When beleaguered New York law firm Shearman & Sterling’s merger talks with its transatlantic rival, Hogan Lovells, failed in March, Shearman’s Adam Hakki knew who to call.
In the days leading up to his role as senior partner last month, Hakki called on Wim Dejonge, the long-serving leader of Allen & Overy, one of London’s elite Magic Circle law firms. Within weeks, the two locked down a Manhattan office and struck a $3.4 billion merger that – if voted through – would be one of the largest the industry has ever seen.
For Belgian-born Dejonge – A&O’s first foreign senior partner and, before that, managing partner – an alliance with the Wall Street firm would be the culmination of a two-decade-long project to crack the world’s most lucrative legal market, beating its British rivals leaving in the dust. For Shearman, it provided the exit of the partner and a path out of a difficult period of difficult restructuring.
“I’ve known Shearman for a long time. [Hakki] came into play [and] He knew we were interested,” 62-year-old Dejonge told the Financial Times. “The initial conversation was between me and him. After several meetings between the two of us, we thought: ‘This could really work’. “
Shearman, a 150-year-old storied firm that once advised the cream of corporate America, is a much smaller entity with revenue of $907 million last year and about half of A&O’s more than 40 offices. But it has long been on Dejonge’s dance cards as a potential suitor because of the crossover in banking and finance.
“It became clear very quickly that there was a shared vision for what this combination could be and an ability to act decisively,” Hakki said. “We are very impressed with Wim and his team.”
Both firms also learned lessons from previous failed mergers: in A&O’s case, talks with California-headquartered O’Melveny & Myers failed, stalling in 2019 after 18 months of negotiations.
“we knew [if] If it leaks before we get to our partners, we’re dead,” Dejonghe said. “So we agreed that any way we could give [partners] Had to sit in a room together for weeks and work out all the details.
With a small core team — including advisors from heavyweight Wall Street law firms Simpson Thatcher & Bartlett, and Davis Polk & Wardwell — Haqqi and DeJonghe camped out at the offices of investment bank Lazard in Manhattan to come together on Sunday, a Clever will be fulfilled in the form of an announcement. Website, with customer FAQs and videos.
Dejonghe’s predecessor, David Morley, credits him for the speed of the Shearman talks, which were executed within weeks. “Very few people could do that, but Wim has had this clear strategic vision for a long time.”
Morley, who led the firm with then-managing partner Dejonge for eight years until 2016, says: “Wim didn’t wake up yesterday and say: ‘It would be great to merge’…. The firm has been talking about it for at least two decades.” Been thinking and debating it, and looking at options… They were ready to move really fast when it came out.
Morley and Dejonge, seen as a modernizing force in A&O, spent years pounding sidewalks in New York and on the US West Coast in the wake of the financial crisis, dining with law firm leaders at powerbroker hotspot Estiatorio Milos in Manhattan Did.
“Some people will see us,” Morley says. “Others were too scared to be 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 merger?’ — just making connections and gaining insight.” He said this meant that Dejonge had built up a “pretty good Rolodex of American firms”.
A&O has long had offices in the US. But getting there hasn’t been smooth sailing. Like its international rivals, A&O has struggled to penetrate a market dominated by a clutch of highly profitable domestic firms with more firepower to pay star partners. The focus is on Wall Street’s top firms with only a handful of international offices and a pipeline of lucrative private equity and finance work.
In contrast, A&O and its Magic Circle partners in the UK have a global network, providing a wider variety of work to clients. This has made them a one-stop shop for many corporations, but less profitable than their US peers. Partners at Wall Street firms such as Simpson Thatcher and Davis Polk took home an average of more than $5 million last year, for example, while M&A powerhouse Wachtel Lipton Rosen & Katz Partners took home more than $7 million. In contrast, A&O partners took home an average of £1.95mn ($2.4mn) last year.
Consultant Tony Williams, who was managing partner at Clifford Chance when it merged with US firm Rogers & Wells in 2000, said: “The magic cycle has been challenged over the past decade by the strength of the US economy. . . and Brexit didn’t help: Sterling is now at $1.23.
A former high-ranking A&O partner said: “Every Magic Circle firm has been looking to get into the US market for the past 30 years, and mergers have always been the most logical way but extremely difficult to do. Top American companies have always been more profitable, which for them is representative of excellence.”
He said, “Shearman has had some difficulties over the years, and all of a sudden he was available and has an opportunity to match.”
The huge difference in partner pay made it difficult for UK firms to compete in the US, a problem compounded by the strengthening of the dollar. As a result, under Dejonge, A&O has gradually reduced its so-called lockstep pay structure, where partners are paid according to time of service, in order to pay star performers more.
Dejonghe, who another former partner described as “charismatic and enterprising”, is no stranger to foreign mergers, where marrying two different cultures is key to success. The corporate lawyer, who has five sons, joined A&O when it tied up with Loef Claes Verbeke – a Brussels-based firm led by Dejonge as managing partner.
He said the Shearman merger is a “merger of equals” just like that deal. “You can’t say to your future allies, we’re getting you,” he said. “It’s not the mindset. . . it doesn’t work like that.
Becoming managing partner at A&O meant leaving Belgium’s rocky roads and its many cycle races behind. Dejonghe, who cycles to A&O’s Spitalfields office every day, is a veteran of amateur events including the Étape du Tour and the Tour of Flanders.
Morley said, “I have sat in his slipstream climbing and descending mountains for many years.” “We used to tease him that he is good on the flat. , , He used to reply that in Belgium you always cycle against the wind. We were always joking with each other; It was a metaphor for the way we worked together.
“Hills aren’t my favorite, to be honest,” admitted DeJonge. “Take me on a tour of Flanders any time.”
The Shearman deal in front of him is likely to be a very different kind of challenge, and potentially the pinnacle of his 15 years at the helm. But Dejonghe is optimistic: “I’ve always had a forward-thinking mindset. I’m probably a little more optimistic than some lawyers.”