to allow it to pay more to top partners in the US.

Wary of leaks to hammer out the deal with Hogan Lovells, Shearman and A&O, negotiations between a few dozen top-ranking lawyers continued until the other partners were informed early Sunday morning, hours before the public announcement .

After abandoning a merger with Los Angeles firm O’Melveney & Myers in 2019 after failing to agree on a valuation, A&O had been going it alone — in Boston, San Francisco, Los Angeles and Los Angeles over the past three years. was opening offices in Silicon Valley and adding about 50 partners in the US from rival firms since 2020. That investment generated revenue growth, but the firm has struggled to hold on to employees, with lawyers being poached by deep-pocketed domestic competitors.

“A&O has been talking about (a US merger) for 20 years,” said a former high-ranking partner. “We kissed a lot of frogs. , , An enormous amount of work has been done over the years to look at every imaginable option inside-out and upside-down. This is probably the most amazing deal A&O could have done.”

Manhattan-based Shearman was once one of America’s most powerful corporate advisors and one of the first major American law firms to expand into Europe, opening in Paris in 1963 and London in 1972.

But it has shrunk in recent years as it has cost itself the price of rapidly expanding its network and management missteps, hindering its ability to compete with American rivals on salaries and attracting a flood of partners. becoming the reason. Its attorneys numbered 727 last year, down from a peak of 1,125 in 2001, according to the trade publication The American Lawyer.

The firm has gone through a ruthless transition under former senior partner David Beveridge, at times aimed at re-focusing on more profitable business lines, including private equity and higher-margin areas such as the US. Beveridge was replaced by Adam Huckey last month as part of a quick transition following the collapse of the Hogan Lovells talks.

In a bid to scale up, Shearman was offering new employees large guaranteed payments, according to several former partners who said the move had caused internal tensions. According to two former partners, the policy helped reduce the equity partners’ profit pool by $110 million in the fiscal year ending June. According to The American Lawyer, each of the firm’s equity partners took home an average of $2.48 million for the 2022 calendar year.

Amidst the turmoil, key personnel jumped ship, including Shearman’s entire Munich office, along with a group of London finance lawyers led by deal star Corey Fevzi. More than 130 partners have left the firm in the last five years, including about 20 through retirement, while it has hired about 90.

The leader of a rival New York firm told the Financial Times last month that “everybody in the world has interviewed every Shearman partner by now”. A leader at another global law firm said he was “overwhelmed” by Shearman CV.

Shearman had shown signs of resurgence in recent months, working on deals including CVS Health’s $10.6 billion acquisition of Oak Street Health, and the sale of SAP’s Qualtrics to Silver Lake and others in a $12.5 billion transaction. The firm was also hired by US carrier JetBlue to take on the Justice Department in an antitrust war over a proposed merger with rival Spirit Airlines.

A former A&O partner said, “Shearman is a strong brand in a weak niche.” “There is no interest in mergers with UK firms with strong brands in a good location. You only get them after you’ve had a fixer-upper.

A current Shearman partner said the deal was “a very good move” for the US firm. “This is a great transaction for us. . . it gives us the scale to go out and build more.

In announcing the proposed merger, Dejonge praised the “complementary cultures” of the two groups. Those who have worked in both said that Shearman was more “cut-throat” than the comparatively genteel Magic Circle firm. But others close to the two firms said their lawyers have worked together on multiple mandates over the years because of their similar strengths in banking and finance.

Williams said the deal was ultimately “a very good move”. People “might gnash their teeth and say A&O is taking some risk on this deal whether they settled with the Shearman guys,” he said. “But they’ve grown up.”

Allen & Overy has been trying to break into the American legal market for decades. On Sunday the partners of the London firm joined a hastily called call to learn that a transformative deal had finally been struck – a $3.4 billion merger with New York law firm Shearman & Sterling.

The tie-up, to be secretly brokered in a matter of weeks by the top ranks of the two firms, will be the biggest in the industry. If voted in by the partners it would become a legal giant with nearly 4,000 lawyers worldwide and mark the first time in more than 20 years that the UK’s “magic circle” firm attempted a major transatlantic tie-up Is.

“This is a game-changing move,” said Harvard Law School professor David Wilkins. However, he cautioned, “It’s not going to be easy. . . post-merger integration is really difficult. Clearly there is no such thing as a merger of equals, even though they are always billed as such.”

UK-US legal unions are notoriously troubled, with the complexities of weaving together competing cultures and payment systems often leading to partners being voted off their feet. The last significant effort, Clifford Chance’s merger with Rogers & Wells of New York in 2000, led to a string of exits and conflicts from the culture and served as a cautionary tale.

An alliance with Shearman, fresh from this year’s collapse of merger talks with Anglo-American rival Hogan Lovells, would be the culmination of A&O’s two-decade struggle to expand into the more lucrative US market, some Belgian-born senior partner Wim Dejonghe has prioritized his leadership.

