Allen & Overy and Shearman partners vote through merger

Partners at “magic circle” law firm Allen & Overy and New York’s Shearman & Sterling have voted overwhelmingly in favour of a merger between the two groups, clearing the path for one of the industry’s biggest-ever tie-ups.

The merger, which creates a legal giant with roughly $3.5bn in combined revenues, will push ahead after more than 99 per cent of partners on both sides backed the plan, according to a statement from the firms on Friday. The deal creates an outfit with nearly 4,000 lawyers in total.

“This is a historic moment for both firms and our profession,” said Wim Dejonghe, senior partner at Allen & Overy, in the statement. “We are delighted that our partners have voted so resoundingly in favour of this merger, which is a transformational step for the legal industry.”

The deal, announced earlier this year, is the first between one of the UK’s so-called “magic circle” firms and a US rival in more than two decades, and creates one of the world’s biggest law firms by revenue. Allen & Overy will be hoping the merger can give it a leg-up in America, where UK law firms have long struggled to gain traction in a market dominated by a group of top tier US law firms.

For New York’s Shearman, the deal brings an end to a tumultuous period that saw the firm lose a number of lawyers after merger talks with Hogan Lovells fell apart earlier this year. The firm, which is dwarfed in size by Allen & Overy, has also undergone a restructuring aimed at boosting its profitability.

The new firm will be known as A&O Shearman, with the tie-up set to close by May 2024. The firm has not disclosed how management will be structured.

The deal came together in a matter of weeks after Shearman’s senior partner Adam Hakki called his Allen & Overy counterpart Dejonghe not long after the US firm’s proposed merger with Hogan Lovells collapsed in March. For Allen & Overy, it brought a fresh opportunity to seal its American ambitions after merger talks with California-headquartered O’Melveny & Myers failed four years ago.

Nothing has yet been communicated about exactly how the profit structures of each firm will be merged, even privately, according to one senior Allen & Overy partner, who described the mood as “excited”. Equity partners at Shearman took home $2.48mn in average profits last year, compared with £1.82mn for partners at Allen & Overy. Both firms have said previously that their pay structures would not be difficult to knit together.

The new outfit will operate a so-called modified lockstep pay model, according to an Allen & Overy spokesperson, which involves elements based on performance and on time served.

Shearman, a well-known 150-year-old firm that once advised the cream of corporate America, is the far smaller entity, with $907mn in revenues in calendar year 2022 and about half of Allen & Overy’s more than 40 offices.

The merged firm will have 48 offices and about 800 partners. The firms confirmed that they will be consolidating their offices in those places where they both have a presence.

Partners had two weeks to vote on the deal.

David Morley, a former A&O senior partner, said the high level of support from both sides “augurs well for their future together”.