Anglo-Australian firm Herbert Smith Freehills (HSF) and New York-based Kramer Levin have agreed to merge in what the two sides describe as a “bold, strategic move”.

The deal, which is subject to approval by both sets of partners, will create a “fully-integrated” firm with “a single global profit pool from day one”, the firms said.

The two firms are complementary in terms of their international coverage. HSF has to date operated a small New York office and has particular strength in the UK and Australia as well as across the wider European and Asia Pacific region.

Kramer Levin – much the smaller of the two firms – ranks just outside the AmLaw 100 and has offices in New York, Washington DC and Silicon Valley, as well as a sizeable Paris arm.

Crucially, it delivers HSF around 120 US partners in complementary practice areas, notably disputes, and sectors including energy, financial services, infrastructure, mining and technology.

The firm will be called Herbert Smith Freehills Kramer globally and HSF Kramer in the US and have revenue of more than $2bn, moving legacy HSF into the global top 20 by revenue from its current place in the AmLaw ranking of 34. It will have 2,700 lawyers including around 640 partners based across 25 offices.

HSF chair and senior partner Rebecca Maslen-Stannage said: “This is transformational. We have long been committed to expanding our offering in the US and Kramer Levin is the perfect fit. The combination delivers immediate growth for both firms from day one.”

Kramer Levin co-managing partner Howard T. Spilko described the deal as a “one-of-a-kind opportunity” adding: “The combination provides us with a significant competitive advantage by bolstering our destination practices with a deeper bench, broader geographic reach and sector expertise, while providing the opportunity to collaborate to achieve great outcomes for clients internationally.”

For HSF, the combination represents a logical follow-on from the deal that created the firm 12 years ago, when London's Herbert Smith merged with Australia's Freehills. After a difficult period in the immediate aftermath of that merger, when a large number of London-based partners left the firm, the deal has come to be regarded as a success, with the firm building up its European network in recent years.  

In July, HSF reported record revenue, profit and profit per equity partner (PEP) for the year ended 30 April 2024, with turnover rising 10.1% to hit £1.3bn ($1.6bn) and PEP up 12% to £1.3m ($1.6m). 

While Kramer Levin's revenue for the 2023 calendar year of $435.2m, as reported by Law.com, is less than a third of HSF's turnover, its PEP of $2.4m is significantly higher than its merger partner's. 

The disparity in PEP between the two sides is unsurprising, given that Kramer Levin is anchored in the lucrative US market, and is indeed welcome for what it says about the New York firm's market position. The merged firm will, however, require a partnership remuneration system that accounts for this disparity, a challenge the UK's Magic Circle firms have moved to address in recent years by changing their payment models.

Commenting on the deal, Justin D’Agostino, who began a second term as HSF's CEO in May, said: "This is an excellent long-term, strategic move for our firms, our clients and our people – a bold opportunity to build an exciting international firm together, based on our strong cultures of collaboration, superb clients and people, and our existing areas of strength. This is just the beginning."

The combination’s rationale has key parallels with this year’s merger between Magic Circle UK firm Allen & Overy and Shearman & Sterling to create A&O Shearman, which went live in May, given its promise of handing HSF a credible presence in the key US market and the relative size of its prospective US partner.