Legacy Allen & Overy saw revenue nudge up 3.4% in the last financial year before its transatlantic merger, against a surge in profits that took average PEP to £2.2m.

A&O Shearman has announced that turnover for the legacy UK firm edged up a modest 3.4% to £2.2bn for the financial year ended 30 April 2024.

The revenue increase is significantly lower than last year’s uptick of 8%, which saw A&O cross the £2bn mark for the first time, becoming the first magic circle firm to do so. Clifford Chance joined it in the £2bn club a week later, with Linklaters only following suit a year later when it this month confirmed that its revenue hit £2.1bn in 2023-24. 

While turnover growth at legacy A&O, which formally merged with Shearman & Sterling under the A&O Shearman banner on 1 May, was modest across the last financial year, profit growth was not: the firm reported an increase in profit before tax of more than 17% to a total of £1bn. 

This increase took average profits per equity partner (PEP) to £2.2m – up more than 21% from the £1.816m reported in last year’s LB100. Last year, by contrast, A&O reported a slight dip in profit and a 6.6% drop in PEP. 

Announcing its financial results, the firm said in a statement that the results had benefitted from a strategic partnership with Inflexion for its aosphere platform. The deal, announced in October 2023, saw the PE house make a strategic investment alongside A&O and US investor Endicott Capital in the legal and compliance data platform, leaving A&O a minority shareholder.

Although legacy A&O’s revenue growth for the last financial year is well short of the 10% Linklaters reported for the same period, its topline figure remains ahead. Its PEP is also higher, with Linklaters reporting a 10.3% increase in profit and an 8% jump in average PEP to £1.9m.

The positive results for legacy A&O come after Shearman saw revenue fall 7.7% to $837m in the 2023 calendar year, against a 3.5% increase in average PEP to $2.556m. At today’s Bank of England exchange rate, legacy A&O’s PEP for 2023-24 converts to $2.823m.

Last year’s Legal Business Global 100 report showed legacy Shearman posting a 10% drop in revenue to $906.9m for the 2022 calendar year. This came alongside an even bigger decline in PEP, which fell 18% to $2.478m.

Going forward, the newly merged firm will run its financial year to 30 April, in line with the legacy UK arm.

Commenting on the results Hervé Ekué, who was elected managing partner of A&O in March and now serves as global managing partner of the merged A&O Shearman, said:

‘In the year leading up to the completion of our merger, we’re pleased to report positive growth for the firm. This is testament to our strategic focus on diversification across regions, practices, and sectors.’

alexander.ryan@legalbusiness.co.uk

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As the latest edition of Legal Business went to press in late April, Allen & Overy (A&O) and Shearman & Sterling were working to a deadline of their own – the 1 May go-live date for their mega-merger.

The headline figures are undeniable – A&O Shearman will come into existence with 4,000 lawyers in 48 offices across 29 countries, as well as $3.5bn in revenue; enough to rocket it up to fourth place in the Global 100.

However, the future success of the firm depends to a large extent on the success of the integration process, which will now be handled by a new leadership team after A&O senior partner Wim Dejonghe’s second term comes to an end. Interim global managing partner Khalid Garousha will fill Dejonghe’s role, while Paris office head Hervé Ékué will become firmwide managing partner. Shearman’s senior partner Adam Hakki will be co-chair of the global A&O Shearman board and executive committee and will lead the merged firm’s US business as its chair, while Shearman’s current global managing partner Doreen Lilienfeld will serve as co-managing partner of the US business.

Many in the market have been surprised that Dejonghe, viewed as the architect of the merger, is to step aside. But as Dejonghe told Legal Business in this issue’s Life During Law, ‘there’s a time to go. We have a constitutional limit of two terms in each role. You have to respect that’.

Notably, not a single partner in the new top team will be based in London, and this has raised some eyebrows, with one former A&O London partner suggesting a ‘charm offensive’ may now be required to communicate to London partners that they will not be sidelined.

Dejonghe argues the leadership appointments reflect positively on the firm’s ability to promote new, diverse talent. ‘I am especially proud of the diversity,’ he says. ‘That tells you a lot about my partners. It tells me that, in terms of cultural shift, we’ve achieved a lot.’

‘We’ve hired a lot of people in the US. But that doesn’t give you the brand nor the depth of bench that you need.’Wim Dejonghe, A&O

On the question of post-merger practice leadership, one former partner describes a traditional A&O structure in which firmwide management takes a broader ‘big picture’ approach, with practice and office heads given leeway and an overall strategy often ‘honoured in the breach’. Garousha and Ékué, the former partner says, are viewed as ‘very much in line’ with this approach.

Another question to be addressed is how the merged firm will handle the issue of overlap in practices and offices. Of the 48 cities that A&O and Shearman are currently active in, both firms have a presence in 18 (including associated offices), and in January, the firms announced that they would consolidate operations ‘into a single office in each jurisdiction where we operate’.

April’s announcement of partner promotions gave some hint as to the regional breakdown among the two firms. 40 partners were made up in total, with 32 from A&O and eight from Shearman. A&O made up nine UK partners, five in the US, 14 across EMEA and four in APAC. All eight of the new Shearman partners, meanwhile, were made up in the US.

You pays your money…

In addition to leadership, another key consideration is compensation. Successive rounds of lockstep reform at A&O have shifted the dial to enable it to better compete with US rivals on rates, but ahead of the tie-up, A&O still lags Shearman slightly, with profit per equity partner of $2.25m and revenue per lawyer of $1.01m, compared to Shearman’s $2.48m and $1.26m.

Talking to LB, Dejonghe points to the development of a more ‘mercenary’ market in the legal sector. ‘The money that’s being thrown around is unhealthy,’ he says. ‘I worry as an industry we’re going to lose out on some talented people. The reputation of the legal industry is already that it’s a sweatshop. We shouldn’t push that any further. Of course you need to be competitive on pay, but you also need to think about things like professional development, a positive social role, and interesting work.’

