For months, Sedgwick has been in merger negotiations with U.K.-based Clyde & Co in a deal that would see the insurance-focused British firm play the role of white knight for the reeling San Francisco-based Am Law 200 shop, said three sources with knowledge of the matter.

One source described the discussions as “very bullish” between Sedgwick and Clyde & Co as late as three weeks ago. But those talks are said to have stalled in recent days, said another source familiar with internal machinations at Sedgwick, who noted that Clyde & Co’s interest has waned as Sedgwick’s insurance practice has lost groups of partners to rival U.K. insurance firm Kennedys.

Michael Healy

Sedgwick managing partner Michael Healy, who took over leadership of the firm in early 2015, did not respond to a request for comment on the stalled merger talks.

This year, Sedgwick’s head count has fallen nearly 35 percent, according to data gathered by ALM Intelligence, with more than 45 partners leaving the firm. In the past month, nine partners have left.

A source within Sedgwick said the firm had lost more than 20 percent of its annual gross revenue as of June, when the firm laid off a number of staff members in response to mounting partner defections.

The string of departures to Kennedys, which does business in the United States as Kennedys CMK after its acquisition earlier this year of New Jersey-based Carroll McNulty & Kull, began shortly after Sedgwick’s New York office lost a 12-lawyer team to Robinson & Cole in late August.

In early September, another six-lawyer group from Sedgwick’s New York office, including former local managing partner John Blancett, joined Kennedys. Sedgwick’s Chicago office managing partner, Eric Scheiner, made a similar move to Kennedys in early October, bringing with him two other partners in Richard Geddes and Jennifer Quinn Broda. Kennedys’ latest raid on Sedgwick came Monday, when the firm announced it had reached an affiliation agreement with Sedgwick’s former outpost in Bermuda.

That practice, now known as Kennedys Chudleigh, is led by Mark Chudleigh. He declined to comment when asked about the talks between Sedgwick and Clyde & Co. Chudleigh was considered a Sedgwick rainmaker whose practice included work on a specialized insurance product known as the Bermuda Form. Some of that work was handled by lawyers in the Chicago office, according to a fourth source familiar with Sedgwick.

“Clyde & Co clearly is losing the crown jewels they would want as part of a merger,” a source with knowledge of Sedgwick said.

One aspect of acquiring Sedgwick that could make a deal difficult is the mounting burden of capital it owes partners who have left the firm. Sedgwick typically requires that its partners carry a capital account equal to about 55 percent of the partners’ yearly compensation, said a former partner at the firm. The capital payments to departed equity partners are paid out in 36 monthly installments.

Lawyers who have left Sedgwick in recent months, and who spoke on the condition of anonymity, said there had been little communication from firm management regarding the string of departures. One former lawyer said firm management sent around an email in response to an August story that appeared in Law360 detailing defections from the firm. The message was to encourage lawyers to focus on servicing clients.

“It was business as usual to some extent,” the former Sedgwick lawyer said. “But it’s kind of hard not to notice people leaving and offices being empty.”

Clyde & Co, which has ramped up its presence in the United States within the past year by adding offices in Chicago, Los Angeles and Washington, D.C., issued a statement in response to inquiries about its talks with Sedgwick.

“As with all major businesses, we continuously study our markets for opportunities and, at any given time, we may be in discussion with a number of individuals, teams or firms,” said the firm. “As a matter of policy we never comment on such discussions until it is appropriate to do so.”

Additional reporting by Joseph Evans with Legal Week in London.