A&O and O’Melveny: At last some realism about global mergers

Oh, this is cute. A&O’s overture to O’Melveny & Myers yet again underlines the magic circle firm’s reputation for lateral thinking. For the last five years A&O has been consistently rumoured to be on the verge of doing a deal with Shearman & Sterling. Bypassing New York in favour of a West Coast play – whether or not it eventually materialises into a merger – signals a commendably fresh approach to the US market.

Catrin Griffiths

The biggest obstacle for UK firms in the US has always been the disparity in PEP, a metric that carries the perceived quality of any law firm. Plus that peculiarly lawyerish obsession with league table rankings, a self-regarding status that is not necessarily borne out by client experience. Thus whenever merger talks are revealed, you’ll get the standard quips from lawyers, usually in absurdly heterosexualised terms:  A&O in this scenario being the supermodel and O’Melveny the gimp, according to one cynic we spoke to. This is not to say a London-New York merger of equals will never happen; who knows, Debevoise may yet submit to Freshfields’ blandishments, but the financials coming out of the US don’t point to that happening any time soon.

Anyway, forget New York. The fact that A&O is even eyeing the West Coast seriously is a strategic play that in betting big on tech and IP, sets it apart from the rest of the magic circle. In a world where data rivals dollars and privacy is a commodity, the opportunities for a global legal offering are clear, especially given that none of the West Coast tech firms show signs of international investment. The signs were there last year, when A&O dramatically bulked up in IP with a four-partner hire from Simmons & Simmons. At the time its move was met with puzzlement by other magic circle firms, who couldn’t see the obvious returns. (You can see our prophetic long read on A&O’s IP litigation ambitions here.)

In retrospect, then, this move has been on a slow simmer. Former global litigation head Tim House moving to run the Stateside operation was another signal that A&O wasn’t going to abandon the US prize, particularly since he told The Lawyer that he wanted to make litigation 25 per cent of the firm’s global revenue – something a combination with O’Melveny would certainly deliver – though a deal with Fenwick & West, with which A&O already works, would be even cuter. It’s certainly easier to spin a combination with a lower-league West Coast firm than a similarly-positioned New York outfit. And as an aside, it rather suits A&O to be positioned as the active player in this deal; compare its elegantly ambiguous statement with O’Melveny’s defensive dismissal to see a firm entirely aware that its adventurous brand can only be enhanced by merger speculation.

Rather than pure duplication of financial services clients that a New York deal would bring, an agreement with O’Melveny opens up a world of business development joy. It’s not even just about a narrow tech offering. As our Global Real Estate 50 notes, Los Angeles overtook New York last year as the US’s number one destination of foreign capital for real estate investments, and West Coast deal volumes are through the roof. Not for nothing did Kirkland launch a real estate private equity practice in LA last year.

More than anything else, A&O’s embryonic discussions should prompt UK firms to try different ways of attacking the US market. It doesn’t have to be a merger of equals or even a verein, both of which entail inevitable operational headaches of consolidation and culture. One UK managing partner has long harboured the ambition of getting US coverage by applying the lessons of agile working, adding capability not by a bricks-and-mortar merger but by something considerably more supple.

The ghost at the table, though, is Clifford Chance, which over a decade ago basked in a similar reputation for boldness. Its eventual failure on the West Coast when its Brobeck experiment collapsed set back UK firms’ reputation for global nous more than anything else. National pride is at stake here. No pressure, A&O.

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