Ashurst has long been in the market for a US merger and rumours are beginning to circulate that the firm has restarted its search for a partner.
The firm has denied it is in any merger talks, but its US strategy has been a popular headline topic for several years, with talks being held with Latham & Watkins and Fried Frank Harris Shriver & Jacobson. Even former senior partner Charlie Geffen said it was one of his greatest regrets as he left the firm, saying he’d have “loved Ashurst to do a US merger” during his tenure.
While US firms are intensifying their investment in London, making a series of high-profile raids on UK outfits, other UK firms are pushing on with transatlantic tie-ups. Berwin Leighton Paisner (BLP) is notably in talks with Greenberg Traurig. Meanwhile a number of UK firms have, in the past, suggested they would consider a US merger, such as Allen & Overy, CMS Cameron McKenna, Eversheds and Pinsent Masons.
But in the case of Ashurst, it turned its attention instead on Australia by merging with Blake Dawson. The combination transformed Ashurst from a £323m to £550m revenue firm, yet global turnover has shown little sign of budging much higher since, reaching £560.9m over 2014/15.
With some sources describing Ashurst’s merger with Blake Dawson as an “utter disaster”, it could seem like completely the wrong time for Ashurst to embark on another global combination. A source said one of the main issues of Ashurst’s tie up with Blake Dawson was the financial state of the Australian outfit, which was “dramatically less profitable” than Ashurst itself.
“The merger arrangements were changed so that the profit levels didn’t have to be the same,” said one source. “Instead it was thought good enough to complete the deal when the profit levels were tending to go in the right direction, despite not being there quite there yet.”
Comments such as this highlight the importance of finding the right merger partner and one that is on a par with Ashurst’s financial situation and culture.
Sources say this is one of Ashurst’s biggest challenges, as the firm has already talked to most of the top 20 US firms “who said no back in the day” and left them looking at “middle” of the table. Another source added that “no-one thinks any of the Wall Street firms would do it”, drawing attention to Ashurst’s financial results since the Australian tie-up.
However, could a merger with one of the US’ largest firms actually work? Ashurst was, for example, approached by Sidley Austin just as the integration between the UK and Australia was taking place, but the deal was rebuffed and never got as far as a vote.
“Sidley Austin hasn’t invested much in Europe,” said one source, prior to the US firm’s raid on Kirkland & Ellis’ private equity team last week. “Its average profit per equity partner (PEP) is also in the same region as Ashurst’s, although the US dollar is moving in the wrong direction for Ashurst at the moment.”
However, since Ashurst’s discussions with Sidley in 2014, the gap between the two has widened. The US firm last year posted a 9.5 per cent revenue jump to $1.7bn (£1.22bn), while Ashurst reported relatively flat turnover of £561m in 2014/15.
PEP at Ashurst dropped to £747,000, which was almost half that of Sidley’s $2m (£1.4m) figure. The US firm’s PEP rose 6.1 per cent over 2014.
The issue is that while Ashurst’s revenue and PEP increased in 2013/14, the first full year post-merger, they have not been on the same upward trajectory as some of the US firms. For instance, Latham’s turnover grew 14 per cent in 2014, followed by a 1.5 per rise to $2.65bn last year. Shearman & Sterling also saw its turnover grow by 3 per cent to $845m in 2014, with PEP increasing by nearly 6 per cent to $1.9m.
Indeed Shearman has been thrown into the mix as a potential merger partner, with one source describing the US firm as a “bit of a fallen angel in New York”. Yet although Shearman’s financials are not too far away from Ashurst’s, sources close to the firm say any a tie-up between the two would be a “nice merger” but “unrealistic”.
For instance, would Shearman fit with Ashurst’s strategy as a whole? In addition to the financing issue, a merger partner would have to follow the UK firm’s continuing focus on energy, mining and infrastructure, which was unveiled as part of a strategy review last year.
“You’d want to add finance and litigation to the energy and infrastructure side and you’d have to find a firm that could match that,” said a source. “Ashurst has put such a focus on its finance and infrastructure practice that a merger partner would have to be a firm that could fit in to that like Chadbourne & Parke.”
Conscious of Ashurst’s current financial position and strategy, many sources seem unconvinced that the firm’s time is nigh in the US. But with Ashurst currently on the look-out for a new managing partner, it is undeniably “an interesting time” for the firm.
Despite the persistent market rumours, an Ashurst spokesperson said: “We are not in any discussions with any firm, US or otherwise, about a merger.”