When troubled New York law firm Shearman & Sterling’s merger talks with its transatlantic rival, Hogan Lovells, collapsed in March, Shearman’s Adam Hakki knew who to call.
Days into his role as senior partner last month, Hakki picked up the phone to ring Wim Dejonghe, the long-serving leader of Allen & Overy, one of London’s elite magic circle law firms. In a matter of weeks, the two were cloistered in a Manhattan office hashing out a $3.4bn merger, which — if voted through — will be one of the biggest the industry has ever seen.
For Belgian-born Dejonghe — A&O’s first foreign senior partner and before that, managing partner — a tie-up with a Wall Street firm will be the fruition of a two-decade-long project to crack the most lucrative legal market in the world, leaving its British rivals in the dust. For Shearman, it offers a route out of a torrid period of partner exits and difficult restructuring.
“I’ve known Shearman for a long time. [Hakki] got into the role [and] he knew we were interested,” Dejonghe, 62, told the Financial Times. “The initial conversation was between me and him. After a number of meetings between the two of us, we thought: ‘this might work, actually’.”
Shearman, a storied 150-year-old firm that once advised the cream of corporate America, is the far smaller entity, with $907mn in revenues last year and about half of A&O’s more than 40 offices. But it has long been on Dejonghe’s dance card as a potential suitor because of crossovers in banking and finance.
“It became apparent very quickly that there was a shared vision for what this combination could be and an ability to act decisively,” said Hakki. “We’ve been hugely impressed with Wim and his team.”
Both firms had also learned lessons from previous failed mergers: in A&O’s case, collapsed talks with California-headquartered O’Melveny & Myers, which ground to a halt in 2019 after 18 months of negotiation.
“We knew [if] this leaks before we go to our partners, we’re dead,” said Dejonghe. “So we agreed the only way we could deliver something to [partners] was to sit together in a room for weeks and hammer out all the details.”
With a small core team — including advisers from heavyweight Wall Street law firms Simpson Thacher & Bartlett, and Davis Polk & Wardwell — Hakki and Dejonghe decamped to investment bank Lazard’s offices in Manhattan to pull together what would land on Sunday as a slick announcement, complete with website, client FAQs and video.
Dejonghe’s predecessor, David Morley, credits him for the speed of the Shearman talks, which were executed within weeks. “Very few people could have done this, but Wim has had this clear strategic vision for a long time.”
Morley, who led the firm alongside then-managing partner Dejonghe for eight years to 2016 says: “Wim didn’t wake up yesterday and say: ‘it’d be great to do a merger’…. The firm has been thinking about and debating it for at least two decades, and looking at options . . . So they were ready to move really quickly when this came up.”
Morley and Dejonghe, viewed as a modernising force at A&O, spent years pounding the pavements in New York and on the US west coast in the wake of the financial crisis, dining with law firm leaders in powerbroker hotspot Estiatorio Milos in Manhattan.
“Some people would see us,” says Morley. “Others were frightened of even being seen in a restaurant with us in case their partners saw us or it got into the press . . . We weren’t asking people: ‘do you want a merger?’ — just building relationships and gaining insight.” He said this meant Dejonghe had built up a “pretty good Rolodex of American firms”.
A&O has long had offices in the US. But growing there has not been plain sailing. Like its international rivals, A&O has struggled to break into a market dominated by a pack of highly profitable domestic firms with greater firepower to pay star partners. Wall Street’s top firms tend to be tightly focused, with only a handful of international offices and a pipeline of lucrative private equity and finance work.
By contrast, A&O and its magic circle peers in the UK have sprawling global networks, offering clients a far wider variety of work. That has made them one-stop shops for many corporations, but less profitable than their US peers. Partners at Wall Street firms such as Simpson Thacher and Davis Polk took home more than $5mn on average last year, for example, while M&A powerhouse Wachtell Lipton Rosen & Katz partners pocketed more than $7mn. In contrast, A&O’s partners took home £1.95mn ($2.4mn) on average last year.
Tony Williams, a consultant who was managing partner at Clifford Chance when it merged with American firm Rogers & Wells in 2000, said: “The magic circle have been challenged in the last decade by the strength of the US economy . . . And Brexit didn’t help: sterling is now at $1.23.”
One former high-ranking A&O partner said: “Every magic circle firm has been looking to come into the US market for the last 30 years, and a merger has always been the most logical way but it’s extremely difficult to do. The top American firms have always been much more profitable, which for them is a proxy for excellence.”
He added, “Shearman has had some difficulties over the past few years, and suddenly they were available and there’s an opportunity for a match.”
Vast differences in partner pay made it difficult for UK firms to compete in the US, a problem compounded by the stronger dollar. As a result, under Dejonghe, A&O has gradually chipped away at its so-called lockstep pay structure, where partners are paid according to time served, to pay star performers more.
Dejonghe, who another former partner described as “charismatic and entrepreneurial”, is no stranger to overseas mergers, where marrying two different cultures is vital to success. The corporate lawyer, who has five sons, joined A&O when it tied up with part of Loeff Claeys Verbeke — a Brussels-based firm Dejonghe led as managing partner.
He said the Shearman merger is a “merger of equals” in the same way as that deal. “You can’t say to your future colleagues, we’re acquiring you,” he said. “That’s not the mindset . . . It doesn’t work like that.”
Becoming managing partner at A&O meant leaving Belgium’s cobblestoned streets and its many cycling races. Dejonghe, who cycles to A&O’s Spitalfields office each day, is a veteran of amateur events including the Etape du Tour and the Tour of Flanders.
“I’ve sat in his slipstream going up and down mountains for many years,” said Morley. “We used to tease him that he was good on the flat . . . He used to retort that in Belgium you’re always cycling against the wind. We were always joking with each other; it was kind of a metaphor for the way we worked together.”
“Hills are not my favourite to be honest,” Dejonghe conceded. “Give me the Tour of Flanders anytime.”
The Shearman deal ahead of him is likely to be a challenge of a very different kind, and potentially the pinnacle of his 15 years at the top. But Dejonghe is sanguine: “I’ve always had a forward-thinking mindset. I’m probably a bit more optimistic than some lawyers.”
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