"Compelling synergies" between two Big Law firms not enough to cement merger deal
Attempts by City-based legal giant Allen & Overy to enter the US legal market have collapsed after 18 months of talks with US – based O’Melveny & Myers and evidences the structural differences between US and UK law firms.
Allen & Overy said in a statement that “compelling synergies” were not enough to finalize the deal with the LA-based O’Melveny even though A&O is strongly focused on building a US presence.
The Financial Times reported that the end fo the deal brings to an end 18 months of talks and means that Allen & Overy, with revenues of £1.6 billion last year, has lost a crucial leg-up into the US market.
“Allen & Overy deserve credit for attempting this merger,” said Charlie Geffen, a senior lawyer at Gibson Dunn and previously senior partner at Ashurst.
“But it proves how difficult it is for these conversations to work. It is an illustration of the challenges that UK firms have in breaking into the US.”
“There is no real incentive for a large US firm to do a UK merger,” he added.
The Allens-O’Melveny deal fell over as a result of valuations of the businesses, an issue made more difficult with the Brexit uncertainties, along with currency fluctuations.
There were also the usual issues with governance, the name of the proposed merged firm and the all-important remuneration structure for the new firm, which was where A&O’s more traditional lockstep pay model was headbutting with O’Melveny’s more flexible pay structure.
Part of the attraction for UK law firms is the attractive and highly remunerative work for obtaining mandates on US mergers and private equity work, which will traditionally go to US law firms.
And the two main sticking points for achieving successful mergers with law firms is the pay structures and governance structures between US and UK law firms.
Overcoming those issues will be a key issue as firms look to build major entities that can tackle the biggest deals in a world facing increasing political and economic challenges.