Weekly take: A&O’s super-merger could bridge firm divides
The Allen & Overy and Shearman & Sterling deal could answer some concerns about the competition between major UK practices and US firms on British shores
I know I shouldn’t, but every time I hear the word ‘merger’ I’m reminded of a sketch from the UK comedy TV show ‘Mitchell & Webb’.
In the scene, a group of business leaders discuss their firm’s plans for a merger in a non-descript boardroom. The only stumbling block is they must down a glass of red wine every time someone says the word ‘merger’.
This later extends to a shot of a 25-year-old Scotch whisky for utterances of ‘cashflow’, vodka for ‘balance sheet’, and Drambuie for ‘memo’.
It’s safe to say the meeting does not get very far.
I’m sure the boardroom meetings at Allen & Overy’s and Shearman & Sterling’s offices were far more serious when both firms were discussing their merger plans (though I’m also sure they would have uttered plenty of those words themselves).
For those who missed it, Allen & Overy and Shearman & Sterling agreed to merge on Friday, October 13, a move that partners at both firms said will create a “global elite law firm”.
I’ll try to refrain from demanding you drink every time I mention a business term from here on.
The merger (sorry!), which was proposed in May, creates the newly named A&O Shearman. The combined firm boasts 3,950 lawyers and 800 partners across 48 offices; joint revenues are approximately $3.5 billion.
The numbers put the combined business right near the top of the world’s major players. But now that the deal has been confirmed, it's worth looking at what it could mean for both firms and their competition.
It’s a little early to make any bold intellectual property predictions but it doesn’t strike me that this partnership was specifically borne out of any desire to bolster IP capabilities at either firm.
A&O already has a large IP team covering multiple jurisdictions.
Shearman & Sterling does not appear, at least on the face of it, to have a particularly large IP practice. Its website profiles 10 IP litigation lawyers and six lawyers active in IP transactions across offices in Texas, New York, and California.
From an IP standpoint, at least, it’s probably a win for Shearman to be able to align itself with A&O’s established practice.
That said, for A&O, the chance to bolster its US IP practice – it already has a Silicon Valley office with IP capabilities – will undoubtedly be a plus point.
The effects of this merger should go beyond bolstering or diminishing any key practice areas, though that will be an obvious factor too.
In fact, this was more a tie-up based on shared synergies rather than cost-cutting or cost-savings. Oops, two more cliches – a sambuca and a tequila over here!
As has been widely reported, both firms were in a unique position regarding their desire to find a partner. It’s been suggested that the stars may have simply aligned here and that it won’t set any trends on either side of the Atlantic.
It’s intriguing because deals between UK and US law firms are not that common.
The A&O and Shearman partnership is the first to involve one of the elite ‘magic circle’ UK firms since Clifford Chance merged with Rogers & Wells in 2000.
A decade later, in 2010, US law firm Hogan & Hartson and UK outfit Lovells combined to form Hogan Lovells.
But this latest partnership comes at a time when there are heightened challenges for both the UK offices of US firms and the traditional UK powerhouses.
One law firm partner I met recently discussed how US firms in London tend to focus their efforts on the areas deemed most profitable, such as M&A and private equity. Some other areas of law are somewhat sidelined.
I’d put IP somewhere in the middle of that bracket. Not all US firms appear too focused on it, while others, such as Kirkland & Ellis, are building large practices.
So far, the strategy of targeting only the most profitable areas has worked.
Most US firms in London far outstrip their UK rivals when it comes to associate pay, profits per partner, and overall revenues.
The lawyers at those firms are, however, generally expected to pull in mammoth shifts.
But by putting most of their eggs in one basket, some of those firms could be vulnerable should market conditions change and the need for such work dries up.
A major draw for clients of a US firm with a London office is access to the US market.
Most UK-headquartered firms, by contrast, still offer a full service, even if not all practice areas yield the same kinds of profits as those being hoovered up by US firms.
Obviously, those UK firms that do have a US presence cannot boast the same kind of access to the US market that a US-headquartered firm can.
On paper, A&O Shearman, which will presumably combine elements of both approaches, could be an enticing prospect.
A&O Shearman describes itself as the only law firm that can provide truly global expertise, including in the US, Europe, and North America.
A young lawyer at a US outfit who is keen for a change, or a lawyer at a UK firm worried that the challenge from US players is not being addressed, could see A&O Shearman as an exciting prospect.
Time will tell if others look to follow suit or if A&O and Shearman’s unique circumstances will mean US and UK tie-ups remain a rarity.
For now, though, let’s raise a glass to the new kid on the block.