"Everyone sees it as more positive than linking us to [Scots firm] Maclays but people need to know a lot more before they form a view," says one Addleshaw Goddard partner of the firm's merger talks with Hunton & Williams.

The news, which broke on Tuesday, has not been confirmed by either firm, but insiders at Addleshaws told Legal Week that discussions with the US firm have been in progress for up to nine months.

Sentiment inside Addleshaws and among former partners is more upbeat than when the firm held discussions with Scotland's Maclay Murray & Spens, which ended earlier this year.

As one former Addleshaws partner says: "The message has got through to management that a pissy little UK merger ain't going to cut it."

The firm is clearly serious about getting a deal done and is currently in the process of recruiting a chief operating officer (COO) and is looking for someone who has previous experience of mergers. The advert says: "Experience of running an operations team during a merger would be advantageous, but not essential."

However, there are major hurdles to overcome before a deal can be clinched, including the gap in profitability that has scuppered many UK/US merger talks at rival firms.

So, after failed merger talks with Nabarro in 2013 and Maclays earlier this year, is Addleshaws likely to seal the deal this time around?

I'm a bit surprised that they chose a UK firm and I don't think it's an obvious fit

That Addleshaws is in merger talks with a US firm has not come as a surprise to many, with one former partner saying: "They have been talking about trying to get a US merger for a while and they were never going to get premier league."

However, coming on the heels of a failed Scottish merger bid that was widely criticised by partners and former partners only months ago, from the outside the firm's strategy now appears slightly scattershot. But a spokesperson for the firm said: "Increasing our scale and coverage is something we constantly consider."

While firms like Pinsent Masons and CMS successfully sealed Scottish mergers in 2012 and 2014 respectively, the decision to pursue Maclays was widely questioned, with one Addleshaws partner speaking at the time describing the potential deal as "absolutely nonsensical".

The decision to pursue a US merger is seen as more logical, although whether Hunton is the ideal candidate is unclear.

A former partner says: "A merger with Hunton does make sense, if they've recognised that their options to grow as a standalone firm are questionable at best. I don't think their current business model is feasible and the Hunton deal makes a lot more sense than a Scottish merger."

In contrast, one former Hunton partner was surprised by news of the talks, saying: "I'm a bit surprised that they chose a UK firm and I don't think it's an obvious fit. Anglo-US mergers are usually powered by transactional work and this isn't the case here."

Hunton has long held a desire to expand in the UK, embarking on a round of talks with Watson Farley & Williams in 2000, shortly after launching its London office in 1999.

Since this point though, the firm has struggled to grow organically in London, currently counting only 16 lawyers in the City – led by cybersecurity partner Bridget Treacy. In 2011, Hunton cut nearly 60% of its London lawyer headcount after a strategic review and the office now has only six partners.

Speaking to Legal Week's sister title the American Lawyer, Ward Bower, a principal at legal consulting firm Altman Weil, says that Hunton has wanted to expand in the UK for some time.

"They've wanted to do something to strengthen their presence there for quite a while and this merger would do that," he says.

A Hunton spokesperson said: "We frequently talk to lateral candidates and practices of interest to the firm and its clients as a matter of course."

Number crunching
In order for the deal to go through though, the pair will have to work around a relatively large gap in the numbers.

According to Am Law data, Hunton's profit margin has ranged between 33% and 37% in recent years, while Legal Week data shows Addleshaws' 2013-14 profit margin was 24.5%.

More significantly, Hunton's profit per equity partner (PEP) was £615,960 in 2014-15, while Addleshaws' was £491,000.

If you looked at Addleshaw Goddard three years ago, they wouldn't have had a seat at the same table

However, former Addleshaws partners argue that the UK firm's improved financial performance during the past few years would strengthen its hand in negotiations with the US firm. 

"If you looked at Addleshaw Goddard three years ago, they wouldn't have had a seat at the same table, but where their profit is now they will be in a good position," says one former partner.

Under managing partner John Joyce, the firm has benefited from an increased focus on financial discipline and has embarked on a strategy to increase profitability, aiming to reward its top earning partners with more than £1m a year by 2019. Its PEP increased by 25% in 2014-15, in contrast to Hunton's which fell by 5% in 2015.

One former partner though, weighing up the relative size of the two firms, believes Addleshaws would be swallowed up in the event of a successful deal given its revenue of £192.5m in 2014-15, compared with Hunton's 2015 revenue of £361.6m.

"The Americans would be the dominant partner and it would effectively be a takeover," he says.

I suspect there will be reluctance in the North to a merger with a US firm

However, another former partner disagreed, arguing that revenue and profitability at the two firms were "in the same ballpark", and that Addleshaws would be a strong partner in any successful deal.

"Addleshaws is quite big for a UK firm. It's not like those deals when you have a pretty small UK firm and a massive American firm that swallows them up; they should have a reasonable seat at the table if they negotiate properly," he says.

International reach
From an office perspective, leaving London aside there is no duplication. Hunton, which has been led by managing partner Walfrido "Wally" Martinez for 11 years, has expanded from its Virginia heartland to build offices in the key legal markets of New York and Washington DC, with headcounts of 95 and 140 lawyers respectively.

In addition to its 13 US offices, Hunton has international offices in Brussels, Beijing, Tokyo and Bangkok, as well as London.

Addleshaws meanwhile, has offices in London, Leeds and Manchester alongside international offices in Dubai, Hong Kong, Oman, Qatar and Singapore.

However, its international network is relatively new and only accounts for a fraction of the firm's revenue. It only launched its first international office in 2012. In 2014-15, only 36 of the firm's 609 lawyers were based outside the UK.

A merger would therefore significantly increase Hunton's access to the UK and would allow Addleshaws a footprint in the US, allied to a well-known US brand.

Northern exposure
Some partners view Addleshaws' northern offices as a potential handicap to the successful completion of a deal with Hunton.

"I suspect there will be reluctance in the North to a merger with a US firm; the partners in the North are slightly more conservative," one former partner says.

Another argues that the main prize for Hunton will be Addleshaws' London offices, a stance that could scupper the deal for partners outside the capital, given the strength of its regional offices.

What they are looking to do is not preserve every single partner but to stop big teams leaving

"You could see a firm like Hunton looking at this, thinking: 'We'll keep the quality London practices but we could use the North as some sort of cost base.' It seems like a thing that's going to be more advantageous for London than the North," he says.

Partners are all in agreement that any deal would be a boon to Addleshaws' London office.

"It will be a huge boost for them because they would know that London will then be seen as the hub for Americans coming through; the London partners will love it," he says.

Dastardly deeds
News of the talks sheds a new light on Addleshaws' current attempts to change its partnership deed to make it harder for partners to leave.

The firm maintains that the changes to the deed have been long-planned, and that the firm took the opportunity to amend the deed following general counsel Simon Callandar's arrival from Olswang in September 2015. However, with a potential merger looming, the motive for the proposed changes to the deed could be viewed differently.

A former partner speculates: "What they are looking to do is not preserve every single partner but to stop big teams leaving, as there will be certain teams that have been identified as essential to the deal."

The partner says the timing of the proposed changes is "suspicious", given that management were in merger talks with Hunton at the same time as trying to pilot through changes to the deed that would make it more difficult for partners to leave.

Details of the discussions and how Addleshaws would need to change in order to get the deal through are yet to emerge but based on recent experiences, the odds look stacked against a deal which, from the outside at least, looks like a good combination for both parties.