Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.
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1. Magic Circle Merger Talks: The Market Reacts
Last week, the story broke that magic circle firm Allen & Overy were in merger discussions with US firm O’Melveny & Myers, sending shockwaves through the UK legal market.
It would be the second US merger for a magic circle firm, following the infamous Clifford Chance tie-up with New York firm Rogers & Wells in 2000, which resulted in a number of departures from the US firm and wasn’t deemed a success. A&O’s opportunity however would be the largest of its kind, and if the merger were to go ahead it would create a business with a combined revenues of £2bn ($2.8bn) and a total lawyer headcount of about 3,000.
Both firms are understood to be exploring growth options in the past few years. A&O were rumoured to have been in discussion with Arnold Porter and Sherman & Sterling, whilst last year O’Melveny & Myers held preliminary merger talks with Willkie Farr & Gallagher.
The two firms have similar profitability, with O’Melveny seeing profit per equity partner (PEP) rise 3% to $2m (£1.4m) in 2017, while A&O posted PEP of £1.51m ($2.1m) for 2016-17. However, this is throughout a period of relative underperformance for the US firm, which has seen its revenue drop from the 19th largest firm in 2007 to the 59th in 2017.
A&O, who have two existing US offices in New York and Washington DC – the latter of which was launched by a team of former O’Melveny lawyers in 2011 – would be complemented by O’Melveny’s West coast bases in Century City, Los Angeles, Newport Beach, San Francisco and Silicon Valley, alongside small Asian outposts in Beijing, Hong Kong, Seoul, Shanghai, Singapore and Tokyo.
If successful, the tie-up would represent a huge step forward for A&O, and likely create a ripple effect at the top end of the legal market as magic circle competitors reconsider their own strategies in response to the news.
To date, the magic circle’s expansion plan in the US has been to hire teams from domestic firms (often breaking lockstep to do so), although this strategy has been criticised for being both slow and ineffective against US bid-backs.
Of the team of finance partners who joined from White & Case and Proskauer Rose in 2016, global leveraged finance co-head Scott Zemser has already left to join Mayer Brown. It remains to be seen whether a similar fate will come to the three-partner finance and securities team A&O acquired for its New York office from Paul Hastings in February last year.
“If they can pull it off, I think it will put the other magic circle firms under a lot of pressure. This kind of event triggers consolidation, but it’s hard to see how it could happen with better US firms” observed one market commentator, with the greatest obstacle for UK firms looking to expand into the US always being this disparity in PEP.
However, the O’ Melveny and A&O talks have been heralded by some as a move in the right direction for the magic circle firm. Their focus on the West Coast, rather than New York, is a very strategic play for the firm to access big tech and IP clients, setting A&O apart from its magic circle counterparts operating in the US.
Ultimately, only time will tell whether Allen & Overy and O’ Melveny & Myers can make this deal work from a financial, reputational and cultural perspective. If so, the real interest lies in what form this merger will take and how the rest of the magic circle reacts in response.
2. SFO yet to appoint director as COO takes interim role
Chief Operating Officer Mark Thompson is set to serve as interim director of the Serious Fraud Office (SFO) after current director David Green QC exits this month.
Having led the SFO since 2012, Green has overseen numerous high-profile investigations, as well as the implementation of Deferred Prosecution Agreements (DPAs). Speaking at a breakfast meeting at Mayer Brown last month, Green declared that, “the most important change I have made as director of the SFO is offering DPAs as an incentive for businesses to self-report.”
DPAs have proven a successful tool for the SFO, as the agreement signed with Rolls Royce, the third DPA to be agreed in English law, was approved in January last year and brought in £497m in settlement fees – speculated to be the largest fine to ever be imposed on a business in the UK. Green is rumoured to be joining a US firm following his departure.
Meanwhile, new interim Thompson will retain a number of ongoing investigations at the agency. Some of the prominent cases include four charges against Unaoil employees and partners in connection to bribery offences, and Barclays’ suspicious capital raising arrangements with Qatar Holdings.
The organisation have reached the final stages in hiring a permanent director, and have claimed the individual cannot take up their post immediately. The SFO said the new chief’s identity will be announced ‘when it is possible to do so’. As this points to an external candidate, the new permanent director is expected to take up his role later in the year.
Movers & Shakers of the week
White-collar crime partner Eve Giles is set to join Allen & Overy from Kingsley Napley later this year in the firms corporate crime practice
Elie Kleiman departs his role as head of the Paris office at Freshfields Bruckhaus Deringer to join Jones Day’s disputes practice in Paris
Head of the Dubai office Mohammed Kamal has left the newly created Bryan Cave Leighton Paisner to set up a real estate practice for Watson Farley & Williams in the region.
Meanwhile, Asia head Bob Charlton has also left BCLP to lead Addleshaw Goddard’s Asia Pacific presence
Partner Ryan Suda will join Mayer Brown’s banking and finance practice in New York and its structured finance group, as he departs Freshfields Bruckhaus Deringer.
Baker McKenzie has hired White & Case partner Michael Doran into its banking practice, alongside Ropes & Gray counsel Nick O’Grady and Bevis Metcalfe who both join as partners in the London office
Office Openings & Closings