Magic Circle firm Allen & Overy’s longrunning merger talks with US firm O’Melveny & Myers have collapsed, the firm said today.
In a statement, the firm said: “Allen & Overy and O’Melveny & Myers have held discussions about a possible combination and, despite agreeing that there were some compelling synergies between us and that it was sensible to explore a possible deal in some detail, we have mutually decided not to continue these discussions. Both firms have developed a great deal of mutual respect and expect to remain in close contact in the service of our shared clients. As we move ahead, we wish each other continued success.
“Building our presence in the US remains the highest priority for Allen & Overy and we will significantly increase our immediate focus on lateral individual and team hires, while remaining open to considering opportunities for larger combinations that may arise in the future.”
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O’Melveny said: “O’Melveny has concluded that the firm’s best course is to continue executing on its strategic plan—which has led to an unmatched culture, deep client partnerships, and record financial performances.”
Sources told industry website Legal Week, which first reported the news, that the plummeting pound had made it difficult for the two firms to come to terms.
“Foreign exchange rate volatility and a reduction in US interest rates affect how any deal gets valued,” a source said. “It made it too difficult to agree a valuation of each firm, and how financial integration and pay would work as a result.”
When news of the talks emerged in April 2018, the pound was trading at $1.41, today it is plumbing $1.20 as fears of a no-deal Brexit hit investor confidence.
A merger between the pair would have created a £2bn legal giant and given A&O more heft in the competitive US market.
US firms have successfully built out London offices in recent years, taking on the Magic Circle firms on their home turf.
In contrast, the Magic Circle have struggled to sustain credible practices stateside, hampered by the higher profitability typical at US firms.
The firm’s management have previously said they anticipate the emergence of a handful of leading global law firms and that building a sizeable US practice was key to being part of that group.
In its results for 2018, O’Melveny posted revenue of $800m and profit per equity partner (Pep) of $2.2m.
In 2018-19, A&O grew revenue five per cent to £1.62bn and grew Pep one per cent to £1.6m.