Deloitte throws weight behind UK legal services upgrade

Mid-tier legal firms in the UK could soon see their revenue streams come under threat, as the Big Four of Deloitte, PwC, EY and KPMG gun for their market share. With their latest push into the law sector, Deloitte aims to wield new technology in order to provide new standards of back-room efficiency, as the professional services giant bids for a slice of the $600 billion global legal market.

For a substantial historical period, the UK’s top legal firms have been largely unchallenged in their market dominance. The UK’s top 50 law firms have a combined revenue of well over £13.7 billion – while the top 10 law firms account for 63% of this. This substantial income is realised by a workforce of more than 75,000. Just over half of these employees actually serve as fee earners, working as lawyers, while 48% presently operate as staff and back-office employees.

However, while the global and British legal segments have continued to perform relatively strongly, regulatory and technological changes are opening the lucrative sector up for major disruption – with the notorious Big Four of the consulting and accounting world now eyeing legal work as a major prize. The value of the global legal market is estimated at over $600 billion, and according to analysis performed in 2017, PwC, EY, KPMG and Deloitte could draw an annual revenue of $30 billion from legal services, if they were to fully expand into the market.

Unsurprisingly then, 69% of law firms have come to see the professional services giants as major threats to legal organisations’ market share, following successful forays into a host of other segments by the gang of four. Indeed, by leveraging practice areas they already serve, the firms are already gaining legal market share at a rapid pace by providing legal services in tax, finance, M&A (for lower value deals) and labour.

Now, in a move that poses a threat to a number of mid-tier law firms, Deloitte has unveiled its intention to expanding its legal services offering in the UK. The move is the latest effort by a member of the Big Four accountancy groups to move in on the territory of traditional law firms – and follows similar moves by PwC, KPMG and EY. The plans will allow the multifaceted firm to bring its legal arm closer to its other services, such as audit and consulting. That will in turn increase Deloitte’s access to the coveted $600 billion global legal market – adding to Deloitte’s already substantial client base in the world-wide consulting industry, which is itself valued between $100 billion to $300 billion, depending on definitions.

The Big Four’s legal divisions are already larger than most law firms and – as consulting firms forays into the advertising world have similarly shown – an enlarged workforce is one major route to winning over new clients. Deloitte has around 2,000 lawyers, while PwC boasts a total of 3,500. If defined by headcount alone and considered as a standalone organisation, hypothetically this would already make PwC a top 10 firm.

Fighting talk

Deloitte also intends to introduce new technologies to improve and speed up routine legal work, such as handling vast numbers of contracts and other documents, particularly for corporate in-house legal departments. This could drastically reduce the back-end costs incurred by the substantial administrative and operational workload of traditional law firms.

According to Matt Ellis, Managing Partner for Tax and Legal at Deloitte, the move is a statement of intent. “This signifies that we are going into legal in the UK. There is room [in the market] for a lot of players and our competitors in the Big Four are already operating in this space,” Ellis said.

“We’re planning to use our technology and advisory skills to transform legal services and help address many of the challenges lawyers… are facing in today’s increasingly complex legal environment,” he added, and though Ellis stressed that Deloitte was not seeking to replicate a traditional law firm, he also acknowledged that its enhanced legal offering may well come to “threaten some players” who have previously relied on work outsourced by corporate counsel.

While the mid-tier legal firms of the UK might well be anxiously watching for further developments, however, the four firms would still stand a world apart from leading legal names, whose advice on the biggest and most complex deals sees them earn significantly more. US firm Latham & Watkins drew revenues of $2.8 billion in 2016, while in Britain, the legal industry’s “magic circle” of Clifford Chance and Allen & Overy also passed the $2 billion mark last year. By comparison, PwC earned $500 million from legal services in the same year, while Deloitte earned $250 million – a fraction of its $39 billion overall revenues, and it’s $15.9 billion consulting haul.