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Allen & Overy in merger talks with US giant O’Melveny & Myers to create transatlantic magic circle megafirm

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Deal would be a legal market game-changer — if it happens

Allen & Overy is in merger talks with Los Angeles-based counterpart O’Melveny & Myers, it has been reported.

The potential tie-up — discussions about which have been brought to light by Legal Week (£) — would create a transatlantic giant with 3,000 lawyers and combined revenues of £2bn ($2.8bn), making it one of the world’s biggest law firms.

A deal of this nature could have huge implications for the global legal market. Magic circle firms have traditionally not shown much enthusiasm for the idea of joining forces with a leading US rival, opting instead to enter the American market by poaching teams or taking over much smaller firms. So a merger between two major players would represent a step change, even if A&O’s turnover is nearly three times that of O’Melveny & Myers.

It’s hard to know how far along this is. In its piece, Legal Week quotes an unnamed former O’Melveny partner as saying that their old firm is “deep” in discussions with A&O, and reports that “firm leaders have travelled to meet one another and they have discussed titles of the combined firm”.

This has prompted US legal blog Above the Law to suggest ‘Allen & O’Melvery’ as a potential name for the new megafirm.

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But on Saturday O’Melveny & Myers issued this statement:

“We have no plans to merge and never have.”

While at face value it seems to scotch the tie-up, it falls short of a denial that discussions have taken place.

A&O, meanwhile, struck a markedly different note with its statement:

“While we have said for several years that we are open to considering a merger with the right partner in the US, we talk to many law firms in many countries all of the time and we do not comment on market speculation and rumours regarding any particular firm.”

Whether ‘Allen & O’Melvery’ happens or not, the willingness of A&O to seemingly take steps to bring about a transatlantic merger is significant in itself. An age of magic circle tie-ups with big US firms could be about to begin. Indeed, with the creation of Bryan Cave Leighton Paisner last month (a combination of London’s Berwin Leighton Paisner and America’s Bryan Cave), perhaps something bigger is already underway.

Adding credence to this theory are the recent unspectacular financial results of magic circle and other large UK firms. In fairness to A&O, it was something of the exception to this rule last year as it lifted profit per equity partner by 26%; still, industry number crunchers agreed that all five members of the elite quintet were aided considerably by the weak pound — which magnified the effect of overseas office earnings for this highly international collection of firms.

With the pound strengthening, the magic circle will lack this boost in the years ahead, potentially leading to increasing questions about a collective business model of high quality work delivered by large teams. Already there are doubts about its continuing viability in an age of increasing automation of low-ish level legal tasks — a concern that A&O has not been slow to respond to through, for example, its new ‘Fuse’ lawtech start-up hub, and recently-announced plans to start hiring science and economics graduates for newly-created project management roles.

A transatlantic magic circle megafirm would have lots of interesting market repercussions — not least for junior lawyer pay. Would a firm of this nature elevate London newly qualified (NQ) salaries to the US levels of $180,000 (which currently equates to £128,000). Or would it stick with the City of London rate of £81,000 that A&O currently pays to NQs?

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31 Comments

Anonymous

Doubt it will ever happen.

magicsseniorassociate

This is a sign of how far behind the Magic Circle (and other British firms) have fallen. O’Melveny is no Sullivan, Simpson, or David Polk; it isn’t even a White and Case or Shermans. It’s not an elite US firm.

I believe BLP, a high-quality silver circle firm, has just been taken over by Bryan Cave, a firm that I have never worked with, that is headquartered in St. Louis, Missouri.

At the end of the day profitability matters and the British firms have lost that race. The Magic Circle (and the rest) are royally fecked.

Anonymous

OMM are listed as white shoe with a quick glance at wiki. Is their UK branch not as good?

Sichard Russkind

Prediction: In five years time 3/5 of magic circle will have merged with US firms, chlorinated chicken will be everywhere, most of the greenbelt will Trump-owned golf courses.

Alex

This must be a big deal if Legal Cheek is choosing to publish a story on the weekend! Please remember to take time in lieu next week.

Anonymous

The broad thrust of this piece is correct. The term ‘Magic Circle’ doesn’t mean a great deal anymore. It’s about clients not being prepared to pay large sums for trainees in a low growth environment. Nothing to do with the technology, which has been around for ages.

Anonymous

When you say low growth environment, you lean for the trainees, or for the firm?

Anonymous

General economy. Pre-2008 you got rich in the corporate world by being risky. Now you get rich by being cheap. Case in point, the articles about Deutsche Bank refusing to pay for work done by trainees at the firms they kept on retainer.

