The legal teams being assembled by bean-counter megafirms could shake-up the law
The Magic Circle could be forced to go head-to-head with the Big Four as the accountancy giants’ successful entry into the legal market sees them gradually target higher level work.
The prediction by respected legal market analyst James Tsolakis, the head of legal services at RBS, will leave corporate law firms looking nervously over their shoulders as three of the Big Four bulk up their legal services arms after gaining alternative business structure (ABS) licenses .
So far, the move into providing legal services by KPMG, PwC and EY has seen the trio focus on less glamorous areas of law that fit with their core accountancy practises. Tsolakis, writing in his annual review of the legal market, puts it like this:
For now, their strategy is to eschew full-service capability and the trophy hires of rainmaking partners from established firms. Instead, they are focusing on legal areas that complement their own practices, such as compliance, due diligence, employment, immigration and tax.
In doing so, the new Big Four legal teams have grown fast. For example, since receiving its ABS license last December, EY has already built a UK legal services team containing 30 lawyers. The plan is to grow by 100% over the next 12 months and continue to grow beyond that period.
Meanwhile, PwC, which also has ambitious growth plans, has disclosed that it pulled in £41 million of legal services revenue last year. That’s less than half of what a typical mid-tier law firm generates — Shoosmiths, for example, turned over £93 million last year — but it’s still very much early days for the bean-counters.
The next phase envisioned by Tsolakis, once the Big Four have become established in their core legal areas, is a bid to climb further up the food chain towards the high end work favoured by the magic circle and other top firms. He explains:
The smart money … is on the accountants going head-to-head with the established legal order over lucrative capital markets and transactional activity once they have taken sufficient market share from the mid-tier.
But there is a catch to all of this that could yet shatter the Big Four’s legal market domination dreams. Mid-tier law firms, which endured such an awful few years after the financial crisis that some predicted their permanent demise, are back with a bang. Having bedded in a round of painful mergers, their collective revenues are up by almost 14% this year in a comeback that Tsolakis describes as “little short of spectacular”.
Much will now depend on how successfully these firms use technology over the coming years in a segment of the legal profession that is becoming ever more commoditised. The Big Four is strong in this area, having invested heavily in process outsourcing.
Another factor that the law firms will have to contend with is the strength of the KPMG, PwC and EY brands — which appeal to students. Last week’s announcement that EY is launching a law training contract received lots of interest from wannabe lawyers, with our report of the news receiving almost 10,000 views and nearly 700 Facebook shares.
Even though they are recovering, mid-tier law firms struggle to generate this sort of interest. But the Magic Circle and other mega law firms retain the capacity to excite the young. It is in this elite segment of the market that this battle will be most interesting — when it eventually gets going.