Mergers And Office Openings: UK Firms Seek Growth In The US
UK 'Magic Circle' law firms are increasingly looking to the US for growth, as evidenced by the proposed merger of Allen & Overy and Shearman & Sterling and the expansion of Clifford Chance into Houston.
When Allen & Overy and Shearman & Sterling announced last month their agreement to merge, it was big news on many fronts. Purely on its own terms, the prospect of a combined transatlantic firm with nearly 4000 attorneys was notable. The fact that Shearman had finally found a merger partner, after extensive talks with Hogan Lovells fell through in March, was another interesting angle.
But the merger is also reflective of another emerging trend: the “Magic Circle” UK firms are increasingly looking to the US for growth.
Accelerating expansion efforts
Magic Circle firms have had a presence in New York for many decades, and several have been active in other US cities, especially Washington DC. But in recent years, the scope of the top UK firms’ ambition in the US market has come into clearer focus. Freshfields’ entry into California in late 2020 was a notable moment, marking the first West Coast Magic Circle venture since 2007, when Clifford Chance called it quits in California after five years. Allen & Overy quickly followed Freshfields, opening in Los Angeles, San Francisco, and Silicon Valley. A&O now has six US offices, with a presence in New York, DC, and Boston in addition to its West Coast push. Like its Magic Circle competitors, A&O’s tendency has been to enter US markets modestly, relying on smaller scale hires of individuals and groups.
The merger with Shearman is a significantly more ambitious play. Not since 2000, when Clifford Chance combined with Rogers & Wells, has a major UK firm merged with a US counterpart. Rogers & Wells had 400 lawyers at its peak. Shearman is more than double that size.
Less splashy than A&O’s announcement, but also important, is the news this month that Clifford Chance has opened an office in Houston, anchored by hires from Latham & Watkins, Jones Day and Kirkland & Ellis. This is the first time a Magic Circle firm has set up shop in Texas and is a particularly notable choice considering that Clifford Chance’s recent US presence has been limited to New York and DC. Following the completion of the Shearman merger, A&O will also be present in Texas (Houston, Dallas, Austin). The Magic Circle’s arrival will intensify the battle for top talent in a Texas market still adapting to an influx of major US firms. Firms that have recently set up shop in Texas include O’Melveny & Myers, Morrison & Foerster, and McDermott Will & Emery.
“We’ve had a parade of office openings in recent years, and the competition for talent is more intense than I’ve ever seen,” says Wendy Boone Jaikaran, a Houston-based Lateral Link Senior Principal. “It’s a particular challenge for the Texas-headquartered national firms, which are fighting hard to defend their home turf against deep-pocketed and highly motivated new arrivals. The entry of the Magic Circle firms will escalate that challenge even further.”
Mergers are on the upswing
Some observers are predicting that the A&O-Shearman combination will inspire a wave of large-scale mergers in the industry. That remains to be seen, but at a minimum, we can say that merger activity is on the upswing. Consider, for example, the Chicago market, which has seen a steady stream of recent mergers. Among larger firms, the most prominent example is Chicago-based Schiff Hardin’s combination last year with D.C.-based Arent Fox. But activity has also been robust among midsize firms. In particular, there is a trend of large Am Law 200 firms entering the Chicago market through mergers with top-ranked midsize or regional firms. A prime example is Atlanta-based Smith, Gambrell & Russell’s combination with Chicago-headquartered Freeborn & Peters to form a global Am Law 150 law firm.
“Existing Chicago midsize firms offer Am Law 200 law firms seeking to expand into Chicago the stability of deep sophisticated complementary practice groups and institutional Chicago clients,” observes Jesse Hyde, a Lateral Link Managing Director based in Chicago. “Midsize and regional firms also provide the ability to service Am Law 200 firms’ existing clients with transactional and litigation outside counsel needs in Chicago. Likewise, Am Law 200 firms can benefit local Chicago midsize and regional firms by expanding the firm’s national or international reach and capabilities. So it would not surprise me to see more of these mergers in the near future.”
