While there's a correlation between the Big Four's acquisition strategy and how they're regarded in the legal world, these organizations have largely been keeping their powder dry. A recession could change that. Want to weigh in? Email me here. Want this dispatch in your inbox every Thursday? Sign up here.

The Big Four Are Keeping Their Powder Dry

The Big Four have their eyes set on legal work. I think that in October 2019, we can all agree that's a relatively uncontroversial statement. We were reminded last week about the brand strength they've generated through their recent forays into the area: For the second year in a row, they accounted for four of the five top spots in Acritas' ranking of alternative legal brands.

In reporting on these organizations for the last 18 months, I've noticed their tactical advances into the legal sector fall into two categories: acquisitions and alliances. While it seems like the former—although infrequent—have been more effective in shaking up the legal industry, the real dealmaking may be yet to occur. Let me explain.

When we talked about the recent brand survey, Acritas director Jo Summers pointed to a correlation between increased market awareness and the acquisitions these organizations have recently made. EY closed on its purchase of legal managed service business Pangea3 in June, after finalizing its addition of Riverview Law last September. And when the latest ranking came out, it vaulted from the fourth spot on the list to number one.

Meanwhile, the Big Four's law firm "alliances" don't seem to have the same bang for their buck, at least when it comes to recognition by general counsel around the world.

Take Deloitte. The firm made a splash in the U.S. in June 2018 with the announcement of a tie-up with immigration specialists Berry Appleman & Leiden, which also included the acquisition of the firm's overseas offices. And in May Deloitte inked a similar deal with Epstein Becker Green focused on employment law. Nonetheless, it dipped two places in the 2019 Acritas rankings, making it the lowest ranked member of the Big Four, tied for number 5 on the list.

Or PwC, which also leapt into the immigration arena with a September 2018 alliance with Fragomen. At the top of the Acritas list in 2018, they dipped two points on the 100-point index this year, leaving them nipping at the heels of EY.

This all makes some sense. While the 1,100 GCs from around the world polled by Acritas include some leading U.S. legal departments, those outside of the country aren't so concerned about the Big Four's capabilities here—even if these alliances do offer the promise of smoother sailing for international clients with U.S. matters. Enhanced capabilities to handle volume work, aided by the purchase and integration of these ALSPs, evidently matters more.

So why haven't these organizations been even more active in the acquisitions market?

I recently called up Liam Brown, founder and executive chair of Elevate. The "law company," as Brown categorizes the business, was the one new arrival in the Acritas Top 10 this year—like EY, fueled by a serial acquisition strategy. In the last 12 months, Elevate has snapped up a number of businesses, including legal AI technology and consulting firm LexPredict; consulting, technology and managed services business Yerra Solutions; a legal staffing firm in the U.K.; and a legal department consulting business in Hong Kong.

For Brown, it's still early. "I see them as future contenders in this space," he said of the Big Four.

Law firms, corporate law departments, and alt-law startups are all figuring out how to play in the new sandbox of technology, digitalization and artificial intelligence, while the Big Four are watching closely from the other side of the playground, while occasionally dipping their shovels in to test the quality of the sand.

"They are making investments, experimenting, but right now the law businesses of the Big Four are not large relative to their overall sales. No matter what they do it won't move the needle at the strategy or operating performance level. Extending into the legal business is to some degree is a distraction," Brown said.

That said, he's considered the implications of one of these companies pursuing his own business, which he says is tracking towards becoming a $100 million enterprise.

"If we sold to the Big Four, we'd have a bigger platform, but would we really make a dent in the universe or would we just get swallowed up and be less than 1% of the Big Four revenue?" he questioned.

That desire to get bigger while maintaining control, and the pursuit of a healthy balance sheet in the event of an upcoming recession, has informed Brown's own turn to both the debt and equity markets to scale up: "Typically our business is countercyclical. When there are downturns, companies look for efficiencies like ours."

But just as the prospect of a recession guides his own strategizing, he also believes it will make a difference for the Big Four. Right now, while the Big Four could buy more alt-law businesses, assembling a bunch of small operations presents a huge integration challenge. That calculus could change when their core business slows down.

"Strategy committees are going to say, 'Where are the adjacencies in our core business that we've been experimenting with?" Brown said. "Legal will become a priority."

Four of the five top spots on the Acritas table isn't bad for businesses where legal work is an experiment rather than a priority. They might have to create a whole new list in the event that changes.

In the News

➤➤Speaking of growing ambitions, I noted here last week that a giant in the law world and a bigger giant outside it both unveiled some intriguing plans. Over at TechLaw Crossroads, Steve Embry fits the two moves together. Midsized firms, he says, are in the crossfire, pressured from above (Dentons) and below (Amazon.)

➤➤And speaking of the intersection between recession and opportunity, my new colleague Dave Thomas checked in on how Barnes & Thornburg used the last downturn as an opportunity to expand. Ten years later, managing partner Robert Grand says the gamble has paid off.

➤➤We've talked about proposals to revamp the regulation of legal services in California and Utah, and the prospect of non-lawyer ownership of firms. Arizona is the latest state to take action, reports Bob Ambrogi, recommending eliminating the prohibition on outside ownership in order to increase access to justice. Be sure to pay attention to the dissent, which critiques the task force's reliance on Bill Henderson's recommendations.

➤➤Finally, these two London Baker McKenzie lawyers share their job, and were promoted to the partnership in July. Intrigued? The FT takes a look at how it works.

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