Tony Williams, an adviser to Jomati who was Clifford Chance’s managing partner when he did the Rogers & Wells deal, said A&O’s move was “opportunistic and strategic” at a time when Shearman’s leadership was “under pressure to do something”. I was

The circumstances allowed a rare role reversal, he said, with a UK firm fighting back “after a decade of onslaught in its home market” by US rivals.

For Shearman, the deal could bring an end to a difficult period in which it has also gone through a brutal restructuring.

The US firm, which has 1,350 remaining employees after bleeding partners in recent months, will gain the firepower of a much larger business in A&O. Although both sides have characterized the deal as a merger, Shearman is dwarfed by A&O, which has 5,800 employees globally and revenues of £1.9bn by April 2022, against the US firm’s $907mn for the 2022 calendar year. Is.

“A&O is in the driving seat,” said a former partner at the London firm. “It can be a challenge.”

Shearman’s recent woes have resulted in average profits per equity partner slipping closer to A&O’s, where last year the figure stood at around £2mn.

While partner pay is one of the toughest issues in any integration because of the tumult over how to compensate star attorneys, A&O and Shearman said it won’t be difficult to weave together a new system. . The combined firm is expected to operate a so-called modified lockstep model, which includes performance-based and just-in-time service elements. A&O changed its payment system in 2020 to allow it to pay more to top partners in the US.

Wary of leaks to hammer out the deal with Hogan Lovells, Shearman and A&O, negotiations between a few dozen top-ranking lawyers continued until the other partners were informed early Sunday morning, hours before the public announcement .

After abandoning a merger with Los Angeles firm O’Melveney & Myers in 2019 after failing to agree on a valuation, A&O had been going it alone — in Boston, San Francisco, Los Angeles and Los Angeles over the past three years. was opening offices in Silicon Valley and adding about 50 partners in the US from rival firms since 2020. That investment generated revenue growth, but the firm has struggled to hold on to employees, with lawyers being poached by deep-pocketed domestic competitors.

“A&O has been talking about (a US merger) for 20 years,” said a former high-ranking partner. “We kissed a lot of frogs. , , An enormous amount of work has been done over the years to look at every imaginable option inside-out and upside-down. This is probably the most amazing deal A&O could have done.”

Manhattan-based Shearman was once one of America’s most powerful corporate advisors and one of the first major American law firms to expand into Europe, opening in Paris in 1963 and London in 1972.

But it has shrunk in recent years as it has cost itself the price of rapidly expanding its network and management missteps, hindering its ability to compete with American rivals on salaries and attracting a flood of partners. becoming the reason. Its attorneys numbered 727 last year, down from a peak of 1,125 in 2001, according to the trade publication The American Lawyer.

The firm has gone through a ruthless transition under former senior partner David Beveridge, at times aimed at re-focusing on more profitable business lines, including private equity and higher-margin areas such as the US. Beveridge was replaced by Adam Huckey last month as part of a quick transition following the collapse of the Hogan Lovells talks.

In a bid to scale up, Shearman was offering new employees large guaranteed payments, according to several former partners who said the move had caused internal tensions. According to two former partners, the policy helped reduce the equity partners’ profit pool by $110 million in the fiscal year ending June. According to The American Lawyer, each of the firm’s equity partners took home an average of $2.48 million for the 2022 calendar year.

Amidst the turmoil, key personnel jumped ship, including Shearman’s entire Munich office, along with a group of London finance lawyers led by deal star Corey Fevzi. More than 130 partners have left the firm in the last five years, including about 20 through retirement, while it has hired about 90.

The leader of a rival New York firm told the Financial Times last month that “everybody in the world has interviewed every Shearman partner by now”. A leader at another global law firm said he was “overwhelmed” by Shearman CV.

Shearman had shown signs of resurgence in recent months, working on deals including CVS Health’s $10.6 billion acquisition of Oak Street Health, and the sale of SAP’s Qualtrics to Silver Lake and others in a $12.5 billion transaction. The firm was also hired by US carrier JetBlue to take on the Justice Department in an antitrust war over a proposed merger with rival Spirit Airlines.

A former A&O partner said, “Shearman is a strong brand in a weak niche.” “There is no interest in mergers with UK firms with strong brands in a good location. You only get them after you’ve had a fixer-upper.

A current Shearman partner said the deal was “a very good move” for the US firm. “This is a great transaction for us. . . it gives us the scale to go out and build more.

In announcing the proposed merger, Dejonge praised the “complementary cultures” of the two groups. Those who have worked in both said that Shearman was more “cut-throat” than the comparatively genteel Magic Circle firm. But others close to the two firms said their lawyers have worked together on multiple mandates over the years because of their similar strengths in banking and finance.

Williams said the deal was ultimately “a very good move”. People “might gnash their teeth and say A&O is taking some risk on this deal whether they settled with the Shearman guys,” he said. “But they’ve grown up.”