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

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

The merger, which is subject to a vote by both firms’ partners, will create one of the largest law firms in the world by fee income and comes just months after 150-year-old Shearman walked away from merger talks with Hogan Lovells.

Allen Overy Shearman Sterling, as the newly merged firm will be known, will have nearly 4,000 lawyers in 49 offices.

The proposed deal represents the first merger between a London-based magic circle firm and a US rival since Clifford Chance joined Rogers & Wells in 2000. It is also a major step forward in Allen & Overy̵[ads1]7;s bid to capture the lucrative US market after the collapse of its attempt to merge with Californian firm O’Melveny & Myers four years ago after the two sides failed to agree on a valuation.

The tie-up follows a turbulent period for Shearman, which has lost a number of lawyers following its aborted talks with Hogan Lovells earlier this year and has been through a difficult restructuring.

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

Speaking to the Financial Times, Dejonghe explained that the tie-up would give both firms crucial scale in London and New York. Allen Overy Shearman Sterling wants “over $1 billion in revenue in the US, 30 percent [coming from] Britain 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 employs around 5,800 staff globally – has long sought a move into the lucrative US market, which has proved difficult for London – based companies to crack.

Meanwhile, Shearman – which has 1,350 employees in total and reported revenue of $907 million in calendar year 2022 – has been looking for a way to grow and increase profitability, after finding that its existing global network offered higher costs but insufficient scale.

Allen & Overy’s “number one strategic priority [has been] to come to equal depth and strength on the bench in the US, and specifically New York, and this gives us that at once,” said Dejonghe, about the number of lawyers the new firm will boast. He added that both firms had “quality, but we didn’t have enough bench – we didn’t have enough in the US and Shearman lacked bench in the rest of the world”.

Both firms said they sought to build stronger expertise in private equity, life sciences and energy transition. Shearman will have representation across global leadership positions in the merged firm.

Adam Hakki, Shearman’s senior partner said the two firms “know each other extremely well and have been exploring things for years”, but were moving closer to serious proposals through “focused discussions in recent weeks”.

Shearman, once one of Wall Street’s most powerful advisers, had been cutting back in recent months due to lower demand. It also underwent a restructuring aimed at focusing on its more profitable regions, such as the US, and profitable sectors, including private equity.

The firm has suffered from a lack of economies of scale in its network of offices, and struggled to compete with more profitable US rivals who could 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 reward system that allows it to pay more to star partners.

Equity partners at Shearman took home $2.48m in average profits last year, compared with just under £2m for partners at Allen & Overy. Both firms said their pay structures would not be difficult to knit together.

The agreement is expected to be sent to partners in both firms before the summer, with the aim of completion within six to 12 months.

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