Allen & Overy & Shearman to merge into a $3.4 billion law firm

The deal is the first in over 20 years between a group from a “magic circle” and a rival American company.“Magic circle” law firm Allen & Overy is merging with New York’s Shearman & Sterling to form a practice with combined revenues of about $3.4bn, in one of the biggest transatlantic legal tie-ups in history.

The merger is subject to the vote of the partners of both firms and will create one the largest law firms by fee income in the world. This merger comes only months after Shearman, a 150-year old firm, abandoned merger discussions with Hogan Lovells.

Allen Overy Shearman, the new name of the firm, will consist of nearly 4,000 attorneys spread out across 49 offices.

This is the first merger of a London magic circle firm with an American rival company since Clifford Chance merged with Rogers & Wells back in 2000. Allen & Overy is now a step closer to capturing the lucrative US market after its failed attempt to merge with Californian law firm O’Melveny & Myers in 2004.

The merger comes after a turbulent period for Shearman. It has lost several lawyers since its failed talks with Hogan Lovells in the beginning of this year, and it has undergone a difficult reorganization.

Wim Dejonghe, senior partner at Allen & Overy, said in a press release: “We believe A&O Shearman is going to be a firm like no other.”

Dejonghe said that the tie up would give both firms a crucial scale in London, New York. Allen Overy Shearman Sterling’s revenue will be “over $1bn [in the US], with 30% coming from the UK, and 40% in the rest” of the world.

Allen & Overy, a London-based firm that had revenues of £1.9bn for the year ending April 2022 (and employs 5,800 people worldwide), has been trying to gain traction in the lucrative US market.

Shearman, which employs 1350 people and had revenues of $907mn for the calendar year 2022, has sought to increase profitability and grow its business. Its existing global network was causing higher costs, but not enough scale.

Dejonghe said that Allen & Overy “has a number one strategic priority to achieve equal depth and strength in bench in the US and New York. This delivers this in one go,” referring to the number of lawyers in the new firm. Dejonghe added that although both firms were “quality”, they did not have enough bench. Shearman lacked bench in other parts of the world, while Allen & Overy lacked bench in the US.

Both firms stated that they were looking to develop stronger expertise in the areas of private equity, energy transition and life sciences. Shearman’s leadership will be represented in all global positions within the new firm.

Adam Hakki said that Shearman and Shearman “know eachother extremely well” and “have explored things for many years”. However, “focused discussions over the past few weeks” have brought them closer to serious proposals.

Shearman, formerly one of Wall Street’s most powerful advisors, has been cutting back on staff in recent months because demand is down. The company was also going through a restructuring to focus on more profitable areas, like the US, as well as profitable sectors such private equity.

The firm was unable to offer partners a higher salary due to a lack in economies of scale. Allen & Overy also faced a similar problem when it sought to expand in the US market. In recent years, they have made changes to their remuneration structure that allow them to pay more for star partners.

Shearman equity partners took home an average of $2.48mn last year. Allen & Overy partners earned slightly less than PS2mn. Both firms claimed that their pay structures were easy to combine.

Before the summer, the deal will be presented to the partners of both companies with the goal of completing it within six to twelve months.

Post Disclaimer

The following content has been published by Stockmark.IT. All information utilised in the creation of this communication has been gathered from publicly available sources that we consider reliable. Nevertheless, we cannot guarantee the accuracy or completeness of this communication.

This communication is intended solely for informational purposes and should not be construed as an offer, recommendation, solicitation, inducement, or invitation by or on behalf of the Company or any affiliates to engage in any investment activities. The opinions and views expressed by the authors are their own and do not necessarily reflect those of the Company, its affiliates, or any other third party.

The services and products mentioned in this communication may not be suitable for all recipients, by continuing to read this website and its content you agree to the terms of this disclaimer.