London’s audit giants are muscling in on law firms
The City's top law firms are keeping a wary eye on the Big Four accountancy giants as the beancounters expand into the $600bn (£465bn) global legal services market.
Managing partner of City law firm Fieldfisher Michael Chissick said: “They have very ambitious plans, that isn’t in doubt, audit is in decline and it is low margin, legal has been growing for the last 30 years and is high margin. They got it wrong several years ago and they have come back with better, clearer strategies. They are a threat to firms in my strata, I wouldn’t underestimate them in any way.”
Co-chief executive of $1bn law firm Eversheds Sutherland Lee Ranson has also noticed the audit firms' moves to muscle in on the legal turf, telling City A.M.: “The reality is they are already of a significant size, if you look outside the UK in some jurisdictions they are in the top five or 10 firms by size and in the UK now there is much more of an overt intent to expand into legal services.”
Nick Davis managing partner of City law firm Memery Crystal said the Big Four “will be very, very serious players in the market”.
“The Big Four will have a very large impact on the mid market. They have got such a strong client base and they are so good at integrating business services into their offering,” he said.
This week EY announced it had acquired tech-heavy alternative legal provider Riverside Law – a move that is being seen as a shot across the bows of the traditional legal market.
EY UK law leader for financial services Matthew Kellett said on Twitter: “So, we’ve acquired Riverview – you weren’t expecting that – watch this space – lines are being drawn.”
Speaking to City A.M. EY’s global legal leader Cornelius Grossman said: “We have a plan for the next five years where we will aggressively grow the legal business.”
According to a report from ALM Intelligence, PwC has 2,500 lawyers in 85 countries, which would place it as the sixth-largest legal services provider in the world in terms of headcount.
KPMG and EY have 2,200 and 2,100 lawyers respectively with Deloitte on 1,800. The Big Four have ramped up their UK legal presence in recent years following a regulatory change that allowed non-lawyers to own law firms. Deloitte was the last to the party, receiving an alternative business structure licence from watchdog the Solicitors Regulation Authority in June, following EY, PwC and KPMG which received licences in 2014.
The key threat to law firms from the Big Four is their vast size and ability to invest. In 2017 PwC had a global revenue of $37bn and Deloitte posted nearly $39bn, in comparison only two law firms have broken the $3bn mark: Latham & Watkins and Kirkland & Ellis.
“The deep pockets bit would be the competitive advantage most people would point to, the research and development budget and critical mass they can bring,” Ranson said.
Law firms, because of their partnership structure, distribute most of their profits to their partners on an annual basis, making it more difficult to fund long-term investments.
Leigh Dance, a consultant to law firms at ELD International said: “It is hard for law firms to compete on that playing field given the partnership model they have.”