These issues aside, though, supporters of the combination argue that such a deal is the most effective way for a Magic Circle firm to grasp the nettle in America. ‘If you want to be properly global, you need to have credibility in US and English law,’ says Dejonghe. ‘That’s non-negotiable.’

A&O has made progress in recent years, with US headcount increasing by 50% from 2013 to 2023, and partner count up 71%. Americas revenue grew by almost 100% from 2018 to 2022, and this year’s accounts show a further increase, from 13% of total revenue to 14% this year (£287.5m). But as Dejonghe concedes, this is still not enough. ‘We’ve recruited a lot of people in the US,’ he says. ‘But it doesn’t give you the brand nor the depth of bench that you need.’

Dejonghe is candid about the collapse of the merger talks with O’Melveny & Myers in 2019. ‘I’m an M&A lawyer by background, and I thought I could do it on my own,’ he says. ‘But you can’t – even with all the experience I have.’ Another lesson of the experience was to keep early discussions tightly controlled. This time around, the two firms put together a small team to work on the combination behind the scenes, working out key provisions and anticipating potential objections, before taking what Dejonghe calls ‘a developed proposal’ to partners.

Pointing to the final approval rate of more than 99% of the partners who voted at each firm, Dejonghe argues that this approach gave the leaders ‘a pretty decent read of what the issues could be.’

There are undoubtedly lessons here for other firms considering a large-scale transatlantic merger. But, as many in the market note, there are few potential targets which are vulnerable to such an approach but with enough US strength and brand recognition to make a deal worthwhile. As one London managing partner at a US firm put it: ‘To do a merger you have to be either at the top of your game or in dire straits.’

alex.ryan@legalease.co.uk

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In a move that may not come as a surprise to most, Allen & Overy (A&O) has unveiled a list of contenders for the managing and senior partner roles, with no Shearman & Sterling partners in the race.

Private capital group co-chair and global banking practice co-head Philip Bowden (pictured) is among three lawyers vying for Wim Dejonghe’s crown as senior partner, alongside global projects, energy, natural resources and infrastructure board head David Lee and Abu Dhabi capital markets partner Khalid Garousha, who stepped into the role of interim managing partner in July following Gareth Price’s shock departure earlier in the month. Both Bowden and Lee are based in the firm’s London office.

Meanwhile, there are five candidates for the role of managing partner: London-based advanced legal services delivery head Angela Clist, Paris managing partner Hervé Ekué, Hong Kong managing partner Vicki Liu, New York-based global international capital markets group head David Lucking, and Brussels-based global corporate practice co-head Dirk Meeus.

‘Voting will take place in the elections for the firm’s next senior partner and managing partner in February 2024’, A&O said in its Monday statement. ‘The successful candidates will take up their posts on 1 May 2024 and serve in this capacity through 30 April 2028 for A&O Shearman, following the completion of the merger to become A&O Shearman.’

The statement continued: ‘Shearman & Sterling partners will hold very significant leadership positions globally and regionally in the combined firm, including within the firm’s executive committee, board, practice group and regional leadership.’

Continuing the theme of A&O clearly being in the driving seat of this combination, Shearman partners will not be eligible to vote.

Several of the candidates are familiar from A&O leadership elections past. Bowden ran a tight race against then-one-term incumbent Dejonghe in 2020. Both Liu and Meeus, meanwhile, ran for the managing partner role that went to Price last time around. Garousha’s decision to run will come as a surprise to some, as partners both within and without the firm have previously commented that he was not seen as someone with leadership ambitions.

The announcement is the clearest official statement yet on how the merged firm will operate. Few will be surprised to see A&O retain the lion’s share of control. It is by far the bigger firm in terms of both revenue and headcount: its turnover was $2.57bn to Shearman’s $906.9m, and it has 2,551 lawyers to Shearman’s 722, according to figures in this year’s Global 100 report. This disparity in size has led some in the market to view the merger as, in the words of one firm’s London leader, ‘more like an acquisition’. And the promise of ‘very significant leadership positions’ for Shearman’s management will do little to alter this perception.

The two firms remain separate until the merger completes, scheduled for no later than 1 May 2024 and subject to customary closing conditions and regulatory approvals. And regulatory concerns in some jurisdictions would prohibit Shearman partners from participating in the selection of leadership at A&O. However, A&O’s statement that each of the winners of the elections will stay in their respective roles in the merged A&O Shearman for their full four-year terms clearly indicates that it is the dominant party in the combination.

The announcement also puts to bed earlier speculation that Dejonghe would find a way to stay on as senior partner beyond his mandated two terms. The statement’s only mention of Dejonghe is to note that his term will end on 30 April 2024 along with Garousha’s. However, Dejonghe may yet remain close to the c-suite. Those ‘very significant leadership positions’ are unlikely to be filled entirely by Shearman partners. Market commentators remain divided on what they predict Dejonghe will do next: some believe that he will take the chance to walk away after pulling off a successful transatlantic merger, while others argue that he will stay around to help steer the merged firm through what is sure to be a lengthy integration process.

The results of the elections will be announced on 1 March 2024.

alexander.ryan@legalease.co.uk

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So much ink has been spilled over game-changing developments in recent weeks – namely the partnership vote in favour of the A&O Shearman deal, and Paul Weiss’ assault on the talent pools of the Square Mile – that it can be difficult to find an angle that isn’t hackneyed to within an inch of its life.

Nevertheless, a ring around senior contacts for a different take paid dividends, even if some of the suggestions are more about playing devil’s advocate and mischief-making.

One partner at a US firm in London suggests jumping on the ChatGPT bandwagon to ask it what it ‘thinks’ the strategies of A&O Shearman, and Paul Weiss in London should be – if I really want a different perspective. More of that later.

