It's been 15 months since ALM first revealed the merger negotiations between O'Melveny & Myers and Allen & Overy, and even longer since the discussions began behind the scenes.

The talks have stretched on much longer than expected, said several people informed on their progress, who cited hurdles such as choosing a name for a combined firm and the task of building consensus. The delays, in turn, carry their own risk, with industry experts warning that the passage of time in merger discussions can fuel uncertainty among firm lawyers, important lateral recruits and clients.

While the talks have made serious progress this year, according to four sources familiar with the discussions, the firms have still not publicly acknowledged the discussions are taking place, much less confirmed any definite timetable.

The firms have lately tussled over the combined firms' name, according to one person informed on the matter, who pointed to a conflict over the placement of an ampersand.

Another source briefed on the talks said that negotiators were evaluating a possible penalty for partners who walk away from the combined firm after the merger is effective, similar to provisions in other law firm mergers that have locked in key partners after a deal closes.

In a statement, an O'Melveny spokesman said, "We don't comment on rumor or speculation."

"We have been clear that developing our presence in the U.S. is a priority for us and that we have spoken to a number of law firms there," said an Allen & Overy spokeswoman. "However, we do not have any developments to announce and would reiterate that we won't comment on any particular firm until the right time."

While the firms' merger talks may feel like they're dragging on, veterans of past trans-Atlantic law firm mergers said it took at least a year and a half for their law firm combinations. Naming aside, they pointed out that firm leaders in merger talks must weigh knotty issues such as taxes, client conflicts, home country laws, firm governance and practice and industry area organization.

Questions Over Pay

In particular, compensation differences—between lockstep in the U.K. and merit-based pay systems in the U.S.—can seriously complicate merger talks, other firm leaders said. Some firms decide to integrate their pay systems and others don't.

One recently combined firm, Womble Bond Dickinson, bypassed the problem up front. U.K.-based Bond Dickinson and U.S.-based Womble Carlyle Sandridge & Rice kept their partner compensation and operations systems separate post-merger, said Elizabeth "Betty" Temple, who is CEO and chairwoman of the firm. "We intentionally did that because it's so complicated," she said about integrating the systems.

Temple said it took a year and a half between the start of informal talks to a partnership vote in May 2017. During that time, the firms first formed a strategic alliance and then discussed merging. The firms' effective combination was in November 2017.

"Leadership has to develop a sense of common trust and a common vision and make sure the vision and goals are aligned," Temple said about the timing.

Meanwhile, Stephen Immelt, CEO of Hogan Lovells, said leaders of the legacy firms, Hogan & Hartson and Lovells, had very preliminary conversations in the summer of 2008. The firms first told partners of the existence of the talks a little over a year later, in October 2009. They then briefed partners on the details, and the partnerships voted in December 2009.

From the first conversation to a vote, it took roughly 18 months, Immelt said.

"It took a significant period of time for working groups to essentially craft what the structure of what Hogan Lovells would look like, and then it was presented to the partners," Immelt said.

Hogan Lovells partners decided to integrate the pay systems. Lovells was lockstep, Immelt said, and the combined firm had to work through a transition period so that a new pay system was phased in over time. "The ultimate decision was that we would use a compensation that was not lockstep," toward a "contributed-based" pay system for partners, Immelt said.

After deciding the merger would benefit clients, the compensation arrangements were some of the "most important issues to work through," Immelt said.

Clock Ticking

Immelt said the Hogan & Hartson and Lovells firms didn't feel pressured to get the deal done by an internal deadline, but they were also wary of too much time passing.

"I do think it's true of any deal that the longer the talks go on, the more problematic it can become to reach the finish line," Immelt said, noting mergers could still happen after years of talks.

"The longer it goes on, something else can happen," he said, speaking generally on merger talks.

Temple, at Womble Bond Dickinson, said it's to a firm's advantage not to dawdle on the actual merger decision. "It's a very big distraction inside the firm. You don't want your partners distracted for a long very period of time," she said.

One law firm merger consultant, who declined to be named, noted that "time kills all deals," partly because it gives more time for conditions to change while momentum helps get deals done.

But Brad Hildebrandt, another firm consultant who declined to comment on the Allen & Overy-O'Melveny talks, said "there is no average" length of time for merger discussions, noting he's been involved in mergers that take just months and others that have gone on for two years.

The drawbacks of having long merger talks is that firms can lose partners and interest can start to wane, said Hildebrandt, chairman of Hildebrandt Consulting. Still, he said, it's not the case that lengthy merger talks are a disadvantage.

If it's a good merger, "then whatever time it takes, it takes," he said.

David Walden, a New York legal recruiter at EPDine who has moved partners and practice groups among big firms, observed that thorough and diligent discussions in deciding whether to merge and in forming postmerger integration plans can make "an enormous difference between those mergers that have been successful and those that have had a rough start."

But once a merger discussion is leaked, uncertainty enters into the mind of every lawyer at those firms, while creating uncertainty for clients and possible recruits, said Walden. "It's a fine line between being thorough and doing the proper due diligence, and letting it go on for too long," said Walden, speaking generally on tie-up talks.

The longer the merger talks go on, the more opportunities there are for partners to explore options, Walden added.

Media Glare

The sustained press attention on the O'Melveny and Allen & Overy merger talks, with a deal as-yet uncertain, sets the discussions apart.

As Immelt recalls, the Hogan & Hartson and Lovells merger talks became publicly disclosed only after the combination plan was presented to the partnership in October 2009. This was after elements of the essential proposal had been agreed on by the negotiating teams, he said.

"We were able to present the idea, fully baked, to the partners at one time, as opposed to the idea and speculation of what the deal could be, might be," he said.

Before the combination plan was presented to the entire partnership, there was a core, limited set of partners who knew about the merger talks, he said. "It was not something that was discussed with the entire partnership," Immelt said.

The Womble Bond Dickinson merger was unique in that the talks were not disclosed publicly until the firms announced, as Temple recalls. Still, partners and the market already knew the firms were close through a strategic alliance.

Temple said the public nature of a law firm's merger talks may weigh on a client. "If you're a client of one firm but not another, maybe you would start asking how this affects the relationship" and whether there could be a conflict, she said, adding it could also factor, positively or negatively, in the decision of any potential lateral. 

Getting Buy-In

If there's a common factor for major law firm mergers, it's the huge effort needed to build support for a deal. Temple, at Womble Bond Dickinson, said she and Jonathan Blair, the Bond Dickinson managing partner, made visits to some 20 offices to talk with partners. "[We were] face-to-face to explain the transaction—that high, personal touch was very helpful," she said.

A big part of the effort was dedicated to building consensus and making the business case to the partnership, Temple said. "That's complicated, it's explaining why it makes sense to them," and what are the opportunities for each partner and their clients, Temple said.

Immelt, at Hogan Lovells, said once the integration plans were worked out, "your partners have to approve this and they have to be persuaded that this is a good idea."

In the end, the Hogan Lovells merger was successful, Immelt said, because "the firms felt the culture would be relatively compatible" and both firms had an emphasis on collegiality, citizenship and being progressive.

"It's not for the faint of heart," Immelt said about the challenges of a trans-Atlantic law firm combination. "But there are lots of upsides."