The Big Four Are Coming For You

big four

It’s been another good year for international law firms. According to the latest figures published by the American Lawyer, the aggregate revenue for the Global 100 increased by 6.4% in 2017, compared to 2.8% and 3.1%, respectively, for the two previous years. The top 100 grossing law firms, of which 81 are US-based and 13 are UK-based, achieved combined revenues of $105.7bn with 41 firms surpassing the $1bn revenue mark. M&A and technology are helping to boost revenues, supplemented by a robust global economy and the increased need for regulatory advice.

In total, the 100 firms on Am Law’s list now employ over 135,000 lawyers between them with an increasing number based in China. But as the US titans, Kirkland & Ellis and Latham & Watkins, battle with each other for the top spot as the highest grossing firm overall with more than $3bn in revenues each, the practice of law is no longer just about straightforward legal advice. It’s also about the technology offering, the business of delivering legal products and services – and so much more. So what is keeping Global 100 partners awake at night?

From the bottom end, it is the alternative legal service providers (ALSPs), who are discreetly eat away at their underbelly. In a bullish market, the effect is barely noticeable in absolute terms –  even though the likes of Axiom are undercutting fee rates, often for commoditised work, and beginning to increase their overall slice of the enlarged pie. Thomson Reuters project that the total revenue generated by ALSPs will swell to $55bn by 2025, an increase of nearly thirty times the 2015 figure. In response, many law firms have developed and launched their own cut price ALSP model with UK firms setting up low cost centres in Manchester, Belfast, and even as far away as South Africa.

But law firm partners’ greatest fear in the burgeoning legal services market comes from above in the shape of the sleeping giants that so often work with them: the Big Four accounting firms. Their size is truly staggering. Deloitte, Ernst & Young (EY), KPMG and PricewaterhouseCoopers (PwC) employ nearly 1m people between them while their combined revenues were $134.3bn last year. Their reach is genuinely global, spanning nearly 180 countries, as is their depth of expertise and capacity to invest in technology, systems and processes – all of which also happen to be integral to the provision of international legal services.

The Big Four do many things. They are auditors for a diverse range of companies, strategy consultants, tax advisers, information technology specialists. And so on. But the roles they are seen as occupying does not usually include legal advisers – at least not yet. For the past thirty years, commentators have continued to speculate about when they would enter the legal services space in a serious way. Their first attempts in the 1990s were not deemed a success. Then came the Enron scandal, the demise of Arthur Andersen, and in their wake, The Sarbanes–Oxley Act of 2002 which helped to temper the Big Four’s ambitions for nearly a decade. Combine that with the obvious barrier of conflicts, and their potential threat was readily dismissed by their law firm counterparts.

But the resurgence of legal services during the past few years has seen the Big Four once again waking from their legal services slumber and take a few giant strides into the law firms’ territory. Objectively, the organisation and sophistication of their business model, reinforced by their ability to leverage technology, should enable the Big Four to expand their international legal services footprint using systems and processes that are vastly superior to every single law firm in size, scope and scale.

And recent events suggest that this may at last be happening. In August, EY announced that it will be acquiring Riverview, a UK-based ALSP. Then, in the last week of September, PwC and US immigration law firm Fragomen announced a strategic alliance. Both are clear declarations of intent, signalling the battles to come in the global legal industry.

Riverview has a strong reputation in the UK, and EY’s move was judged to be a potential game changer. Clients are routinely demanding scalable solutions that an EY-owned Riverview can provide: digitised legal services delivery, cutting edge technology, and inter-disciplinary expertise – all at a potentially lower cost.  As EY leverages its brand, the opportunity to further exploit their global coverage, alongside their C-Suite and procurement department relationships, is self-evident.

Further confirmation that the Big Four have begun to park their tanks on the lawn previously reserved for law firms came with the PwC-Fragomen strategic alliance announcement. Beyond immigration advice, the new arrangement provides for “integrated services” to their respective clients. However, this is far more than an alliance in the niche space of immigration law, into which the Big Four have been expanding for some time. It will also serve as a critical test bed for partnerships in broader practice areas.

It seems obvious that Fragomen will be dominated by PwC. The tie-up followed hard on the heels of the acquisition of another prominent immigration specialist law firm announced in June: the non-US offices of Berry Appleman & Leiden (BAL) will be acquired by Deloitte, which also agreed a partnership with BAL’s US practice. The double whammy is significant. Fragomen is, by far, the world’s biggest provider of immigration-related legal services, generating revenues of $577m last year while BAL is also very highly rated in quality.

For PwC and Deloitte, size and reach matter. As a result of these moves, they will be able to leverage new technologies and processes internationally in the immigration sector. Service quality will improve and costs will reduce. Cross–selling of consulting and tax services will flourish. For major law firms already in this space, it is a major threat. Some may even choose to spin off their immigration practice – to EY, for example.

Immigration might be a niche practice area, but these moves are a clear indicator of the direction of travel. In other practice areas, The Big Four may choose to expand organically, leveraging their brands in tax and consulting to win market share. This would weaken their law firm competitors and undermine their financial models, making them vulnerable to alliances or acquisition. If this strategy succeeds in one practice area, another will follow. And then another. Riverview is a good example. An ALSP has been acquired which will inevitably expand to squeeze the competition: in e-discovery, contract management, IP management and regulatory services.

Dispute resolution may be impossible to develop because of conflicts and a multiplicity of corporate relationships, but some practice areas would be possible, particularly non-litigation practices that require scale and benefit from sustained investment in technology and process improvement – areas which play to the Big Four’s strengths. Their enormous power has already provoked UK lawmakers to suggest breaking them up. This may ultimately prove necessary, but for now the Big Four seem set to make life pretty uncomfortable for many more law firms.


Dominic Carman

Written by:

Dominic Carman, journalist, writer and legal commentator.


Author: Dominic Carman