UK Law Firms Fight US Invasion by Merging, Raiding Rivals

Clifford Chance’s new Texas play is part of growing role reversal: UK law firms are expanding in the US by poaching talent from top stateside competitors.

The firm is opening an office in Houston with hires from Latham & Watkins, Kirkland & Ellis, and Jones Day. Clifford Chance is among a small group of elite UK “Magic Circle” law firms looking to scale up significantly in the US.

“All options are on the table as we talk to our clients,” Sharis Arnold Pozen, Clifford Chance’s regional managing partner for the Americas, said of the firm’s US growth plans in an interview. The firm expects to “add strategically” to its existing “heft” in the US, she said.

London’s largest law firms are fighting back after a decade of losing ground to US competitors in their backyards. They’re hiring in bulk and exploring mergers stateside, with a focus on the lucrative deals market.

Allen & Overy is closing a transatlantic merger with New York’s Shearman & Sterling that could catapult it among the world’s largest law firms. Clifford Chance and Freshfields Bruckhaus & Deringer, which have also lost talent and market share to wealthier US competitors for years, have largely focused on individual and group hires.

They’re trying to beat back an onslaught of competition from major law firms descending on London. Twenty-five US firms have more than 100 lawyers in the city, up from 12 in 2009, according to 2021 data from ALM Intelligence.

The US competition has kept the UK firms “commercially honest,” said Andre McClean, founder and director of London-based legal recruitment firm Strangford Search. “It’s kept them looking for ways to drive profitability.”

One solution is bulking up to compete with the US incursion. Freshfields this month has added at least four new partners to its London and New York practices, including UK-based James Duncan, who joined the global transactions practice from Shearman & Sterling.

“Last year, the Magic Circle firms hired three times as many partners as the previous year,” said Siobhan Lewington, a managing director at recruitment firm Fox Rodney, citing data from her firm. “That’s a big increase, and it’s because they’re losing people and they’re hiring more to try and re-stock.”

US Growth

London has been the top foreign growth destination for US firms for decades. By 2021, 88 major US firms had London offices, according to ALM Intelligence.

Latham and Kirkland have grown the most in London. Latham reached 448 lawyers in 2021, up from 202 in 2012. Kirkland had 352 lawyers in 2021, up from 115 in 2012, according to ALM Intelligence.

US firms made a net gain of 74 partners in the UK since 2019, the data show. Magic Circle firms such as Linklaters, Allen & Overy and Clifford Chance had a net loss of partners in the same period.

The growth has led to financial success, with the top 50 US firms’ London offices generating nearly $8 billion in revenue in 2021, according to The Lawyer. Six US firms placed in the top 10 legal advisers for deals announced in the UK last year, Bloomberg data show.

Corporate advisory firm Arden Partners concluded in a report in October that US firms “now dominate” the market for advice to global companies in London. Magic Circle firms should find merger partners or refocus strategies on the lower-priced middle market, the report said.

Allen & Overy and Freshfields declined to comment. Linklaters did not respond to a comment request.

‘Squeezed Out’

The US firms have gained their edge by dangling huge pay packages, with starting salaries trumping those at UK firms by as much as $63,000 (about 50,000 pounds). The discrepancy grows for top partners, who can earn eight-figure pay packages at US firms.

“The UK firms are getting squeezed out,” said Christopher Excell, London-based head of legal recruitment at SRM Recruitment. “They can’t compete with what the US firms pay.”

Allen & Overy’s solution—a merger—would create a combined firm of some 4,000 lawyers around the world. A major UK firm has not pulled off a merger with a US competitor since 2000, when Clifford Chance joined with Rogers & Wells.

There’s a reason for the infrequency: Transatlantic deals can be difficult to close. Challenges include client conflicts, discrepancies in compensation, and the fact that UK firms report finances on an accrual basis instead of a cash basis.

“There are some serious fissures and cultural issues,” said Brad Hildebrandt, chairman of Hildebrandt Consulting. “Could you do a merger with all those problems? Yes. But you’d have to make sure there was a very strong business case and tremendous support from the partners.”

It is likely the A&O deal with Shearman will eventually close, in part because of the “level of market excitement” around the tie up, said Tony Williams. The UK law firm consultant was previously managing partner at Clifford Chance.

“I would expect it to go through with a high 90% in favor,” Williams said.