Just two weeks ago, Magic Circle firm Allen & Overy and US powerhouse Shearman & Sterling announced that they had completed the plans for a merger into A&O Shearman, a new global giant with a focus on both US and English law. Whilst the merger is still subject to a vote by the partners of both firms (75% approval is needed), the news has already rocked a market where long-established firms have held the reins. The resulting firm would encompass 4,000 lawyers across 49 offices, proving to be a major player in the race. Indeed, the last couple of years has seen a significant increase in competition, with firms raising salaries and expanding their teams in a bid to outdo one another. However, whilst such a move may prove beneficial for both firms in this regard, the effects upon both the market and the associates must also be considered.
From Allen & Overy’s perspective, it is not hard to see why such a merger would be attractive. This move allows the firm to quickly develop their US offering to clients, taking over an already established firm rather than engaging in a longer-term plan of natural growth. Given the comparatively larger size of the magic circle side, Allen & Overy are the firm leading the merger. On the other hand, Shearman and Sterling are a US firm that has spent the last couple of years fighting against other giants across the pond, such as Simpson Thacher & Bartlett and Davis Polk (who interestingly were the two firms responsible for representation in this merger). The ability to access a more international market through A&O would prove critical in maintaining their edge within the legal market.
However, it is worth noting that such a merger would have long-lasting implications for their respective lawyers. With regards to salary, there is a £20,000 difference in newly qualified pay for associates (£120,000 for A&O compared to £140,000 for Shearman & Sterling. It is not clear how the firms will reconcile this gap, and trainee lawyers may find their potential earnings for retention changed significantly. Retention will remain a key factor for many associates already at the two firms, as Shearman & Sterling joined other US firms earlier this year in laying off a dozen associates over in the US as well as 26 business services professionals. The resulting merger would cause a seismic shift in the structure of the firms, and it is not clear what the resulting picture will look like.
On the other hand, the increased size of the merged firm may allow for extra opportunities in areas such as secondments as well as different areas of work that were previously not as developed at the two firms. Writing for Legal Business, Mark McAteer points out that the team at A&O would benefit greatly from access to corporate clients in the US, whilst both sides would benefit from being able to ‘capitalise on global macro trends including energy transition, technology, and private capital.’ It is undeniable that this global offering will not only benefit from the pooled resources and clientele but also prove attractive to other clients as well.
This leaves a lot of questions regarding the market that A&O Shearman would find itself in. Allen & Overy has long been one of the five Magic Circle firms in London, and the resulting merge into a US hybrid firm would force the other four firms to adjust their practices in order to remain at the forefront of the market. It should also be said that US firms will be watching this merger intently and that we may see such mergers as commonplace in the next couple of years as firms evolve to survive. For those looking to enter the legal market, the increasing prevalence of an oligopoly in the market will provide less choice for applications. Furthermore, the ability of the mega-firms to take crucial work from smaller outfits may lead to trainees in such teams losing access to high-level clientele in the same capacity as before. A major factor in this regard would be whether the merging of two firms will lead to a trainee intake that is larger, the same, or smaller than the combined intake sizes before the firms merged. It may very well be the case that a reduction in staff will also increase competition at smaller firms, which have more leverage to take on qualified associates from larger firms.
Whilst many questions remain to be answered, the legal market is shaping up to be full of change in the next couple of years. The desire of firms to remain ahead of the curve combined with the consistently changing markets means that nothing is certain, and associates looking to develop a career in private practice post-qualification will have to remain vigilant of such changes. In this regard, we are uniquely placed to help both aspiring and already qualified lawyers make their next move to a firm that is suited to them. If you are interested in seeing what is out there for you, then please feel free to contact myself on 020 3058 1445 for a confidential discussion.