Discrepancy in profitability between US and UK market presents big challenges
Big law is getting bigger. In May, the UK’s Allen & Overy and New York’s Shearman & Sterling cemented one of the biggest-ever transatlantic legal mergers. This week, the UK’s Herbert Smith Freehills announced plans to form a top-20 global law firm by headcount by combining with the smaller US-based firm Kramer Levin. Interest in such tie-ups is at an all-time high on both sides of the Atlantic, says Kent Zimmerman of consultancy Zeughauser Group.
If profitability differs markedly, the two firms can opt to retain much of their autonomy by adopting a partnership model known as a Swiss verein, which keeps their finances separate. However, this can mean there is little incentive for partners to refer work to overseas colleagues, as it will not contribute to their profit pool. That problem is overcome if the merger creates a single profit pool.
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