When troubled New York legislation agency Shearman & Sterling’s merger talks with its transatlantic rival, Hogan Lovells, collapsed in March, Shearman’s Adam Hakki knew who to name.
Days into his position as senior companion final month, Hakki picked up the telephone to ring Wim Dejonghe, the long-serving chief of Allen & Overy, certainly one of London’s elite magic circle legislation corporations. In a matter of weeks, the 2 have been cloistered in a Manhattan workplace hashing out a $3.4bn merger, which — if voted by way of — shall be one of many largest the trade has ever seen.
For Belgian-born Dejonghe — A&O’s first international senior companion and earlier than that, managing companion — a tie-up with a Wall Road agency would be the fruition of a two-decade-long mission to crack probably the most profitable authorized market on this planet, leaving its British rivals within the mud. For Shearman, it gives a route out of a torrid interval of companion exits and troublesome restructuring.
“I’ve identified Shearman for a very long time. [Hakki] obtained into the position [and] he knew we have been ,” Dejonghe, 62, instructed the Monetary Instances. “The preliminary dialog was between me and him. After various conferences between the 2 of us, we thought: ‘this may work, truly’.”
Shearman, a storied 150-year-old agency that when suggested the cream of company America, is the far smaller entity, with $907mn in revenues final 12 months and about half of A&O’s greater than 40 places of work. However it has lengthy been on Dejonghe’s dance card as a possible suitor due to crossovers in banking and finance.
“It turned obvious in a short time that there was a shared imaginative and prescient for what this mixture may very well be and a capability to behave decisively,” stated Hakki. “We’ve been vastly impressed with Wim and his crew.”
Each corporations had additionally discovered classes from earlier failed mergers: in A&O’s case, collapsed talks with California-headquartered O’Melveny & Myers, which floor to a halt in 2019 after 18 months of negotiation.
“We knew [if] this leaks earlier than we go to our companions, we’re useless,” stated Dejonghe. “So we agreed the one approach we may ship one thing to [partners] was to sit down collectively in a room for weeks and hammer out all the main points.”
With a small core crew — together with advisers from heavyweight Wall Road legislation corporations Simpson Thacher & Bartlett, and Davis Polk & Wardwell — Hakki and Dejonghe decamped to funding financial institution Lazard’s places of work in Manhattan to drag collectively what would land on Sunday as a slick announcement, full with web site, shopper FAQs and video.
Dejonghe’s predecessor, David Morley, credit him for the pace of the Shearman talks, which have been executed inside weeks. “Only a few folks may have carried out this, however Wim has had this clear strategic imaginative and prescient for a very long time.”
Morley, who led the agency alongside then-managing companion Dejonghe for eight years to 2016 says: “Wim didn’t get up yesterday and say: ‘it’d be nice to do a merger’…. The agency has been interested by and debating it for a minimum of 20 years, and choices . . . In order that they have been prepared to maneuver actually rapidly when this got here up.”
Morley and Dejonghe, considered as a modernising power at A&O, spent years pounding the pavements in New York and on the US west coast within the wake of the monetary disaster, eating with legislation agency leaders in powerbroker hotspot Estiatorio Milos in Manhattan.
“Some folks would see us,” says Morley. “Others have been afraid of even being seen in a restaurant with us in case their companions noticed us or it obtained into the press . . . We weren’t asking folks: ‘would you like a merger?’ — simply constructing relationships and gaining perception.” He stated this meant Dejonghe had constructed up a “fairly good Rolodex of American corporations”.
A&O has lengthy had places of work within the US. However rising there has not been plain crusing. Like its worldwide rivals, A&O has struggled to interrupt right into a market dominated by a pack of extremely worthwhile home corporations with better firepower to pay star companions. Wall Road’s high corporations are usually tightly targeted, with solely a handful of worldwide places of work and a pipeline of profitable non-public fairness and finance work.
Against this, A&O and its magic circle friends within the UK have sprawling world networks, providing purchasers a far wider number of work. That has made them one-stop outlets for a lot of companies, however much less worthwhile than their US friends. Companions at Wall Road corporations comparable to Simpson Thacher and Davis Polk took dwelling greater than $5mn on common final 12 months, for instance, whereas M&A powerhouse Wachtell Lipton Rosen & Katz companions pocketed greater than $7mn. In distinction, A&O’s companions took dwelling £1.95mn ($2.4mn) on common final 12 months.
Tony Williams, a guide who was managing companion at Clifford Probability when it merged with American agency Rogers & Wells in 2000, stated: “The magic circle have been challenged within the final decade by the power of the US economic system . . . And Brexit didn’t assist: sterling is now at $1.23.”
One former high-ranking A&O companion stated: “Each magic circle agency has been trying to come into the US marketplace for the final 30 years, and a merger has all the time been probably the most logical approach nevertheless it’s extraordinarily troublesome to do. The highest American corporations have all the time been way more worthwhile, which for them is a proxy for excellence.”
He added, “Shearman has had some difficulties over the previous few years, and all of a sudden they have been out there and there’s a chance for a match.”
Huge variations in companion pay made it troublesome for UK corporations to compete within the US, an issue compounded by the stronger greenback. Because of this, underneath Dejonghe, A&O has steadily chipped away at its so-called lockstep pay construction, the place companions are paid in accordance with time served, to pay star performers extra.
Dejonghe, who one other former companion described as “charismatic and entrepreneurial”, is not any stranger to abroad mergers, the place marrying two completely different cultures is important to success. The company lawyer, who has 5 sons, joined A&O when it tied up with a part of Loeff Claeys Verbeke — a Brussels-based agency Dejonghe led as managing companion.
He stated the Shearman merger is a “merger of equals” in the identical approach as that deal. “You’ll be able to’t say to your future colleagues, we’re buying you,” he stated. “That’s not the mindset . . . It doesn’t work like that.”
Turning into managing companion at A&O meant leaving Belgium’s cobblestoned streets and its many biking races. Dejonghe, who cycles to A&O’s Spitalfields workplace every day, is a veteran of novice occasions together with the Etape du Tour and the Tour of Flanders.
“I’ve sat in his slipstream going up and down mountains for a few years,” stated Morley. “We used to tease him that he was good on the flat . . . He used to retort that in Belgium you’re all the time biking towards the wind. We have been all the time joking with one another; it was form of a metaphor for the best way we labored collectively.”
“Hills should not my favorite to be trustworthy,” Dejonghe conceded. “Give me the Tour of Flanders anytime.”
The Shearman deal forward of him is prone to be a problem of a really completely different form, and probably the head of his 15 years on the high. However Dejonghe is sanguine: “I’ve all the time had a forward-thinking mindset. I’m in all probability a bit extra optimistic than some legal professionals.”