Big Four eye potential $30 billion boost via legal market expansion

28 November 2017 7 min. read
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The Big Four consulting and accounting firms could draw an annual revenue of $30 billion from legal services, were they to fully expand into the market. A new survey has found that 69% of law firms see Deloitte, PwC, KPMG and EY as major threats to their market share, following successful forays into a host of other segments by the gang of four.

The global legal market was valued at $600 billion in 2016, and now the world’s four largest consulting firms are due to set their sights on expansion into the lucrative sector. The Big Four, consisting of Deloitte, PwCKPMG and EY, have shown their ability to enter new markets and consolidate share, and by leveraging practice areas they already serve, the Big Four are gaining legal market share at a rapid pace by providing legal services in tax, finance, M&A (for lower value deals) and labour. Despite this development, many law firms believe that major change in the market is unlikely. A new report from ALM Intelligence suggests such views are misplaced, setting out a historical case as to why.

When the Big Four, then focused heavily on accounting services, entered the consulting industry, many suggested they were heading for failure. Over the past decade though, the four grew their consulting practices to become the largest competitors in the market, earning a combined total of $70 billion in revenue from consulting services in 2016. The researchers estimate that this accounts for 27% of the global consulting market, suggesting that if accounting firms were even “a fraction as successful in law as they were in consulting", and built, for example, a combined 5% share, their annual revenue from legal services would be $30 billion.

The Big Four’s expansion in the consulting market

With the market already heavily saturated, the majority of this revenue would come at the cost of market share currently owned by law firms – something analysts expect could occur within the next 15 year period. While this initially would likely occur through organic expansion, the research also forecasts a growing appetite among the Big Four for mergers and acquisitions in the sector. Inorganic growth, fueled by aggressive acquisition campaigns, has already seen consulting firms take to the design and marketing industry with relative ease. The four firms in question, and rivals like McKinsey & Company and Accenture – whose Accenture Interactive arm is now the world’s biggest digital agency – have subsequently built large design wings by obtaining mid-size agencies looking to in turn expand their profile.

When surveyed by ALM about how concerned they were by their law firm’s ability to compete with alternative service providers and accounting firms, 66% of respondents were worried by these developments to some extent. 41% of law-firm leaders polled were “somewhat concerned”, while a quarter of those polled stated that they were “very concerned." When the question was rephrased as “Which competitors do you consider to be a major threat to your law firm’s market share," the figure jumped a further 3%. 69% of leaders questioned stated that accounting companies moving into the legal industry were their key concern, followed distantly by the expansion of in-house law departments on 44%, and legal process outsourcing companies on 28%. Clear is that the industry’s main priority is fast becoming strategizing how to fend off the threat of the Big Four.

Which competitors do you consider to be a major threat to your law firm’s market share

In tax and specific sub-specialties of labour and employment like immigration, the Big Four have already expanded briskly, becoming seen as leading providers of legal services over a short time-span. 95% of law firm leaders surveyed currently believe that the Big Four remains best positioned to take tax market share from law firms – which, while it would be costly, has already happened in a substantial way. In this case, were the Big Four to stop here, it would oddly prevent the least painful scenario among the potential scenarios for their growth in the legal sector. The question many law firms are wondering about is whether the Big Four’s success in these areas can be replicated in other practice areas.

Changes coming

At present, some of the market share of law firms is shielded by legislation. While this might seem to throw a spanner in the works of further growth plans from the Big Four, 56% of law firm leaders believe there will be regulatory change that allows accounting firms to practice law in markets like the US – where they are currently barred. Of that portion, 24% believe these regulations will change in the next 5 years, as the incumbent Trump administration continues to work toward the major deregulation of multiple markets, while 36% see it happening in the longer term.

The Big 4 presently average 2,200 lawyers in 72 countries, putting them on par with Big Law firms like Jones Day, CMS, and Clifford Chance. As a result of this size, 48% of law firm leaders believe that the Big Four are well positioned to eat into the market share revolving around financial clients, should major legal changes occur, while 43% believe they will earn major manufacturing business.

Accounting firms ability to gain market share

While the sentiment of the industry points toward accounting and advisory firms becoming major players in the legal world over the coming years, there is still a long way to go to reach that scenario. According to report co-authors James Mayer, Director, and Nicholas Bruch, Senior Analyst, at ALM Intelligence, despite their historic successes, “the Big Four’s future in the legal market is far from guaranteed. A scandal, similar to the Enron crisis of the early 2000s, could cause regulators to, once again, limit the range of legal services accounting firms are able to provide.”

It might be hard to predict where a scandal of such proportions might emerge. Enron was such a large issue that it resulted in the de facto dissolution of accounting firm Arthur Anderson, leading the Big Five to become the Big Four. Such seismic shifts seem unlikely in the immediate future, however, following the present furore surrounding Deloitte’s email system cyberattack, the Big Four are viewed by many analysts as no longer untouchable – with this particular case currently being investigated by the New York State Attorney’s Office.

The authors also gave further hope to law firms, adding, “Clients could also stand as a barrier to the Big Four. Many corporate clients have been reluctant to see the larger accounting companies as peers to elite law firms. An unwillingness to shift this view could isolate accounting companies to providing lower value legal services. Law firms could also thwart the Big Four’s ambitions. Today’s law firms are large, global, and professionally managed. They are also keenly aware of the threat accounting companies pose.”