One law firm leader raises an interesting, and connected, point. ‘There are questions around the compounding effect of Big Law, of creating a monster that is A&O Shearman. Once you grow revenue over a certain amount, none of the individual partners matter. You are just feeding the machine. Do you actually have to be such a big firm to survive?’

The point also plays into what that partner describes as the ‘Greek Tragedy’ going on between Kirkland & Ellis and Paul Weiss. Many market commentators have asserted that Kirkland has become a victim of its own success and that breakneck headcount and revenue growth has come at the price of the entrepreneurial spirit that would have been engendered by building an English law practice from scratch 20 years ago.

It seems likely that Neel Sachdev and Roger Johnson would – as the partners who mattered – have had a certain freedom and sense of autonomy that has gradually diminished as the power base decidedly shifted back to Chicago.

As our annual LB100 report this issue shows (and our Global 100 report in December will undoubtedly show), elite law is starting to feel the pinch, with leaner partnerships looking more attractive right around now. Of course, A&O’s motives hinge on more than just a fear of being left behind Kirkland and Latham on turnover. Cracking the Wall Street piece will be a massive achievement and a stellar legacy for senior partner Wim Dejonghe when he finally hangs up his gloves. Query whether the dream of breaking the US with the creation of an enormous partnership will not be out of date in five or ten years’ time, especially with the exponential growth of tools like generative AI.

Which brings us back to ChatGPT. While conspicuously offering nothing in the way of thought leadership on strategy, the chatbot is still remarkably well informed.

It returns: ‘Paul Weiss has been on an aggressive hiring spree in London, further indicating its expansion strategy in the region. The firm has notably hired legal professionals from other prominent law firms such as Kirkland & Ellis and Linklaters, thereby significantly enhancing its private equity offering in London.’

When questioned further, it adds: ‘The firm has been eyeing a move to London’s West End, and eventually settled on relocating to a new office in Soho, which was formerly the London headquarters of Twitter. The new location places Paul Weiss close to key private equity firms, potentially facilitating closer working relationships and enhancing its client base.’

Amusingly, the machine seems to have swallowed the line that the A&O Shearman merger is all about the clients, and nothing whatsoever to do with turnover.

‘The merger between Allen & Overy and Shearman & Sterling aims to create a robust global entity leveraging the strengths of both firms to serve clients on a broader scale. The merged entity intends to serve clients globally on their most critical challenges, transactions, and disputes.’

There is more than one way to feed the machine. It will be interesting to see which one will win out.

nathalie.tidman@legalease.co.uk

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‘You’ve now got one more 64,000lb gorilla,’ said one former UK firm leader, in response to the news that the merger of Allen & Overy (A&O) and Shearman & Sterling will proceed.

On 13 October, the firms announced the end of partnership voting on the combination, with more than 99% of votes cast at each firm in favour. The firms are due to combine as A&O Shearman from May 2024 at the latest, creating ‘the first fully integrated global elite law firm’, with nearly 4,000 lawyers across 48 offices in 29 countries.

With combined revenue of roughly $3.5bn, the merged firm will sit comfortably within the top five of the Legal Business Global 100 – behind only Kirkland & Ellis, Latham & Watkins, and DLA Piper, and well ahead of its nearest Magic Circle competitor, Clifford Chance (CC), in ninth place in last year’s Global 100, with $2.71bn in revenue.

The firms announced they were in merger discussions in May this year and the deal had been widely expected to go ahead, with management at both firms embarking on a series of roadshows around the world over the summer to shore up support.

The combination marks the first transatlantic merger involving a Magic Circle firm since CC’s ill-fated union with Rogers & Wells in 2000, and comes after A&O held unsuccessful talks with O’Melveny & Myers in 2019.

Shearman, meanwhile, was engaged in talks with Hogan Lovells as recently as this year, with the pair announcing the end of discussions in March. The firm has struggled to keep pace with US rivals in recent years.

With its traditional banking client-base, it has not made the same push into private equity as its rivals, something management at the combined firm is keen to rectify.

‘We haven’t actually heard anything about how they’re structuring this. We haven’t heard much of anything about partner remuneration, for instance.’ Zulon Begum, CM Murray

Shearman increased its revenue by 35% 2012-22, with profit per equity partner (PEP) up 93% in the same period – an increase partially explained by a decline in equity partner headcount of 63. A comparison to its competitors, however, shows the firm’s relative decline. Latham & Watkins grew its revenue by 155% in the ten years to 2022, while Kirkland & Ellis managed a staggering 245%. The two firms grew their PEP by 152% and 142%, respectively.

Shearman, meanwhile, has continued to fall further behind. In its most recent set of financial results, announced in March this year, it reported a 10% drop in revenue, falling below $1bn to $906.9m. Its performance in PEP was even weaker: a 17.5% drop took it to $2.48m.

Shearman has also been hit by partner exits around the world, including finance partners Philip Stopford and Korey Fevzi, who left in March this year to launch the English law offering of Cravath, Swaine & Moore in London. The firm named respected litigator Adam Hakki as the senior partner successor to David Beveridge the same month.

Market reaction to the deal has been largely positive. Jomati founder Tony Williams, who was previously managing partner at CC before its US merger, said: ‘A&O was lucky. The previous discussions with O’Melveny made partners understand how difficult getting a US deal is. The partners were more amenable to compromise on issues that, if not for that experience, might have been sticking points.’

Another commentator noted: ‘It’s been handled extremely well. Both firms have had failed merger attempts recently. Both sides understood the importance of managing communications – even simple things like who gets informed in what order. Communications strategy is crucial and has been really well handled. The whole thing was presented as a proper corporate deal.’

The deal will heap pressure on the remaining Magic Circle firms to come up with credible offerings of their own in the US. There has not been a significant UK/US merger since 2018, when BCLP was created. This deal came after Eversheds Sutherland was formed in 2017, while Norton Rose Fulbright was established in 2013 and Hogan Lovells in 2010.

