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Fear or Greed: Why Law Firms Merge

There are a multitude of reasons why law firms may decide to merge. Firms may want to increase their revenue, expand their geographical footprint, or diversify their areas of expertise. However, at the centre of these decisions lie two intrinsic emotions: fear and greed.

On one hand, having leadership in a firm can be fearsome. This could be driven by a challenging economic environment, falling revenues, or a sense of falling behind competitors. In such cases, merging with another firm could help solve these problems.

On the other hand, firm leaders can be greedy. Even if a firm is already successful, the appeal of increasing revenues, enhanced expertise, or geographical reach can be powerful motivators to merge. Therefore, merging with another firm could result in an increase in office locations, a broader range of practice areas, and most likely revenue growth.

The top five UK law firms by revenue are currently DLA Piper, Clifford Chance, Hogan Lovells, Allen & Overy, and Linklaters - all of which throughout their history have had multiple mergers. Law firms merging is a very common practice, observed during both periods of economic prosperity and economic depression.

Recently, as the Big Four enter the legal sphere, acquisitions of law firms have been taking place more frequently. EY acquired Riverview in 2018, Deloitte acquired Kemp Little in 2020 and with both PwC and KPMG planning to double their legal teams, perhaps more acquisitions are on the horizon. In terms of the duality between fear and greed, it is clear that the Big Four are eager to become full-service firms for their clients and are investing heavily into creating competitive legal arms.

The most recent headlining merger involved Magic Circle law firm Allen & Overy and American multinational firm Shearman & Sterling. The proposed merger, announced in May 2023, aims to create ‘the only global firm with U.S. law, English law, and local law capabilities in equal measure.’ The press release cites several key factors for the mergers including the desire to better meet the global needs of clients, strengthen Shearman & Sterling’s international presence, and improve Allen & Overy’s U.S. presence. The firms feel that their similar cultures and excellent reputations make them a good fit for this type of partnership.

The two firms are currently working through merger negotiations, with a formal merger still subject to a partner vote. In the meantime, the legal community has been discussing and presenting their opinions on this proposed merger and its motivations.

Whilst the press release indicates that both firms are excited about the merger, David Wilkins of Harvard Law School notes “It’s not going to be easy…Frankly there is almost no such thing as a merger of equals,”.

Wilkins’ comments are accurate when discussing the A&O Shearman merger, where this year A&O’s revenue increased and exceeded £2 billion in the year ending April 2023 whereas Shearman & Sterling saw a 10.6% decrease and revenue dropped below the $1 billion mark. This recent news illustrates two firms with contrasting financial situations. While Allen & Overy are seeing revenue success, Shearman & Sterling are struggling.

Therefore, it could be argued that the A&O Shearman merger is an archetype of the ‘Fear or Greed’ motivation for law firm mergers.

For Allen & Overy, some would argue that this merger is about greed. Allen & Overy is a highly profitable firm with 44 offices in 31 countries. However, their aim to break into the largest global economy, the United States, has not yet been achieved. Regularly referred to as A&O’s ‘American Dream’ across legal and business outlets, a merger with U.S. firm Shearman & Sterling would facilitate the achievement of this goal.

Contrastingly, some would suggest that Shearman & Sterling are merging out of fear. The firm has faced many challenges in recent years from a drop in revenue to failing to retain employees. For example, a 20-lawyer team from the Munich office leaving to join Morgan Lewis in March 2023. The A&O merger announcement came just two months after a proposed merger with Hogan Lovells was called off in March 2023. Arguably, another merger attempt in a short span of time could potentially indicate fear and desperation.

As noted above A&O Shearman is yet to be approved by the partners of both firms, with a vote taking place in October 2023. Shortly, the legal community will know if this is yet another failed merger negotiation for struggling Shearman & Sterling or finally the realisation of Allen & Overy‘s ‘American Dream.’

Regardless of the motivation for the merger, A&O Shearman is set to become the third-largest law firm in the world. This forthcoming legal powerhouse presents an alluring array of opportunities, setting the stage for potential market domination once the initial feelings of fear and greed subside within the newly formed partnership.


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