Terrible for those trainees, especially at the high end corporate firms that maintain billable targets for trainees. Oh, you already have to work 3000 recorded hours a year to make the written down value of 1800 hours? Congrats, another 600 is written down! Back to the dungeon you go.

Anonymous

It is extremely unusual for firms to have billable hours targets for trainees, and just as unusual for firms to have billable targets for associates (let alone trainees) based on recovery rather than recording…

s.32 Salmon Act 1986

My trainees are growing very slowly. Some appear to have stopped growing altogether.

Anonymous

“This has prompted US legal blog Above the Law to suggest ‘Allen & O’Melvery’ as a potential name”.

Strange choice of name seeing as the current name for the US outfit is O’MelveNy & Myers.

Anonymous

I think that’s the joke

Anonymous

It’s a combination of Overy and O’Melveny

Anonymous

Political correctness on steriods. This is an absolute joke and you ought to be ashamed on yourselves.

Anonymous

The other Magic Circle firms will eventually merge with US firms or dive into mediocrity because they’re obsolete. The U.S. firms outperform them considerably while Silver Circle and mid-sized firms can do the same job as MC firms without the extortionate fees or arrogance

Anonymous

If they link up with firms that do match their A) client list and B) profitability ratio, then surely it wouldn’t diminish themselves any further?

However, I do wonder if conflicts and disgruntled partners leaving would actually further reduce the profit per lawyer ratios post-merger.

There is something to be said about remaining small and damn good at what you do though. Watchell Lipton Rosen & Katz… 250ish lawyers yet bills nearly £50 million more than Slaughters annually.

Marty Lipton

It’s Wachtell, you utter dolt.

Anonymous

I’ve got a mate at Wachtell

He’s 33 and has no hair

Anonymous

Because of work-related stress?

loljk m8

No, keeps him streamlined to maximize efficiency whilst traveling between the toilet and his desk.

Anonymous

Best comment on LC so far….
Ahaha!

Anonymous

Who cares, Martin Lipton is the only one that matters. The poison pill changed the corporate world.

Anonymous

How is it that the American elite consistently maintain profit margins well over 50% whilst the magic circle lives in the low 40% range, and the rest of the UK top 50-20 is lucky to break into 30%? Genuinely want don’t know why that’s the case.

Is it just how much more valuable litigation is in the US, along with the fact that they’re barristers and solicitors so the firms charge the clients for the whole process? I’m just wondering what it would take to get those kind of figures here in the UK. I know Slaughters and Macfarlanes have been reported to hang around the 50% mark, as well as litigation boutique Stewarts Law (which also have a good number of barristers/solicitor advocates billing trial work for the firm). Maybe the mixed profession thing is the way forward to make firms more profitable?

Anonymous

Stewarts is a high street firm in the City. Over 50% of its work is personal injury, and then there are large parts of its business which do family and divorce. About 10% of its work is commercial litigation and arbitration. The reason why PEP is so high, is because the equity is shared between around 15 people. And the firm does not do its own advocacy. They are very much tied to the Bar. It is very old school. Only one partner does advocacy.

Anonymous

You’re absolutely right that litigation is way more profitable in the USA.

In the UK, we “manage” cases with the CPR, and don’t allow triple damages, full recovery of costs automatically, and the like.

In some US litigation, juries still stick a finger in the air and set damages.

Anonymous

Thanks for the insight! So unless there are major changes to how litigation is done, how can UK firms increase their profitability? I know US/Canadian firms tend to have much smaller associate/partner ratios, so more people are involved in business development. Would getting more associates made up/invested in the firms help?

Or should we bring back my initial questions about the value of merging the solicitor and barrister professions in order for firms to maximise billable opportunities?

Anonymous

What’s the rep of OMM like in the US? Just wondering if it would be a merger of equals

Anonymous

A quick trip to google shows they do quite well in the Vault rankings (the Chambers and Partners or Legal 500 across the pond). Salaries are similar to that of the White Shoe firms we keep hearing about. Looking at their profitability (around 42%) it seems to match A & O (sitting around 40% I think?). A & O is definitely the big swinging dick in this tie up and it will be a takeover rather than a true merger, but it is highly unlikely to diminish the brand. Should compliment the existing practice.

However, it won’t if they try to make the Americans adapt to the British way of doing things. They tried that in NY already and they’ve openly admitted that the NY office has always been a let down. Cost more than it brought in.

FÜCKELMANN

GEIL

Anonymous

I once had to work with a lawyer from OMM, it was probably one of the worst experiences I have ever had with a law firm. The worst part we were on the same team!!!

Anonymous

Is OMM in the UK any good? Thought about apply, but its a bit shady that they don’t disclose NQ salaries.
What would OMM UK be on par with in the UK?

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