As Williams commented: ‘It’s transformative in one key respect: it is a fundamental shift in what the top UK firms have been able to achieve in the United States.’

The overwhelming partner support for the merger and the speed with which it was completed might make it look easy. But the hard work starts now. ‘We haven’t actually heard anything about how they’re structuring this’, said Zulon Begum, partnership specialist at CM Murray. ‘We haven’t heard much of anything about partner remuneration, for instance.’

Both A&O insiders and market commentators stress that the merger is not an endpoint. Rather, it is one aspect of a strategy by which the firm aims to establish a truly global presence. To this end, A&O intends to do far more than bolt Shearman’s US brand recognition and strength in New York finance onto its existing offering. Looking ahead, for Maurice Allen, founder of legal consultancy LTN & Partners: ‘One of the big challenges will be finding the money and the willingness to invest in key areas. Private capital is the obvious growth area right now if you want to counter the US threat.’

A&O has already signalled its intent in that respect. Before the partnership vote, it established a new private capital group, co-chaired by banking co-head Philip Bowden and private equity co-head Stephen Lloyd. The firm has also identified life sciences and technology as key sectors, as well as energy and infrastructure, where it has made US hires as recently as August, with energy tax specialist Scott Cockerham and new head of US energy private equity Kfir Abutbul joining from Orrick and Paul Hastings, respectively.

‘It’s not the merger itself that’s a threat. It’s the fact that a Magic Circle firm of some quite significant financial muscle has decided it’s going to compete actively in both markets.’
Maurice Allen, LTN & Partners

A&O’s Magic Circle rivals have similarly sought to grow in the US. CC and Linklaters are open about their willingness to pursue a merger with the right partner. But there are few if any candidates that combine Shearman’s name recognition and New York capabilities with the financial struggles that made the firm willing to consider a combination with a larger UK outfit. ‘Those kind of sweet spots open up very rarely,’ said Begum.

‘We don’t comment on other firms, as it’s invidious,’ said Freshfields UK managing partner Mark Sansom. ‘But what this does show is the need in this market to be really agile, and for firms to think about their direction of travel over the next decade.’ Freshfields remains confident in its strategy of growth through lateral hires.

Still, the US laterals market is, in Williams’ words, ‘febrile: many people move on in three to five years. It’s a tough market to hire in, and mistakes are expensive’. And, due to the gulf in profitability between UK and US firms, ‘US firms can afford to make more mistakes.’

‘There’s a fair amount of scepticism among US firms as to whether this is really threatening,’ noted Allen. ‘But it’s not the merger itself that’s a threat. It’s the fact that a Magic Circle firm of some quite significant financial muscle has decided it’s going to compete actively in both markets. It’s going to present itself to clients, including clients of market leaders like Kirkland, Latham, and Simpson Thacher, as a firm that should be considered as a real alternative and a firm that has skills and geographic coverage that the US firms cannot always match.’

For one former UK law firm head, US scepticism may play in A&O Shearman’s favour: ‘The longer they carry on saying that, the better. It’s always better to be underestimated by your opposition.’ LB

alex.ryan@legalease.co.uk

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The most enjoyable part of analysing the proposed merger of Allen & Overy (A&O) and Shearman & Sterling has been hearing the reactions of leaders at peer firms to the video featuring senior partners Wim Dejonghe and Adam Hakki.

Hot-takes from around the City have been often amusing. Says one US firm leader: ‘It’s clearly not a merger, is it? It’s a takeover of Shearman by A&O, isn’t it?’ And it certainly does feel like A&O’s Dejonghe is in the driving seat of what is undeniably a slick pitch, even if it does, at times, look like Hakki is in a hostage situation.

That the announcement is conveyed in the language of dealmaking is not lost on most, as another US leader remarks: ‘This has been presented to appeal to the partners of both firms because it looks like a proper M&A deal. It’s the same language, and with a financial adviser and independent legal advisers. That has to be part of the strategy to win the voters over.’

One commentator also cynically points to the staggering amount of times Dejonghe and Hakki insist this transaction is all about the clients, but let us look at the real rationale.

The numbers are compelling enough to convince even the most hard-bitten sceptic. The tie-up would see 3,900 lawyers operating across 49 offices and generate around $3.4bn in combined revenues, putting A&O Shearman fourth in the current Global 100 table, between DLA Piper and Baker McKenzie.

Dejonghe is in the driving seat of what is undeniably a slick pitch, even if it does, at times, look like Hakki is in a hostage situation.

However, revenue per lawyer would be $872,000 – less than the RPL at A&O and Shearman separately ($1.1m and $1.4m respectively) and significantly less than many ‘global elite firms’.

But profits are aligned, with PEP at A&O $2.7m, while the average partner at Shearman is taking home around $3m. This means that full financial integration, the thorn in the side of many a law firm merger, will be much easier to pull off, especially as the firms have agreed on a compensation model that moves A&O further away from a pure lockstep.

Many point to the strong pedigrees both firms have in their home markets, and this is evident in the data. In the US, A&O Shearman has the potential to enjoy top-tier rankings in The Legal 500 for securities litigation and project finance, and second tier rankings in key areas such as antitrust, disputes, capital markets and tax. However, for M&A (large deals) the firm would only be ranked in tier three, tier five for restructuring, and would not be ranked at all for private equity.

The UK rankings would be much stronger. Tier one rankings would abound in numerous areas within finance, as well as restructuring, TMT and energy, while tier two rankings would apply to commercial litigation, big-ticket M&A and tax. Crucially, A&O Shearman would also be in the chasing pack for private equity.

You have to hand it to Dejonghe for not allowing his US merger priority to be thwarted by the whimpering end to the merger talks with O’Melveny & Myers in 2019. If anything, that experience has meant that a lot of the hard yards have already been done to prime the partnership for what, don’t forget, would be only the second-ever US merger for a Magic Circle firm (if Clifford Chance’s takeover of Rogers & Wells 20 years ago really counts).

