'People get cold feet' – the latest on A&O and O'Melveny's merger talks
Talks have been going on for longer than the market thought, but doubts are starting to creep in about a successful tie-up
January 28, 2019 at 04:40 AM
5 minute read
A possible transatlantic merger between Allen & Overy and O'Melveny & Myers has been a frenetic market talking point since last April, when Legal Week revealed the pair were in talks.
But for the firms themselves, the discussions could hardly be described as fast and furious. Initial talks began back in 2016, according to one person with knowledge of the situation. A&O senior partner Wim Dejonghe and managing partner Andrew Ballheimer had been elected that spring, with their main aim upon winning the roles being to expand the firm's presence in the US.
It means senior figures at the firms are approaching their third year of considering the idea, which is causing some onlookers to question whether it is ever likely to happen at all.
One lawyer familiar with the matter said partners from both firms met in New York late last year to discuss the integration of the firms.
Efforts to encourage partners of all seniorities to get to know one another have also continued, with meetings between A&O and O'Melveny partners taking place outside the US earlier this month, according to one partner.
But people at both firms conceded talks are taking longer than previously expected. Two people said partners had expected to receive information memorandums on a potential deal by the end of last year, but that has not yet happened.
The pace of talks has slowed particularly in the past six weeks, according to former and current partners of both firms. The main reason given for this by people close to the situation is that as US firm O'Melveny approaches its financial year end on 31 January, its priority is getting its own house in order.
One person speculated that it made sense to have the vote following a final distribution of the firms' individual profits in 2018. For O'Melveny, this will happen in March.
Both firms have now agreed within themselves what percentages would be required to vote a merger through, according to two people with knowledge of the situation. A&O would need about 70% of its partnership to vote in favour, while O'Melveny is understood to require something more like a simple majority.
It remains unclear what name would be put before the partnerships. The firms declined to comment when the domain name allenomelveny.com was registered last year.
The profitability of both firms is fairly well matched, with 2017-18 profit per equity partner rising to £1.64m ($2.15m) at A&O and $2m (£1.5m) at O'Melveny. But other issues are likely to require careful handling.
One thing that could prove daunting to O'Melveny is the sheer scale of A&O, and whether the merger is realistically one of equals. A&O's revenues, equity partnership, total headcount and number of offices are all about three times the size of O'Melveny's.
A financially integrated firm would have to work out how it was prepared to bill its clients, as US firms traditionally call for payments far quicker than their UK counterparts.
And although the two firms have complementary practice areas, with Allen & Overy's banking focus and O'Melveny's west coast litigation expertise, the merger does not necessarily give the firms a much stronger presence in the world's biggest legal centre – New York.
People at both firms stressed that neither side is adhering to a strict timetable, and that discussions like this require proper due diligence and rigorous thought.
The longer it drags on, the less likely it is to happen
Yet the slow pace of the discussions suggests such issues may be tricky to resolve, according to one insider. And some have gone so far as to question whether talks could be derailed entirely.
One former A&O London partner said: "The longer it drags on, the less likely it is to happen – people get cold feet."
It is hard to find examples of successful law firm unions taking so long to arrange. Berwin Leighton Paisner announced to its partners that it was in talks with Bryan Cave in October 2017. Just four months later, the vote was sealed.
Although Eversheds' discussions with Sutherland Asbill & Brennan only emerged when they were in their latter stages in November 2016, an agreement was reached less than four weeks later.
Compared to those firms, A&O and O'Melveny are moving at a positively glacial pace.
An ex-O'Melveny partner also questioned what the impact would be on a partnership that had failed to see through a merger.
He said: "If you dabble in this type of conversation and then don't conclude it, you provide an opening to your competitors. They can start whispering to your partners: 'Are you really comfortable there after this?'"
Additional reporting by Christine Simmons
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