Allen & Overy’s proposed merger with Shearman & Sterling is taking the legal world by storm, putting immense pressure on top global law firms. This $3.4 billion merger has signaled to law firms around the globe that, in order to stay competitive and be the best, they must consider merging.
How has the merger been received within the firms?
In a webinar conducted by Law.com International on “The Future of Law Firm Mergers Around the World,” four experts, Chris Saul, Lisa Shuchman, Paul Hodkinson, and Patrick Smith, discuss the proposed transatlantic merger between UK-based Allen & Overy and US-headquartered Shearman & Sterling and its ripple effects on the legal market.
Despite Shearman & Sterling’s reputation as a law firm that has lost some of its appeal, it is still a renowned brand that Allen & Overy will now have access to. It also provides Allen & Overy with many more lawyers in the American and international markets and places a lot of pressure on magic circle firms to consider making a move like this one.
For Shearman & Sterling, it seems that this merger came at a great time. Before this, the firm was dealing with hard financial times. One thing to watch out for, though, is what happens to Shearman & Sterling partners. Will they continue to have a place at the firm if this merger goes through, or will they start to be pushed out?
The consensus among those within the two firms seems to be positive, but they still must get through a vote in October with a ¾ majority in favor of merging.
What does this mean for everyone else?
Within the last five years, there has been an increasing fear that many law firms in the industry are becoming too large to compete with. Firms such as Latham & Watkins and Kirkland & Ellis are reporting more than $6 billion in revenue. Global firms with revenues around $3 billion are not being viewed as behemoths in need of destruction. Instead, eyes are diverting to larger firms.
The solution that many of these firms have come up with is merging. Allen & Overy and Shearman & Sterling’s proposed merger demonstrates a huge development in the market, and other firms will likely begin to follow suit.
Firms such as Ashurst, Herbert Smith Freehills and Simmons & Simmons have been interested in a deal with a US law firm. Only time will tell if this plays out. CMS and Clyde & Co. are two other firms that want to grow but don’t have a large presence in the US. This merger shows that it is possible for other firms to merge in this economy and puts pressure on them to get it done as quickly as possible.
What about other international mergers?
There has been immense growth in the legal market in Singapore, and many international law firms have entered the scene. This has had a large effect on domestic firms, as the five to six top law firms in Singapore had virtually no competition for years. Given the increase in international firms in Singapore, it has become clear that smaller firms need to start looking to merge.
After more than two decades, India has finally liberalized its legal market. In doing so, many international firms have started to move in due to the huge economic opportunity this poses, and Indian firms will likely have to consolidate. Many of the large Indian firms currently have a succession issue because they are family-run. This has led them to begin talks about mergers.
Given the abundance of work in energy and IP law, many US firms that specialize in these fields or have large energy or IP practice areas could be targets for a new merger.
For other UK firms that want to merge, Paul Hodkinson says they’re going to have to consider lesser-known firms that are successful in the US. Even though these firms may not have brand recognition outside of the US, they still provide a lot of value to UK firms. With the competition getting fiercer and the pressure getting higher, who will be next in the race to merge?
*** Morgan Weber is an incoming third-year at the University of Virginia. She is double majoring in Media Studies and American Studies. Morgan is interning with Robus through a two-month intensive Onward abroad program where she has learned many skills that will aid her in her dreams of becoming a TMT consultant.
