No Deal: A&O and O’Melveny call off merger talks after a year of negotiations

September 5, 2019

3 min read

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What's going on here?

The magic circle law firm Allen & Overy (A&O)  and the American international law firm O’Melveny & Myers have announced that discussions about a proposed merger between the two have been called off.

What does this mean?

At the start of 2018, talks had begun between A&O and O’Melveny which had led to some high-profile meetings, but no official statement on whether merger talks were being held. O’Melveny had suspended its 2021 training contract applications and UK vacation scheme whilst talks were being held. A&O also broke its lockstep system for the first time back in 2016 when hiring several US partners and the appointment of Tim House to US senior partner, relocating him to the US. Both these actions seemed positive signs about the firms’ commitment to a possible merger that would have created a transatlantic legal powerhouse of around 3000 lawyers and approximately £2 billion combined revenue.

Why did the talks fall through? Amongst some of the suggested reasons are disagreements over pay systems (A&O have a lockstep system, whereas O’Melveny have a merit-based system) and a name for the new merged firm, alongside a from the outset. Other issues such as Brexit and fluctuations in sterling created uncertain ground for the proposed merger. Moreover, the longer the negotiations continued, the more opportunity there was for partners to consider strategic moves to other firms, or simply become distracted by the issue.

What's the big picture effect?

Currently, many law firms are looking to consolidate their position in the market with a merger. This is especially true when it comes to UK firms who want to break into the American legal market. The most recent major transatlantic merger was between Bryan Cave (US) and Berwin Leighton Paisner (UK) to form Bryan Cave Leighton Paisner in 2018. In 2017, Eversheds (UK) and Sutherland Asbill & Brennan (US) merged to make Eversheds Sutherland, and Bond Dickinson (UK) and Womble Carlyle Sandridge & Rice (US) combined to make the transatlantic law firm Womble Bond Dickinson. Back in 2010 Lovells (UK) and Hogan Hartson (US) created Hogan Lovells back in 2010.

But not all mergers go through as we have witnessed in A&O’s failed talks with O’Melveny. Talks between Ashurst and Sidley Austin in 2013, Freshfields Bruckhaus Deringer and Debevoise & Pimlington in the early 2000s also fell through. 

UK law firms are eager to maintain their status as being truly international and ensure a strong foothold in the US legal market. But this has proved especially difficult as US firms tend to only use US law firms and maintain strong client relations. The size of the US legal market has been predicted to be worth over $1 trillion by 2021 and is the largest legal services market in the world. Hence A&O’s senior partner, Wim Dejonghe, and managing partner, Andrew Ballheimer were elected on manifestoes that put a strategy to develop into the US legal market at the top of the agenda. 

The failure of merger talks with O’Melveny will have damaged these aspirations. According to the pair “to be one of the global elite, you need to have a good offering in the US”. Nevertheless, they stressed finding “the right practice fit, the right client fit and the right cultural fit”. Whether they can effectively fulfil their promise of American expansion before facing elections next year remains to be seen.

Report written by Will Holmes

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