While one London managing partner damns the combination with faint praise: ‘It would be wrong to write this off as a hopeless or desperate merger’, they have a point. These two firms have come of age and grown stronger with the battle scars, not least those born by Shearman after its failed merger talks with Hogan Lovells, which prompted a string of high-profile exits in recent months.

As we pointed out when the O’Melveny talks collapsed, the only transatlantic deal that the Magic Circle globalists were ever going to strike was with a firm in decline. Shearman is certainly that, which is the reason it has swallowed its pride to countenance this deal at all.

While there is clearly much to be done in terms of financial due diligence and the ironing out of issues relating to Shearman’s pension liabilities, time will be of the essence. A long courtship never works, so Dejonghe and Hakki would be well advised to work quickly on getting buy-in from rainmakers, while not dragging their feet on the vote. Once the stars are aligned, the rest will inevitably fall into place.

nathalie.tidman@legalease.co.uk

For more on the proposed A&O and Shearman merger, see ‘Getting its mojo back: How A&O Shearman could redefine the Magic Circle‘

The post A&O Shearman is a marriage of necessity, not convenience appeared first on Legal Business.

Following the announcement of the proposed A&O Shearman merger, news came that Shearman & Sterling had lost two partners to Ashurst in London, which leads the headline moves – dominated by energy and infrastructure hires – in recent weeks.

London-based Shearman partners Sanja Udovicic and Julia Derrick moved over to Ashurst to expand the firm’s global energy team.

Derrick explained her move to Legal Business in the context of an expected boom in the global energy sector into 2023. ‘I expect activity in the global energy sector over the coming months to continue to be driven by energy scrutiny concerns and the transition to a low carbon economy.’

Shearman also faced setbacks in Asia, as partners Anna Chung based in Seoul, and Jean-Louis Neves Mandelli and Scott Baggett based in Singapore also departed for Ashurst. Shearman also experienced another blow in the energy sector as partner John Inglis, who has received recognition in The Legal 500’s Hall of Fame, left for Dentons.

Speaking about his move, Inglis said: ‘I was looking for a final step in my career where I could continue to develop my relationships through a combination of outstanding global platform, enhanced industry specialists and fantastic people who work in a collaborative manner.’

Freshfields had a busy June, having added two partners apiece in its London and New York practices. Derivatives and structured products specialist James Duncan will join the firm’s global transactions practice in London, again from Shearman.

Duncan will advise the firm’s existing corporate, financial institution, financial sponsor, and private capital clients on cross-border transactions, strategic equity solutions and equity financings.

‘I expect activity in the global energy sector over the coming months to continue to be driven by energy scrutiny concerns and the transition to a low carbon economy.’
Julia Derrick, Ashurst

Over in New York, Freshfields announced the hire of David Sewell, a leading financial institution and fintech regulatory lawyer, who joins from Perkins Coie. He represents banks, non-bank financial institutions and fintech companies at all stages of the regulatory and enforcement lifecycle.

High-yield bond lawyer, Haden Henderson, joins the London practice from Baker McKenzie, where he has spent the past five years as a partner. He offers clients advice regarding private equity funds, corporations, investment banks, credit funds on high-yield bond offerings, committed leveraged finance transactions and bond restructuring.

Freshfields’ financing and capital markets partner, Aled Batey, explained the rationale behind Henderson’s appointment: ‘The private capital group is an area of real focus for the firm, so we have been investing in our leveraged finance team across our network, and Haden forms an important part of that ongoing investment. The team has grown materially over the last two years, both from internal promotions and lateral growth, including Carol Van der Vorst in London and Allison Liff and Damian Ridealgh in New York.’

Ridealgh joins from Weil and is sought by private capital clients, including private equities, credit funds and financial institutions, for his expertise on capital solutions, special situations and liability management transactions. He has represented key clients, such as Hayfin Capital Management, CPPIB Credit Investments, Blackstone and Blue Torch Capital.

Shearman’s merger partner, Allen & Overy (A&O), also experienced a setback in the US, as Paul Hastings acquired its structured credit team and hired New-York based partners Nick Robinson and Tracy Feng – who have both spent around four years at A&O – to lead the team, which also includes several associates.

The firm also experienced a loss in Italy. Nunzio Bicchieri, its former head of project finance, has left to join Norton Rose Fulbright as a projects partner in its Milan office.

But A&O invested in its infrastructure and energy practice with the addition of M&A partner Ed Holmes in London. He joins from CMS where he built up deep experience representing financial sponsors and corporates on a wide range of matters, from acquisitions and disposals to restructurings.

Ashurst continued its hiring spree, announcing the appointment of Whitney Lutgen as a partner in its investment funds practice in London. Lutgen joins from MJ Hudson, a management consultancy firm, where she co-led the funds team for five years. Prior to that, she gained experience as an associate in Kirkland & Ellis’ private funds group, working in both London and New York.

Also in the energy space, Clifford Chance hired seven Houston-based partners to join a new energy-focused Texas office as part of its US expansion plans. The hires include Jonathan Castelan and Trevor Lavelle, who both join from Latham & Watkins, Jones Day partner Alexandra Wilde and Kirkland partner Enoch Varner. See ‘Clifford Chance names Cohen first New York managing partner amid fresh bid to crack America with Houston office opening‘ for more on CC’s US developments.

Mayer Brown also made moves in this area, snapping up King & Spalding partner Richard Nelson for its global energy group in London. Nelson has spent time working in Singapore, both during his eight-year stint at King & Spalding and when he was a partner at Herbert Smith Freehills for the six years preceding that.

Elsewhere in the City, finance and restructuring lawyer Greg Campbell joined O’Melveny from Gibson Dunn in April. The firm said his hire would strengthen its corporate finance group in London, as Campbell has deep experience advising public and private companies, banks and private equity funds on leveraged finance, cross-border acquisitions and restructurings.

