Shearman Keeps Lid on US Partner Exits Ahead of A&O Merger

Shearman & Sterling has kept its core US roster largely intact ahead of its high-profile merger with London’s Allen & Overy, despite a string of partner exits.

More than 30 partners have left Shearman since the merger was announced last year, according to data from Pirical. But less than half of those moves came in the firm’s US business, which is the centerpiece of the deal.

“With the merger, they want the brand and the footprint in the US,” said Freddie Lawson, head of partner search at UK recruiter Montresor Legal.

A&O was drawn to Shearman’s stateside M&A and litigation practices, which have continued to perform even as the firm’s place among the top revenue generating firms plunged. Shearman’s Texas offices also offer A&O the chance to bolster energy and infrastructure groups already strong outside the country.

The firms have been able to keep partners ahead of the tie-up—a time in which combining firms often see many lawyers jump ship—in part by offering forgivable loans to equity partners, according to a source familiar with the situation.

A&O Shearman will be among the world’s 10 largest law firms when the merger officially closes next month. The deal still faces challenges once the two firms become one.

The combined firm’s leaders will have to meld transatlantic cultures and pay systems. They’ll also have to build out a much larger private equity practice if they expect to compete with Big Law’s major players.

Not everyone is sticking around to see how it shakes out. The Shearman departures account for about 9% of the firm’s partnership.

Ward McKimm, the finance lawyer who led Shearman’s UK office and George Casey, a veteran New York M&A partner, are among the most notable departures. Several other US exits are from the firm’s real estate and intellectual property groups.

‘Hang Around’

Waves of partner departures are common in the run-up to mergers of big firms. Redundancies and client conflicts often prompt lawyers to leave.

“There’s typically some attrition in the lead up to, and after, but there is a limit to how much of that is acceptable to the firms in most cases,” said Kent Zimmermann, a law firm consultant at Zeughauser Group.

A&O, which had previously discussed a merger with O’Melveny & Myers, has lagged behind some of London’s other “Magic Circle” firms seeking a foothold in the lucrative US market.

The new merger is “a transformative event for the legal industry,” A&O and Sherman said in a joint statement. “It will create one of the world’s largest integrated global law firms, and the first to offer equally elite capability and depth in all major markets,” they said.

For Shearman, the merger offers a lifeline following a decade in which its share of the legal services market declined. The total number of Shearman partners had already dropped by 40% over the decade before the deal was announced.

The firm has continued to see success in M&A during that time, particularly in health care, even as global activity has cooled.

Partners Daniel Litowitz, Derrick Lott, and Creighton Condon last year advised CVS Health Corp on its $10.6 billion acquisition of primary care provider Oak Street. The firm’s lawyers also represented SAP SE in a $12.5 billion agreement to sell Qualtrics International Inc. to a group of investors including Silver Lake.

The partners leading those deals and the practice group’s leaders remain at the firm. Meanwhile, New York deals lawyer Casey likely took some chemical sector clients with him when he jumped to Linklaters earlier this year.

“It tends to be less about numbers and more about the individual partners, and whether it’s practice heads or people with the key client relationships,” Lisa Smith, a consultant at Fairfax Associates, said of the impact of partner departures. “Those are typically the people you want to hold on to.”

A&O and Shearman have offered the forgivable loans in order to prevent departures that could hurt their bottom lines. Partners who take the loans will not be required to pay the money back as long as they stay at the combined firm for a certain period of time, the person familiar with the situation said.

“Law firms are tending to use leveraged loans more and more,” said Lawson, the Montresor Legal recruiter. “Particularly with a merger to help ensure that the key people for revenue hang around.”

The loans were first reported by Financial News London.

Steering the Ship

A&O is the bigger of the two firms and its leaders will steer the ship following the merger.

The firm saw its partner headcount tick up to roughly 650 over the last year. That’s more than three times the total number of partners at Shearman.

A&O’s Hervé Ekué, a Paris-based partner, has been elected to lead the combined firm as managing partner. Middle East dealmaker Khalid Garousha, will hold the No. 2 role.

Only A&O partners were able to vote for those top leadership roles, a spokesperson confirmed.

Adam Hakki, current senior partner at Shearman, will lead the new firm’s US business as its chair. The prominent litigator, who has represented Paramount Global and Jeffries LLC among other clients, also was appointed co-chair of the firm’s board and executive committee.

Doreen Lilienfeld will serve as co-managing partner of the US business.