Lawyers quit Magic Circle law firm and US rival en masse ahead of £2.8bn merger

Dozens of senior lawyers have left Magic Circle law firm Allen & Overy and US rival Shearman & Sterling ahead of their $3.5bn (£2.76bn) merger.

At least 20 senior lawyers have left Allen & Overy’s offices worldwide since it announced plans to combine with New York-based law firm Shearman & Sterling in May.  

Departures from Allen & Overy, which was founded in 1930 and advised King Edward VIII during his abdication, included five partners, nine counsel and five senior associates.

Seven departures were from the law firm’s head office in London, according to data collected by legal recruiter Macrae.

Meanwhile, Shearman & Sterling has also seen at least 20 senior lawyers leave since June, including nine partners and seven counsel.

Many of the departures from both Shearman and Allen & Overy this year have been at foreign offices, including operations across Europe, Asia and the Middle East.

Melinda Wallman, a partner at Macrae, said: “When law firm mergers take place, it is common to see partner departures, even entire office departures, where the merging firms both have a presence in a small legal market.”

The merger deal is expected to see consolidation, with Shearman & Sterling’s UK-based staff set to move across to Allen & Overy’s City headquarters.

Ms Wallman said: “Law firm mergers often result in multiple partner departures – a mass exodus generally indicates a lack of confidence in the combination.”

The transatlantic tie-up is set to complete by May 2024 after 99pc of partners at both firms voted in favour of the deal in October.

News of the departures follows reports that Allen & Overy and Shearman & Sterling have offered partners forgivable loans that will not have to be repaid should they remain at the combined firm for a certain period. The loans are designed to lock in partners, Financial News reported.

Shearman, which was founded in 1873, is expected to gain scale from the merger after being plagued with a series of partner exits to deep-pocketed rivals.

The combined firm, which will be called A&O Shearman, will employ nearly 4,000 lawyers across 48 offices around the world. It will have about $3.5bn in combined revenues.

The two firms are understood to have agreed to a “modified lockstep” compensation model, where partner pay is based partly on seniority and performance.

Allen & Overy will move further away from the traditional seniority-based pay model adopted by UK law firms, which differs from the “eat-what-you-kill” reward structure typically favoured by US rivals.

Earlier this month, Allen & Overy announced the shortlist of candidates vying to lead the new firm as senior partner and managing partner until April 2028.

None of Shearman & Sterling’s lawyers will hold either top-job, signalling the dominance of Allen & Overy in the merger.

An Allen & Overy spokesman said at the time: “Shearman & Sterling partners will hold very significant leadership positions globally and regionally in the combined firm, including within the firm’s executive committee, board, practice group and regional leadership. These positions will be announced in due course.”

Allen & Overy and Shearman & Sterling were contacted for comment.