Paul Hastings recruited respected private equity specialist Samantha McGonigle as a partner. She joined from Farview Equity Partners, a growth-focused private equity firm she co-founded in 2019. Prior to that, McGonigle spent 12 years at Weil and featured in our 2018 piece on female deal stars, ‘Alphas’.

‘There remain significant amounts of dry powder in private equity, and 2022 was another record fundraising year, meaning deals will be highly competitive.’
Samantha McGonigle, Paul Hastings

Speaking of the market trends over the next few months, she said: ‘There remain significant amounts of dry powder in private equity, and 2022 was another record fundraising year, meaning deals will be highly competitive. I also expect bolt-on acquisitions to be popular with portfolio companies as they continue to build out their platform investments, and an increase in the volume of take-privates, given public market uncertainty and inevitable valuation reset.’

Sidley also made moves in the private equity sector with notable hires. The firm recruited Ramy Wahbeh, the former deputy head of Paul Weiss’ London office, and Kaisa Kuusk, a corporate partner. Wahbeh and Kuusk will now contribute their expertise to Sidley’s private equity and M&A practice in London. Eight new partners have been added to Sidley’s London office in 2023 across a range of teams, including laterals James MacArthur, Ed Freeman, Philip Cheveley and Kieran Sharma.

White & Case hired antitrust partner Michael Engel from Kirkland & Ellis. Engel, who is dual-qualified in the UK and Germany, had been a partner at Kirkland since January 2021 and, before that, was at Sullivan & Cromwell for a decade. He advises on the full scope of EU, German and UK-governed competition issues.

Speaking to Legal Business about his new firm, Engel said: ‘The firm is well placed to advise clients as they respond to toughening competition scrutiny and enforcement, such as competition authorities finding new ways to take jurisdiction over transactions falling below traditional notification thresholds and looking at new theories of harm when assessing transactions for substantive concerns.’

Meanwhile, Kingsley Napley has launched a new restructuring and insolvency practice. Leading the practice is Daniel Sejas, who assumes the role of head after serving as the national chair of restructuring and insolvency at HCR Sprecher Grier.

Sejas also brought with him a team of his former colleagues, including Nicholas Hughes, who joins Kingsley Napley as a partner, and Marieta van Straaten, who will join as legal director.

Restructuring was also a focus for Addleshaw Goddard, which hired Taymour Keen as structured finance partner in London. He joined from Weil where he spent seven years.

Keen said: ‘My decision to join was inspired in part by growth realised in the team at [Addleshaw Goddard] both in its capacity and capabilities in the finance service sector.’

Internationally, Ropes & Gray’s Asia head of restructuring and special situations Daniel Anderson has left the firm after 11 years, which marked the end of the firm’s restructuring capabilities in the region. He moved to Freshfields along with a team of associates.

Akin Gump also lost Naomi Moore, who moved to DLA Piper to head its restructuring practice. Moore brings with her more than two decades of experience in cross-border insolvency, special situations, distressed debt and private credit and will split her time between Sydney and Hong Kong.

elisha.juttla@legalease.co.uk

The post Departures from Shearman and Allen & Overy as merger is unveiled and energy dominates lateral hiring appeared first on Legal Business.

The proposed merger of A&O and Shearman & Sterling has got the market talking about the biggest news in the legal industry for decades. LB finds commentators sanguine on the deal – but management will have much work garnering partner support this summer ahead of the vote.

‘Allen & Overy and Shearman & Sterling to create the first fully integrated global elite law firm,’ proclaims the 21 May joint statement from the two firms, stating their intent to merge to create Allen Overy Shearman Sterling. Thankfully, the branding gurus also came up with the far snappier (and not quite so ampersand-devoid) A&O Shearman, ‘for short’. The combined firm would boast 3,900 lawyers across 49 offices and roughly $3.4bn in combined revenues.

The news was a lot to take in on a Sunday evening, not least because all but a handful of partners in the inner circle had believed Shearman’s merger prospects to be thwarted when talks with Hogan Lovells fell over on 2 March. Those failed talks prompted an announcement that Shearman’s global head of litigation Adam Hakki would succeed David Beveridge as senior partner, even as partner exits continued apace.

Few in the industry suspected that another prospective merger partner waited in the wings, much less one of the size and prestige of A&O. While the dust has started to settle on news of the deal, it remains the hottest topic around watercoolers in the City. LB canvassed market reactions around the Square Mile.

Formerly known as the Magic Circle

‘[The merger announcement] was a bit surprising in terms of the name,’ says Samantha Thompson, former head of legal M&A at Anglo American. ‘A&O is quite different than Hogan Lovells as a proposition.’

Thompson’s views are in accord with many senior sources: ‘It’s reshaping Big Law. If the merger goes ahead, it will transform what is, potentially formerly, known as the Magic Circle.’

‘It’s reshaping Big Law. If the merger goes ahead, it will transform what is, potentially formerly, known as the Magic Circle.’
Samantha Thompson, formerly of Anglo American

Of course, the ramifications for Freshfields, Clifford Chance (CC) and Linklaters of such a market-defining play by one among their ranks are not lost on pundits. One former A&O partner puts it simply: ‘It throws down the gauntlet.’

Zulon Begum, partnership expert and CM Murray partner, notes: ‘I’d be very surprised if management at other Magic Circle firms aren’t keeping a close eye on this.’

Inevitably, many in the market draw parallels with the last comparable transatlantic merger, that of Rogers & Wells and CC, a takeover so disastrous it could hardly be counted as a raging success. Indeed, that paradox – the need for a US breakthrough coupled with few substantive moves towards a US tie-up – bears testament to how difficult these deals are to pull off.

