UK legal insurance leaders look to clear path for landmark merger with hopes of partner vote as soon as July

Barlow Lyde & Gilbert and Clyde & Co partners could approve their potential merger as early as July, with the resulting tie-up likely to go live later this year.

The merger talks, exclusively revealed by Legal Week on 3 June, have now reached advanced stages, with both firms this week discussing with clients and partners a high-stakes deal that would be the largest-ever merger between two UK law firms.

Talks have been ongoing since March this year, after Barlows insurance dispute resolution partner Tim Taylor and Clydes senior partner Michael Payton (pictured above right) held initial discussions.

There is believed to be considerable support on both sides for a tie-up, which would create a legal practice just outside the UK top 10, with combined revenues of more than £300m. Clydes' partnership is expected to get its first chance to consider the union in depth at the firm's annual partnership conference on 25 June.

The merger would create an insurance leader that would dominate the market, with both firms working with key players including ACE, Allianz, AXA and Chartis.

However, a number of issues still need to be resolved before a deal can go ahead – including the wide disparity in profits per equity partner (PEP) between the two firms, with Clydes' PEP for 2009-10 standing at around double Barlows' £300,000 figure.

While Barlows is estimating a 30% increase on last year's PEP figure to around £390,000, this is still significantly below Clydes', leading to speculation within the firms that a substantial number of Barlows partners would not make 
it into the equity at the combined practice.

There are also expected to be some redundancies in the event of an agreed deal, particularly in London where both firms have sizeable practices. Internationally, the firms' duplicate offices fall in Hong Kong, Singapore and Shanghai.

Although the finer details of the tie-up have still to be worked through, the deal is currently expected to include all parts of Barlows' business, including its regional presence in Oxford and Manchester.

Payton told Legal Week: "There needs to be a great deal of consultation now. We can see all sorts of advantages to the deal for both firms. We will now be speaking to clients and partners to gauge their views on it and will proceed from there."

The managing director of Huron Consulting Group, Alan Hodgart, who has been advising Barlows in relation to a potential US merger, said: "Insurers have already consolidated themselves, and with high-end insurance only accounting for around 2% of the market, if you're going to be in the insurance market you're facing commoditisation.

"Barlows' aim was to see if it could find someone who had the high-value end as well as the commodity end, and a merger with Clydes would give both firms the scale and capability to cover the whole market and resources to develop and expand this."

Barlows is expected to resume its hunt for a US tie-up if the Clydes bid proves unsuccessful.

News of the merger has been well received by those in the insurance market, including partners at both firms as well as former partners.

One legal manager at a large insurer said: "If this merger goes through, it will have a profound effect on the UK insurance landscape. Although Clydes already has a stand-out regulatory and insurance practice, it will boost the firm's reputation further. [Barlows chief executive David] Jabbari has made some bold moves, including the Halliwells deal, and this is another step in the right direction."

One former Barlows partner said: "If you want top quality insurance or reinsurance work then you are going to go to Clydes or Barlows, so it makes sense – but Barlows needs to get the deal done, otherwise it risks weakening its position."