Since the US law firms starting moving into London in a big way, the Magic Circle firms have to some extent needed to play catchup, particularly when it comes to paying the sort of money that the US firms adopt with their “Cravath Scale” payment schedules and bonuses.
However now, the London-based Magic Circle firms are making strong moves to push back beyond their European bases and more into the global market, taking on their large, mainly US-based competitors.
The Financial Times reports that Freshfields Bruckhaus Deringer, Clifford Chance and Allen & Overy are engaged in the expensive process, including poaching legal stars with major paydays in markets like Los Angeles and San Francisco.
The expansionary moves started in 2019, but there are substantial risks attached to their moves as their wealthy US competitors have already demonstrated the attempts they will go to in order to attract legal talent with the pay wars they opened back on the Magic Circle’s home turf.
The London law firm pay wars have spiraled to unheard-of heights and put pressure on the firms notwithstanding their highly profitable times during COVID and since.
Tim House, US senior partner at Allen & Overy, does not underestimate the hurdles facing the UK-based insurgents. “[The US] is a very sophisticated, very deep market well served by high-quality firms who’ve had very strong relationships with US-headquartered clients so that’s a market that is challenging to [break into], coupled with the fact [US law firms are] extremely profitable and have [operated] a different remuneration model,” he told the FT.
They also have deep relationships with American companies that are hard to muscle in on. Since abandoning a merger with US law firm O’Melveny & Myers in 2019, Allen & Overy has backed its American ambitions with investment. The firm has opened offices in Boston, San Francisco, Los Angeles and Silicon Valley since 2021 and recruited 40 partners in the United States in the past two and a half years.
Ethan Klingsberg, who was lured by Freshfields from US firm Cleary Gottlieb Steen & Hamilton with a reported $10mn pay deal, smashing its previous pay ceiling in the process, says the expansion is paying off. Freshfields is “competing and unseating folks . . . And the folks we’re boxing out are not UK firms, it’s [top US firms] Wachtell [Lipton, Rosen & Katz]; Sullivan & Cromwell; Paul, Weiss [Rifkind, Wharton & Garrison],” said Klingsberg.
“The point [of the US strategy] wasn’t just to hire a couple of people who’ve done a lot of deals but to build a platform with broad depth.” The London-based global firm secured a role in 2020 on drugmaker AstraZeneca’s $39bn acquisition of US pharma group Alexion Pharma, one of the biggest deals of the year.
Under new senior partner Georgia Dawson, the almost 300-year-old legal institution has poached 20 US partners since 2020, including five from leading law firms like Latham & Watkins, to launch a Silicon Valley office as it targets a share of the work generated in the world’s tech capital.
According to Bloomberg data, Freshfields was one of the top 10 legal advisers on US M&A last year, working on $164bn of transactions.