News of the proposed merger between London’s Allen & Overy and New York’s Shearman & Sterling has no doubt caused many top law firms to call into question their own transatlantic growth strategies.
For years London's magic circle law firms have attempted to scale the walls of Wall Street, where a tightly-knit group of lucrative domestic law firms rule the roost. A&O and its peers have established vast global networks – and many have long-established offices in the US – yet luring key clients and profitable partners away from domestic firms has proved challenging. The only way through, it seems, is to merge with a pre-existing firm.
A&O has been looking at merger opportunities for a while now, and if the $3.4bn (£2.7bn) deal is voted through by partners at both firms, it would be one of the biggest the legal industry has ever seen, with approximately 3,900 lawyers across 49 offices. It would also equate to the biggest transatlantic merger in more than two decades, with the latest taking place back in 2000 between Clifford Chance and Rogers & Wells.
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But will this merger automatically make A&O a key player in the US market, pathing the way for other powers to follow suit? Or will the firm still be sidelined from the US elite?
A&O's Wim Dejonghe and Shearman's Adam Hakki – the two frontmen behind the merger – have made what must have been an extraordinarily complex and risky negotiation process look relatively straightforward, having hashed out the details of the deal in a matter of weeks instead of months or years.
“We knew [if] this leaks before we go to our partners, we’re dead,” . “So we agreed the only way we could deliver something to [partners] was to sit together in a room for weeks and hammer out all the details.”
Yet merging your way into the US market is no mean feat to master. In 2019, A&O ended talks with California's O’Melveny & Myers after 18 months of negotiations – and many other UK-based firms have suffered similar setbacks.
Former Ashurst senior partner, Charlie Geffen, recently told that his firm failed multiple times to deliver on a US merger.
"The top US firms have no strategic need to merge – which in itself is the biggest challenge for the remaining UK magic circle firms."
Even if partners at A&O and Shearman vote the merger through, becoming a key player in the US market would be far from guaranteed. For starters, UK firms have traditionally always struggled to compete with the enormous salaries that high-profile US partners expect.
The top US firms have always been more profitable than their UK counterparts. For example, last year partners at US firm Simpson Thacher took home $5mn+ on average, while Wachtell Lipton Rosen & Katz partners earnt more than $7mn. In contrast, A&O’s partners took home £1.95mn ($2.4mn) on average in 2022. Even Shearman & Sterling, which has struggled through a period of high profile partner losses and restructurings in recent years, paid its partners $2.48m in average profits last year.
The global magic circle is entirely US-based, says Geffen. "It is hard to see that changing. Indeed one can ask if it is even possible for a British-led firm to break into that group. Or does it have to be US-led?
The UK's magic circle firms have become one-stop shops for their international clients, trying to be everything and anything to the corporations they work with.
Yet, Wall Street’s top firms tend to be highly focused, with a heavy focus on private equity and finance work – they're less interested in having an office in every major city around the world.
UUֱ recently spoke with leaders at US and UK headquartered firms to discuss their growth strategies, investments in technology, and the role of the modern lawyer. Download the report for free here.
One of these law firms was Dechert, a US-based law firm with 21 offices worldwide and a significant proportion of its client work spans across multiple jurisdictions and practice areas of the law.
Yet, according to the firm's chair, Andrew Levander, Dechert takes a strategic approach to the areas of the law and jurisdictions it covers based on client demand.
“This doesn’t mean being all things to all clients but attracting and retaining the best talent to deliver the services needed by clients and in the specific jurisdictions and areas of critical importance that they need the support.”
Taking a strategic approach to where you position your firm geographically was one of many themes highlighted in the report - another important shift in strategy has been the investment in specialist expertise.
UUֱ surveyed in-house lawyers on how their teams are likely to grow. Just under a half (46%) of respondents said they believe in-house roles will become more specialised, and a third (33%) said they think in-house teams will rely more on flexible resourcing for specialist expertise. While these findings reveal how legal departments are developing internally, it also hints at how their needs from external counsel have changed.
"As markets become increasingly complex and inter-connected, clients require the integrated capabilities of highly specialised practices and industry sector expertise," says Levander.
Robert Shooter, managing partner of European law firm, Fieldfisher, has noticed a similar trend. "In-house counsel have become even more sophisticated, and want more specialist, sector-specific advice," he says.
According to Shooter, the European firm has increased its sector specialisms in recent years by hiring and nurturing leading specialists across its 25 offices.
An obvious example of a specialist area of expertise in high demand is the corporate world's increased interest in ESG initiatives.
Clients now expect their outside counsel to be well-versed in this relatively niche area of the law, says Mike Francies, managing partner of Weil, Gotshal & Manges' London office.
The firm, which has a 1,100+ strong team of lawyers globally, is currently working with University of Oxford’s Saïd Business School to create a specialist ESG-focused training programme for its London-based lawyers to help guide clients through ESG-related challenges.
"The purpose-built programme will cover the role of ESG in investing, reporting and metrics, ESG-linked financing, sustainable finance, and future trends affecting all areas of our clients’ businesses," he says.
Magic circle firms clearly still have their eyes on Wall Street – A&O's proposed merger proves that – yet we may soon see these firms shifting their focus from being one stop shops to offering a select few areas of specialist expertise. If that's where the money is, it's hard to see why they wouldn't.
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