Proposed A&O, Shearman merger sets legal market abuzz in Asia

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Firms remain tight-lipped ahead of vote to approve move, but experts say talent retention and reassuring partners and clients tops agenda

A planned merger of UK magic circle law firm Allen & Overy and American counterpart Shearman & Sterling has the legal market buzzing on whether partners will accept the proposal and if there will be any fallout in Asia.

The law firms revealed their plan to form a novel global entity named Allen Overy Shearman Sterling, abbreviated as A&O Shearman, marking the most ambitious firm merger to date and creating one of the largest law firms by fee income with an estimated revenue of USD3.6 billion.

The merger, which is subject to 75% approval from the firms’ partners, will create a new firm with around 3,900 lawyers and 800 partners across its 49 offices globally, combining 250 years of experience.

“It seems to have happened very quickly, but it is certainly exciting for both firms overall,” Jamie Hughes-Martin, Hong Kong-based director at legal recruitment company Jameson Legal, told Asia Business Law Journal. “It is being pitched as an equal merger but there is no doubt that, while Shearman is a fantastic firm, Allen & Overy is larger and likely to be the more dominant of the two.”

The law firms’ leading partners in Asia have remained tight-lipped on developments, with the crucial vote to come. Another reason may be an expected wave of headhunter approaches banking on any partners not happy with the merger being keen to move on.

Tony Williams, principal at Jomati Consultants ‒ a UK-based international management consultancy specialising in the legal profession ‒ flags an inevitable wave of headhunters seeking disgruntled partners, but he doesn’t see any particular challenges to Shearman’s Asian offices post-merger.

“Shearman’s line will be that the firm has had good success and is re-examining where it’s going, but I think they’ll present this to the firm [partners] as something with momentum, and a transition that will encourage their talent to stay at the firm,” said Williams, who is based in London but has years of experience in Asia as a partner based in Hong Kong.

“As with every merger the headhunters will now be active, but the response in general to this merger is that it has peaked interest – there is an element of momentum around it suggesting the firm is moving forward, and if they can pull this off then that will suffice [in retaining talent].

“There shouldn’t be any particular problems regarding the firms’ APAC offices. It’s not a merger driven by APAC. It presents a clear message, with about 30% US, 30% UK and perhaps a 15% APAC breakdown ‒ all important parts of a USD4 billion firm.

“I think this deal is about producing a globally balanced top-tier firm … they are aiming to create a truly global law firm,” he says.

Although the high-level discussions will have taken place, getting all 800 partners on board and through to implementation will be no easy task, said Jonathan Walmsley, managing director at legal search and recruitment specialist Marsden Australia in Sydney.

“For lawyers in the Asia-Pacific region, this merger is likely to increase opportunities for prestigious secondments and transfers to US offices, which will guarantee a New York salary and will be highly sought-after positions,” he says.

From the perspective of attracting talent, Walmsley said the combined firm had to be a more attractive platform for those lawyers excited by cross-border work and global reach. In Asia, the combined firm would be stronger in core areas of capital markets, finance and projects, corporate, and international arbitration in particular.

The addition of Australia to the Shearman network will be potentially advantageous when going head-to-head with US firms without a presence. However, Allen & Overy adds Thailand, Vietnam and Indonesia to the Shearman network and gives top-tier US coverage to more developing markets where very few US firms have penetrated through having a physical presence, and where the potential for future revenue growth is high.

“Outside of Allen & Overy, Shearman partners will be questioning their own firm’s strategy and asking if they should be doing more to expedite growth, or reviewing their own missed opportunities to merge,” said Walmsley.

“Their partners will be looking to management for reassurance that their firm is on the right path. Some partners will be envious of this mega-merger journey and will want to be in pursuit of faster growth. Others will think this will be a huge disruption and distraction and will consume too much energy.”

In all regions, including the Asia-Pacific, Walmsley anticipated law firms would be looking for any potential opportunities to capture new clients that spilled out of the merged firm, or to take market share from distracted partners focused on integration issues.

Both firms were contacted by Asia Business Law Journal about the planned merger and new strategies in Asia, but a spokesperson for both firms said no specifics would be provided on regional implications at this stage.

Hughes-Martin said he expected the new behemoth would naturally be quiet in terms of associate and lateral partner recruitment for a few months during the bedding-in period. “As the dominant firm, I would expect salaries to remain on the Allen & Overy scale for the firm in Asia going forward, but will likely keep existing salaries or contracts as is,” he said.

Shearman & Sterling and Allen & Overy were previously reported to have sought other mergers to tap into wider markets. In 2018, Allen & Overy discussed a possible merger with American law firm O’Melveny & Myers, but scrapped the plan the next year.

In December 2022, Shearman & Sterling started early-stage merger discussions with London-headquartered Hogan Lovells, but called it off in March. During this time, several Shearman partners in France, the UK, and Germany left for rivals such as Gide Loyrette Nouel, Sidley Austin and Gibson Dunn.

“Evidently, the talks between Shearman and Hogan Lovells were more fractious, not helped by the discussions being made public, which seems to have led to a series of partner departures before and after talks fell apart, while this [merger with Allen & Overy] appears to have been a much smoother process,” said Sam Kenworthy, director and head of private practice at legal recruitment consultancy Hughes-Castell in Hong Kong.

Kenworthy agreed that the merger between Allen & Overy and Shearman & Sterling wouldn’t result in significant disruption in the long term although it is common to see some departures from both legacy firms following such a large merger.

“If some leading partners from either side are disenchanted with the merger, then obviously peer firms would take an interest, but I suspect we would have seen some movement in the lead-up to the announcement if that were the case, or in the immediate aftermath of the announcement,” said Kenworthy.

“Other firms will be looking at how the new firm sets a strategy for Asia with great interest, but I don’t think their immediate rivals will deviate from their own Asia strategies,” Kenworthy added. “It will have more of an effect in London and New York.”

Hughes-Martin, of Jameson Legal, said that following such mega-mergers, an ongoing effect on the legal industry may be other similar moves between large US firms and the remaining magic circle law firms for fear of being left behind. “But a cautious approach may be more likely with firms looking to see how this merger works out before making such a big move,” he added.

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