“There have been big transatlantic mergers recently, but nothing of this size. So people are watching it with interest.” Allen & Overy set to join forces with Shearman & Sterling in one of the largest law firm mergers in history.
Isaac Hickford – 5 June 2023
A short time ago, magic circle firm Allen & Overy announced its intentions to merge with Wall Street’s Shearman & Sterling; a £2.7 billion deal that will constitute one of the biggest the legal sector has ever seen. “It is the biggest law firm merger since Hogan & Hartson took over Lovells,” Kush Cheema, North America research director at Chambers & Partners tells us, “There have been big transatlantic mergers recently, but nothing of this size. So people are watching it with interest.” Yet, as UK research director Alex Marsh points out, the scale of the deal doesn’t necessarily mean it’s come as much of a surprise: “Shearman have been talked about as an acquisition target for some time, and it’s not much of a surprise that a magic circle firm wants to bolster their US presence.”
Yet what’s interesting about the merger is that, in a number of important ways, it hasn’t happened yet. Announcements of this kind often follow months of negotiations, and any deal is dependent on a vote put to the partners at both firms. Typically, it is only once the merger has been voted through that it will be made public. Yet in this case, the announcement was made public before the vote.
It’s no secret that different firms’ growth strategies vary hugely: “Some firms have strategies built on hiring lawyers, whereas two years ago, firms were opening offices by moving existing partners into new markets,” Cheema points out, “the thing about mergers is that they make use of established names in existing markets.” In this instance, the weight of the Shearman name is pretty clear: “In short, they’ve bolted a very strong project finance firm onto a very strong project finance firm,” Cheema explains, “Historically, Shearman has been the banks’ firm. For over 30 years, they were the firm you went to if you were a big bank, and project finance is where they really shined. A&O have been the same in the UK and Europe, but they will become stronger in the US as a result.”
But what wider implications will it have? “The biggest impact will undoubtedly be felt over in the US,” Marsh adds, “A&O will now be the biggest British firm over there by some way.” What’s more, as is so often the case, it could well serve as a prompt for other UK firms to follow suit: “I definitely think other big UK firms will be reaching out for transatlantic alliances, but there isn’t anything particularly new about this. That being said, if it goes well, it will provide even more of an incentive to do it.” Of course, the move does raise a number of questions for what it will mean for the sector: “There are questions around whether this will result in more consolidation in the market,” Marsh tells us, “are there too many firms? Will firms need to get bigger in order to survive?” As the old adage goes: “It’s simply a case of waiting and seeing.”
If you’re just starting out on the path to becoming a lawyer, it’s worth noting that historically, there’s been a degree of friendly (ish) competition between US and magic circle firms in London. Lawyers from US firms will often find themselves standing across from magic circle lawyers on the opposite side of deals, and US firms certainly set the bar when it comes to phenomenally high salaries. If you want to find out more, you can read more about different types of firm here.