Magic Circle law firm Allen & Overy is merging with New York law firm Shearman & Sterling for approximately $3.4 billion in combined sales — one of the largest transatlantic legal partnerships in history.
The merger, which requires the approval of partners from both firms, will create one of the largest law firms in the world by fee income and comes just months after 150-year-old Shearman abandoned merger talks with Hogan Lovells.
Allen Overy Shearman Sterling, as the newly combined firm will be known, will have nearly 4,000 attorneys spread across 49 offices.
The proposed deal marks the first merger between a London-based Magic Circle company and an American competitor since Clifford Chance joined Rogers & Wells in 2000. It’s also a big step forward in Allen & Overy’s bid to break into the lucrative US market. An attempt to merge with California firm O’Melveny & Myers four years ago fell through after the two sides couldn’t agree on a valuation.
The merger follows a turbulent time for Shearman, which lost a number of lawyers and is undergoing a difficult restructuring following broken talks with Hogan Lovells earlier this year.
Wim Dejonghe, senior partner at Allen & Overy, said in a statement: “We believe that A&O Shearman will be a company unlike any other in the world.”
Speaking to the Financial Times, Dejonghe said the merger would give both companies critical prominence in London and New York. Allen Overy Shearman Sterling “will have US sales of over $1 billion, up 30 percent [coming from] in the UK and 40 per cent in the rest of the world and I don’t think anybody has that,” he said.
London-based Allen & Overy, which reported sales of 1.9 billion in the fiscal year ending April 2022.
Meanwhile, Shearman — which employs a total of 1,350 people and posted sales of $907 million in calendar year 2022.
Allen & Overy’s “number one strategic priority”. [has been] We want to achieve the same strength and power of our legal profession in the US and in New York in particular, and we are achieving that at once,” Dejonghe said of the number of attorneys that the new firm will boast. He added that both companies “had quality, but we didn’t have enough people – we didn’t have enough in the US and Shearman lacked it in the rest of the world.”
Both firms said they want to build stronger expertise in private equity, life sciences and energy transition. Shearman will hold all global leadership positions in the combined company.
Adam Hakki, Shearman’s senior partner, said the two companies “know each other very well and have been exploring for years” but have come closer to serious proposals through “focused discussions over the past few weeks.”
Shearman, once one of Wall Street’s most influential advisors, had been making cuts in recent months due to lower demand. Also, a reorganization was undertaken aimed at focusing on more profitable regions like the US and profitable sectors like private equity.
The company suffered from a lack of economies of scale in its branch network and struggled to compete with more profitable US competitors that could offer higher salaries to their partners. Allen & Overy faced a similar problem as it sought to grow in the US market and has made changes to its compensation system in recent years that allow it to pay star partners more.
Shearman’s equity partners made an average profit of $2.48million last year, compared to just under £2million for Allen & Overy’s partners. Both companies said their salary structures would not be difficult to match.
The deal is expected to be presented to partners of both companies before the summer, with a target of closing within six to 12 months.