A&O, Shearman tie-up likely to set tone for more merger activity this year

WarwickPlace Legal’s Robert Bata looks ahead at the trends that are likely to shape the legal market in the US, UK, Europe and beyond over the next 12 months

More Transatlantic merger talks could be on the cards this year Shutterstock

The great Danish physicist Niels Bohr put it succinctly: “It is difficult to predict, especially the future.” But given that the year just closed has given us a few surprises, this a good time to try to anticipate what may lie ahead.  

The Allen & Overy and Shearman & Sterling merger dominated much of the news about the legal market over the past year, and that is a good starting point for our thinking. On the plus side, the merger, which is due to go live in 2024, will be the first truly successful combination of a UK Magic Circle firm with a US counterpart. On the minus side, there has been a steady drip of departures from the Shearman camp throughout 2023, and that will continue as the US firm’s partners begin to reckon with practice overlaps and a diminution of leadership and management roles.

Looking beyond A&O Shearman, three developments appear likely. First, although the other Magic Circle firms with a US presence have touted their strategy of growing incrementally through lateral acquisitions – and have achieved only paltry visibility and little strategic positioning in the US as a result – pressure within their partnerships will grow for a change of tack to try to replicate the A&O move.

Second, it is now practically inevitable that other leading UK firms will ratchet up their interest in finding an American merger partner, and 2024 will see at least one such deal materialise. The world’s largest economy remains a tempting target for global players, even as the runner-up, China, is increasingly losing its lustre for foreign law firms, as I will discuss in part two of this look ahead.

And finally, the top European independents will be evaluating the defensive strategies available to them, given the sustained Anglo-American campaign to be present, and to expand, on the continent. Another US/UK combination along the lines of A&O Shearman, with powerhouse practice combinations in Europe and a robust presence in Asia, where European firms are not really a factor, would pose a real threat to the dominance of some of the national champions in Italy, France, Germany and Spain, among others.

Europe will continue to attract UK and foreign firms, particularly if inflation subsides and private equity and real estate plays become more appealing. The Nordics have been drawing foreign firms, with CMS the latest to enter Sweden, and this will continue; meanwhile, the Baltics, while perilously close to an expansionist Russia, have done extremely well in tech, IT start-ups, labour and employment, and capital markets generally, and we should expect to see feelers from outside players looking to enter the region.

Dublin has been a bright spot for law firms seeking an EU foothold, either as a Brexit hedge or as a way to get better access to the recently-launched Unified Patent Court. There will always be Brussels of course. Amsterdam will be a sought-after destination for healthcare and life science practices, but also for the burgeoning class action wave beginning to wash over Europe. Poland will remain a very bright spot, with a strong economy, a relatively pro-business outlook and a newly elected EU-friendly government. Clyde & Co. was the latest to wade in, and more foreign firms are paying attention, particularly as the prospect that much of a potential Ukrainian post-war reconstruction effort will be driven from or through Poland.  

The UK is unlikely to see any major new entrants, although it should be expected that firms from Asia, Africa and the Middle East will continue to open representative offices looking to direct work back to their home regions. The action in London will continue to centre on the American firms’ pursuit of dominance in high-value transactions, with more poaching from each other and rival UK firms to be expected. There will be more boutiques spinning off to do conflict-free disputes, investigations and regulatory work. The Midlands will see consolidation among firms seeking to bulk up; and there is something in the water in Scotland where there has been an unusual amount of activity lately, with Irwin Mitchell snapping up Wright Johnston & Mackenzie, and Morton Fraser merging with MacRoberts

Click here to read part two of this 2024 look ahead when we turn our attention to Asia and the Middle East…

Robert Bata is principal at WarwickPlace Legal, an advisory firm that helps law firms enhance their international presence and profile through market entry, mergers, strategic alliances and other approaches tailored to the firm’s individual skill sets, culture and aspirations.

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