As Sebastian Prichard Jones, Macfarlanes’ senior partner, notes: ‘The perception has been, possibly wrongly, that the larger London-headquartered firms have been defensive. They’ve been under attack by US firms, and they’ve retreated. However, this is a show of confidence from a member of the Magic Circle. It’s a decisive move, and it shows that A&O has a lot of confidence in its own future.’

While detractors may point to Shearman’s perceived faded glory to undermine A&O’s choice of partner, less churlish commentators concede that the Wall Street firm is still a formidable force, particularly in New York finance. Christopher Saul, former Slaughter and May senior partner and now managing director of Christopher Saul Associates, describes Shearman as ‘a charismatic brand’.

There are also obvious questions around practice areas and what, if any, transformational additions will be made.

As Prichard Jones observes: ‘It’s an interesting question as to whether they’re focused on the practice areas they already have or the ones they’re targeting. Both firms are perceived to have major strengths in a range of areas, particularly finance. But the messaging is clearly that they want to take the fight to the major US firms in areas where those firms are currently perceived to dominate. In particular, private capital.’

While A&O and Shearman’s press release refers to private capital only in passing as one of the ‘global macro trends’ the combined firm ‘will be perfectly positioned to capitalise on’, few doubt that they will make it a focus for investment, given that private equity is widely viewed to be the missing lucrative piece for both firms. Indeed, some suggest that PE stars at top US firms might be drawn by the jurisdictional and sectional breadth that A&O Shearman could provide.

For those expecting this to pave the way for a slew of transatlantic tie-ups, it is worth remembering that the partnerships of both A&O and Shearman have been primed for such a deal for some time, the Magic Circle firm from its protracted flirtation with O’Melveny & Myers that ended in 2019 and Shearman from its abortive talks with Hogan Lovells.

As one former A&O partner asserts: ‘I don’t think there’s any other firm that could have done this merger so quickly. The reason A&O could do it, and could put it to the partnership with a high degree of confidence, is because the partnership is well used to this idea.’

‘It doesn’t necessarily make any other sizeable transatlantic mergers more achievable,’ argues Saul. ‘The Shearman situation is unique, given that they had their failed combination with Hogan Lovells, and were clearly keen to find another deal.’

Do or die

However, it is painfully apparent that now is the time for peers to nail their US colours to the mast, or risk stagnating to the point of retrenching in America.

Says Prichard Jones: ‘If it goes well, it’s positive from the Magic Circle’s perspective. It shows that they can pull off a US merger, that they can insert themselves into Wall Street. Other firms might say, okay, this has happened, we need to find a way.

‘There are some US firms, and potentially Magic Circle firms, who are going to be incentivised to match the heft of this beast that’s been created. So that might produce a more amenable series of negotiations than the market might otherwise expect.’

And it does seem like too much of a coincidence that Freshfields, a firm which has had a patchy track record on the US lateral front, has heralded eight US hires hot on the heels of the A&O Shearman merger news. These include the hires in New York of financial institutions and fintech regulatory expert David Sewell from Perkins Coie and private capital specialist Damian Ridealgh from Weil.

‘I’d be very surprised if management at other Magic Circle firms aren’t keeping a close eye on this.’
Zulon Begum, CM Murray

CC too has been quick to demonstrate dynamism, announcing a ten-partner office in Houston, bolstering its US energy and infrastructure offering.

A&O and Shearman partners still need to vote in favour of the merger, with a 75% threshold meaning that management will have much work ahead to get stakeholders on board.

Several senior sources reacted with surprise that the deal was announced before the vote, however packaging this up in such a slick way – with a brand, a video and even a website – is a shrewd move and arguably the most persuasive way to get buy-in internally.

Saul points to the ‘eminent advisers’ involved – Lazard as financial adviser, Simpson Thacher as legal counsel for A&O, and Davis Polk for Shearman. ‘It speaks to the seriousness of the intent,’ he says.

Thompson agrees: ‘It seems a tactical bit of M&A. Get the news out, give a sense of where things are going and make it clear that there was significant work going on behind the scenes.’

The firms also this way retain control of the narrative. ‘Most of these deals fail if they leak too early,’ asserts one former A&O partner. ‘You lose control. People form into factions. Partners hate finding things out in the press before being told. But this one didn’t leak.’

And both Shearman and A&O have been burnt before. ‘This surely reflects a desire on A&O’s part not to have the never-ending saga that it had with O’Melveny,’ says Saul.

Thompson makes a similar point on Shearman. ‘I suspect the firm didn’t want some of the speculation there was around a potential Hogan Lovells deal. It’s great if you get positive press, but if you start getting speculation you can spook not only the market, but clients and other stakeholders as well.’

A former A&O partner agrees: ‘The Hogan Lovells merger was a classic example. It leaked, and then suddenly the whole thing was being conducted in the public domain. It’s impossible. Everyone forms their opinions very quickly. And opinions, once formed, are difficult to change.’

Professional pessimists

Now, leadership at each firm must convince what one former partner at A&O refers to as a group of ‘professional pessimists. They’re looking to find fault, as they would with anything – and rightly so.’

That the merged firm intends to use an iteration of A&O’s existing modified lockstep is also a signal to the market that some of the hardest yards of any such deal have already been done.

‘The equity ladder will be stretched a bit more’, says a partner with visibility on the situation, ‘with more at the top end.’

This will have been facilitated by alignment in certain metrics. A&O’s profit per equity partner stands at $2.7m for the 2021-22 financial year, while Shearman recorded $3m in 2022.

Assuming that Shearman’s top earners take home significantly more than A&O’s, A&O senior partner Wim Dejonghe (pictured) and Hakki will need to effectively harmonise compensation structures to appease their respective rainmakers ahead of the vote.

Other potential sticking points include difficulties around Shearman’s pension liabilities, which many suggest proved insurmountable in the talks with Hogan Lovells.

Notwithstanding the inevitable hurdles of striking such a deal, it would be churlish – and short-sighted – for partners to block the combination.

