Business of Law Firms
Historical A&O and Shearman merger draws nearer​

By Jake Rickman​

What do you need to know this week?

A monumental deadline for Allen & Overy and Shearman & Sterling approaches: partners for both firms will begin to cast their votes on 28 September as to if they approve the merger or not, with polls closing on 13 October.

The legal profession on both sides of the Atlantic are no doubt keeping close watch, as the outcome, regardless of which way the decision goes, is one of the most substantial proposed mergers in the profession’s history.

As reported by The Lawyer, the opening of the polls follows on from the conclusion of weeks’ worth of financial and operational due diligence, as well as requests for antitrust clearances filed in the United States.

Why is this important for your interviews?

As an applicant, it is worth keeping abreast of the most talked-about transatlantic merger in recent memory. This is because it underscores key salient themes affecting the legal sectors in both the United States and the UK. Refining your understanding of these themes will help improve your understanding of the commercial drivers that dictate the business of law firms and their strategies.

Provided the merger is approved, the deal could change the face of the global legal market, which in general terms might presently be defined as one where the US firms have made a concerted effort to consolidate their share of the global legal market and elite talent increasingly in their favour, and often at the expense of the traditional UK elite firms. This is reflected in the fact that the top 10 firms by global revenue are all US firms. Moreover, US firms have a claim over the lion’s share of private capital clients, which has seen some of the largest market growth over the past two decades.

A successful merger would disrupt what many are increasingly viewing as a global market increasingly dominated by US firms. A&O Shearman, as the post-merger entity is to be called, would be the first truly transatlantic firm in the sense that it would have roots in both New York and London — two cities widely viewed as worldwide legal and financial capitals. (This is something that Hogan Lovells, arguably the most recent substantial transatlantic merger, lacked, given that Hogan & Hartson was, pre-merger, a Washington-DC-based firm).

Of course, the deal is not without potential hurdles. Equity partner compensation between the two firms would need to be equivocate following the merger, which may lead to higher-performing partners at either firm leaving for (probably American) rivals. This liability in turn can be viewed as a microcosm that reflects the wider dynamics of the legal profession, which has seen many homegrown partners at UK firms leaving their stomping grounds for American counterparts like Kirkland & Ellis, Sidley Austin, and, more recently, Paul Weiss.

How is this topic relevant to law firms?

For a transatlantic deal, we might note the fact that two American firms are advising both parties to the deal: Simpson Thacher is advising Allen & Overy and Davis Polk advising Shearman & Sterling.