When troubled New York regulation 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 associate 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 regulation companies. In a matter of weeks, the 2 have been cloistered in a Manhattan workplace hashing out a $3.4bn merger, which — if voted by means of — can be one of many largest the trade has ever seen.
For Belgian-born Dejonghe — A&O’s first international senior associate and earlier than that, managing associate — a tie-up with a Wall Avenue agency would be the fruition of a two-decade-long undertaking to crack essentially the most profitable authorized market on this planet, leaving its British rivals within the mud. For Shearman, it affords a route out of a torrid interval of associate exits and tough restructuring.
“I’ve identified Shearman for a very long time. [Hakki] bought into the position [and] he knew we have been ,” Dejonghe, 62, advised the Monetary Occasions. “The preliminary dialog was between me and him. After a variety of conferences between the 2 of us, we thought: ‘this would possibly work, really’.”
Shearman, a storied 150-year-old agency that after suggested the cream of company America, is the far smaller entity, with $907mn in revenues final yr and about half of A&O’s greater than 40 workplaces. 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 massively impressed with Wim and his staff.”
Each companies 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 lifeless,” 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 staff — together with advisers from heavyweight Wall Avenue regulation companies Simpson Thacher & Bartlett, and Davis Polk & Wardwell — Hakki and Dejonghe decamped to funding financial institution Lazard’s workplaces in Manhattan to drag collectively what would land on Sunday as a slick announcement, full with web site, consumer 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 individuals may have finished this, however Wim has had this clear strategic imaginative and prescient for a very long time.”
Morley, who led the agency alongside then-managing associate 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 excited about and debating it for at the very least 20 years, and taking a look at choices . . . So that they have been prepared to maneuver actually shortly when this got here up.”
Morley and Dejonghe, considered as a modernising pressure 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 regulation agency leaders in powerbroker hotspot Estiatorio Milos in Manhattan.
“Some individuals would see us,” says Morley. “Others have been fearful of even being seen in a restaurant with us in case their companions noticed us or it bought into the press . . . We weren’t asking individuals: ‘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 companies”.
A&O has lengthy had workplaces 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 companies with higher firepower to pay star companions. Wall Avenue’s high companies are usually tightly targeted, with solely a handful of worldwide workplaces and a pipeline of profitable personal fairness and finance work.
In contrast, A&O and its magic circle friends within the UK have sprawling international networks, providing purchasers a far wider number of work. That has made them one-stop retailers for a lot of companies, however much less worthwhile than their US friends. Companions at Wall Avenue companies akin to Simpson Thacher and Davis Polk took residence greater than $5mn on common final yr, for instance, whereas M&A powerhouse Wachtell Lipton Rosen & Katz companions pocketed greater than $7mn. In distinction, A&O’s companions took residence £1.95mn ($2.4mn) on common final yr.
Tony Williams, a guide who was managing associate at Clifford Likelihood 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 associate stated: “Each magic circle agency has been seeking to come into the US marketplace for the final 30 years, and a merger has at all times been essentially the most logical approach nevertheless it’s extraordinarily tough to do. The highest American companies have at all times been far 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 accessible and there’s a possibility for a match.”
Huge variations in associate pay made it tough for UK companies to compete within the US, an issue compounded by the stronger greenback. Consequently, beneath Dejonghe, A&O has step by step 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 associate described as “charismatic and entrepreneurial”, isn’t any stranger to abroad mergers, the place marrying two totally different cultures is significant 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 associate.
He stated the Shearman merger is a “merger of equals” in the identical approach as that deal. “You possibly can’t say to your future colleagues, we’re buying you,” he stated. “That’s not the mindset . . . It doesn’t work like that.”
Changing into managing associate 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 newbie 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 at all times biking in opposition to the wind. We have been at all times joking with one another; it was form of a metaphor for the way in which 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 totally different type, and doubtlessly the head of his 15 years on the high. However Dejonghe is sanguine: “I’ve at all times had a forward-thinking mindset. I’m most likely a bit extra optimistic than some attorneys.”