As one ex-partner at A&O asserts: ‘There could be loss of partners on both sides, but you’ve got to look at the big picture. There are going to be 800 partners in this firm. If A&O and Shearman lose 50, they’ll only be down to their last 750.’

For now, most in the market are sanguine. ‘I hope it’s successful’, says Thompson. ‘If I’m thinking about a big, strategic, multijurisdictional transaction, this merger would mean I could credibly go to one firm for top-end advice in both London and New York.’

And, as Prichard Jones concludes on a nostalgic note: ‘It’s a sign of the Magic Circle getting its mojo back. It reminds me of the 1990s, when the firms were expanding through Europe. You could feel the energy coming off them. And you can feel the energy around this now.’

alexander.ryan@legalease.co.uk

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Easily the most enjoyable part about analysing the proposed merger of Allen & Overy and Shearman & Sterling has been hearing the reactions of leaders at peer firms around the City on the video featuring senior partners Wim Dejonghe and Adam Hakki on the new A&O Shearman website.

Hot-take reactions from the c-suite around the Square Mile have been telling and often amusing. Says one US firm leader: ‘It’s clearly not a merger, is it? It’s a takeover of Shearman by A&O, isn’t it?’ That is a point echoed by many, and it certainly does feel like A&O’s Dejonghe is in the driving seat of what is undeniably a very slick pitch, even if it does at times look like Hakki is in a hostage situation with Stockholm Syndrome.

Indeed, the fact that the announcement is conveyed in the language of dealmaking is not lost on most, as another US leader remarks: ‘This has been presented to appeal to the partners of both firms because it looks like a proper M&A deal. It’s the same language – “subject to customary closing conditions,” and with a financial adviser and independent legal advisers. That has to be part of the strategy to win the voters over. They are all shareholders.’

Several sources have noted surprise that the deal was announced before the vote this summer, which would require 75% of the partners at both firms to get behind the deal. Clearly, there are dangers in assuming this is a fait accompli and it might be worth the firms lowering that high threshold if they haven’t already, as one London managing partner suspects they have.

That commentator also cynically points to the staggering amount of times Dejonghe and Hakki insist this transaction is all about the clients (you could play a dangerous drinking game for every time they mention ‘clients’) but let’s look at the real motivations behind this deal.

The numbers are compelling enough to make even the most hard-bitten sceptic concede that this merger must happen, for the sake of both firms. The tie-up would see 3,900 lawyers operating across 49 offices and generate around $3.4bn in combined revenues, putting A&O Shearman fourth in the current Global 100 table, between DLA Piper and Baker McKenzie.

However, revenue per lawyer would be $872,000 – less than RPL at A&O and Shearman separately ($1.1m and $1.4m respectively) and over $1m per lawyer less than both Kirkland and Latham and significantly less than many of what might be considered ‘global elite firms.’

But profits are aligned, with PEP at A&O $2.7m, while the average partner at Shearman is taking home around $3m. This means that full financial integration, the thorn in the side of many a law firm merger, will be much easier to pull off, especially as the firms have agreed on a compensation model that moves A&O further away from a pure lockstep, a process that has been in train for about a decade.

Indeed, A&O voted through reforms as recently as 2020 in a bid to increase rewards for star performers even as the assault from US competitors continued to take its toll on London’s big four international firms.

Many commentators point to the strong pedigrees both firms have in their home markets, and this is evident in the data. In the US, A&O Shearman has the potential to enjoy top-tier rankings in The Legal 500 for securities litigation and project finance, and second tier rankings in key areas such as antitrust, disputes, capital markets and tax. However, for M&A (large deals) the firm would only be ranked in the third tier, tier five for restructuring, and would not be ranked at all for private equity.

The UK rankings would be much stronger. Tier one rankings would abound in numerous areas within finance, as well as restructuring, TMT and energy, while tier two rankings would apply to commercial litigation, big-ticket M&A and tax. Crucially, A&O Shearman would also be in the chasing pack for private equity.

You have to hand it to Dejonghe for not allowing his US merger imperative to be thwarted by the whimpering end to the merger talks with O’Melveny & Myers in 2019. If anything, that experience will mean that a lot of the hard yards have already been done to prime the partnership for what, don’t forget, would be only the second US merger for a Magic Circle firm ever (if Clifford Chance’s disaster-strewn takeover of Rogers & Wells 20 years ago really counts).

While one London managing partner damns the combination with faint praise: ‘It would be wrong to write this off as a hopeless or desperate merger,’ they have a point. These two firms have come of age and grown stronger with the battle scars, not least those born by Shearman after its damaging failed merger talks with Hogan Lovells, which prompted a string of high-profile exits in recent months.

As we pointed out when the O’Melveny talks collapsed, the only transatlantic deal that the Magic Circle globalists were ever going to strike was with a firm in decline. Shearman is certainly that, which is the reason it has swallowed its pride to countenance this deal at all.

We have known for some time that, with the insidious creep of thrusting US firms in the City, the term Magic Circle was becoming obsolete. Now it can safely be said that A&O Shearman heralds the death knell of the Magic Circle. It’s extremely difficult to imagine how Clifford Chance, Freshfields or Linklaters can meaningfully respond to this, a deal which would place A&O on the trajectory to becoming the world’s top UK-based law firm.

While there is clearly much to be done in terms of financial due diligence and the ironing out of issues relating to Shearman’s pension liabilities, time will be of the essence. A long courtship never works, so Dejonghe and Hakki would be well advised to work quickly on getting buy-in from rainmakers and locking them in as soon as possible, while not dragging their feet on the vote. Once the stars are aligned, the rest will inevitably fall into place.

A merger of two historic brands does not create a market leader overnight, but it is heartening to see that Dejonghe and Hakki are addressing the problems posed by market forces with the only viable solution. Let’s hope it works this time around.

nathalie.tidman@legalease.co.uk

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