Big 4 Firms Plot Moves Into Global Niche Legal Markets

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By Michael Kapoor

U.K. arms of the biggest accounting firms have expanded aggressively into the legal services area in recent years, changing their legal status to compete with attorneys and capitalize on their global presence to win multinational clients.

The firms intend to exploit their large international networks and technological expertise to forge niche positions in specific parts of the legal market.

“We are not trying to replicate traditional law firms,” Ed Stacey, head of employment law at the U.K. arm of PricewaterhouseCoopers, LLP told Bloomberg Tax. His comments echo those made by the U.K. arms of other Big Four accountants—Deloitte LLP; Ernst & Young LLP, and KPMG LLP.

Deloitte has been playing catch-up in legal-market entry with the other big U.K. firms, announcing June 22 that it received an alternative business structure (ABS) license under the 2007 Legal Services Act. The license allows it to integrate its legal practice with the wider Deloitte operations and compete directly against lawyers for business.

PwC, EY, and KPMG all adopted an ABS structure in 2014.

PwC in the U.K. adopted licensed multi-disciplinary practice (MDP) status in 2016, authorized by the Solicitors Regulation Authority, which allowed the firm to offer a wide array of professional services beyond accounting.

Regulations governing professional firms vary among countries. The U.S., for example, still doesn’t allow non-lawyers to own legal firms.

Deloitte announced in June that it was expanding its legal operations through an alliance between its U.K. arm and San Francisco-based immigration lawyers Berry Appleman and Leiden LLP in the U.S. Deloitte Global took over the law firm’s offices outside of the U.S., but accounting firms aren’t allowed to practice as lawyers within the U.S.

After Enron

“The big accountants have long done legal themselves,” Stacey said. “However, they ran their legal side down after the Enron crisis” when auditor Arthur Andersen LLP got into trouble for also providing the now-defunct Enron Corp. with consulting services.

After putting their legal services on the back burner, EY, PwC and KPMG sold off their consultancy arms between 2000 and 2002, but have since rebuilt them.

PwC quietly kept its legal business going, and now employs about 2,500 attorneys worldwide, compared to around 2,000 at Deloitte, 2,100 at EY, and 1,700 at KPMG.

All four of the big firms are now building up their U.K. legal arms again, although they remain small players on the national market. PwC, the largest, has just 19 attorneys among its 900-plus U.K. equity partners, plus 31 directors equivalent to salaried partners in legal firms.

While there are detailed differences, all four firms have parallel strategies. They exploit their international presence to offer a one-stop shop for some global deals. They also use technology developed for the audit and consultancy side to automate legal processes, or to help legal firms effect their own automation.

Globally Significant

Nick Roome, head of legal services at KPMG in the U.K., told Bloomberg Tax that “we are focused on integrating our offering within KPMG’s multi-disciplinary business model,” a point also made by PwC’s Stacey.

“We also leverage our global coverage and digital and technology capabilities,” said Roome, something that all four of the firms are investigating.

As Philip Goodstone, head of EY’s law team, told Bloomberg Tax, the firm isn’t a large player in the U.K., but their huge international presence makes them a “big” player globally.

PwC’s Stacey said the firm’s 2,500 lawyers makes them the “sixth or seventh largest global firm” among lawyers, with a reach into emerging markets that even the largest law firms struggle to rival.

The Advantages

That reach gives the big accounting firms two concrete advantages.

First, with their other services, they can offer a one-stop shop for firms looking to restructure globally and wanting a single source of, for example, human resources advice. EY, for one, sees a niche in merger and acquisition deals below $1 billion where companies are keen to deal with just one firm to handle everything from legal to corporate financial services.

Second, the they can look to their legal consultancies to strengthen some of their existing services, such as Deloitte’s focus on immigration—where it had a strong presence even before the tie-up with a U.S. law firm—and EY’s specialization in financial services.

The big firms’ strong presence on the technology side—which they can use to sell services such as automated document review—and their U.K. operations’ rediscovered enthusiasm for offering legal services demonstrate a wider drive to offer integrated services globally.

To contact the reporter on this story: Michael Kapoor in London at correspondents@bloomberglaw.com

To contact the editor responsible for this story: S. Ali Sartipzadeh at asartipzadeh@bloombergtax.com

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