Allen & Overy and Shearman plan to merge to create $3.4 billion law firm

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“Magic circle” law firm Allen & Overy is merging with Shearman & Sterling of New York to form a firm with combined revenues of approximately $3.4 billion, in one of the largest transatlantic legal tie-ups in history.

The merger, which is subject to a vote by both firms’ partners, will create one of the largest law firms in the world by fee income and comes just months after the 150-year-old Shearman walked out of merger talks with Hogan Lovells.

Allen Overy Shearman Sterling, as the newly merged firm will be called, will have nearly 4,000 attorneys spread across 49 offices.

The proposed deal represents the first merger between a London-based magic circle firm and an American rival since Clifford Chance joined Rogers & Wells in 2000. It’s also a big step forward in Allen & Overy’s bid to win the lucrative US market following the failure of its merger attempt with California firm O’Melveny & Myers four years ago after the two sides failed to agree on a valuation.

The tie follows a tumultuous period for Shearman, which has lost a number of lawyers following failed talks with Hogan Lovells earlier this year and has undergone a difficult restructuring.

In a statement, Wim Dejonghe, senior partner at Allen & Overy, said: “We think A&O Shearman is going to be a company unlike any other in the world.”

Speaking to the Financial Times, Dejonghe explained that the tie-up would give both companies crucial scale in London and New York. Allen Overy Shearman Sterling will have “over $1 billion in US revenue, 30%. [coming from] in the UK and 40% in the rest of the world, and I don’t think anyone has that,” he said.

London-based Allen & Overy – which had revenues of £1.9 billion in the year to the end of April 2022 and employs around 5,800 people worldwide – has long sought an edge in the lucrative US market , which has proved difficult for London-based crack companies.

Meanwhile, Shearman – which has 1,350 total employees and had revenues of $907 million in calendar year 2022 – has been looking for a way to grow and increase its profitability, having found that its existing global network cost more. high but insufficient size.

Allen & Overy’s “number one strategic priority [has been] to achieve the same depth and strength of the bench in the United States, and especially in New York, and this gives us everything at once,” said Dejonghe, of the number of lawyers the new firm will boast. He added that both firms they had “quality but we didn’t have enough bench – we didn’t have enough in the US, and Shearman lacked a bench elsewhere in the world”.

Both companies said they wanted to build stronger expertise in private equity, life sciences and energy transition. Shearman will have representation in all global leadership positions in the merged company.

Adam Hakki, a senior partner at Shearman, said the two companies “know each other very well and have been exploring things for years and years” but have approached serious propositions through “focused discussions over the last few weeks.”

Shearman, once one of Wall Street’s most powerful advisers, had made cuts in recent months due to lower demand. He was also undergoing a restructuring to focus on his most profitable regions, such as the US, and profitable industries, including private equity.

The firm has suffered from a lack of economies of scale in its office network and has struggled to compete with more lucrative U.S. rivals that could offer higher pay to partners. Allen & Overy faced a similar problem when trying to grow in the US market and, in recent years, has made changes to its compensation system that allows it to pay top partners more.

Shearman’s equity partners took home $2.48m in average profits last year, compared with just under £2m for partners at Allen & Overy. Both companies said their pay structures would not be difficult to combine.

The deal is expected to be presented to both companies’ partners before the summer, with the aim of reaching completion within six to 12 months.