The Overlooked Story of Accounting Firms and ALSPs
Some things receive more attention than they probably should. The Kardashians' latest antics, Elon Musk's Twitter feed, and whether the thing making us uncomfortable this summer is the heat or the humidity—they are topics we return to again and again, at times out of habit more than anything else. Now, we can add another overly popular subject to the list: the Big Four's encroachment onto the territory of global law firms.
September 17, 2018 at 05:30 PM
5 minute read
Some things receive more attention than they probably should. The Kardashians' latest antics, Elon Musk's Twitter feed, and whether the thing making us uncomfortable this summer is the heat or the humidity—they are topics we return to again and again, at times out of habit more than anything else. Now, we can add another overly popular subject to the list: the Big Four's encroachment onto the territory of global law firms.
This narrative is far less salacious than others I've grouped it with, and yet, it has proven irresistible to commentators. Something about the idea of accountants pushing lawyers aside, apparently, absorbs our imagination. Every bit of business news that is even tangentially related to the subject sparks a new round of discussion about the threat that the Big Four pose to Big Law. A recent squirt of lighter fluid on the coals occurred in June, when Deloitte acquired the international offices of the immigration law firm Berry Appleman & Leiden. (Deloitte also formed a business partnership with it in the United States).
And now, the discussion has flared again. This time, the event that breathed into it is Ernst & Young's purchase of the U.K.-based alternative legal services provider Riverview Law. “The Big Four's Recent Acquisition in the Legal Market Is a Big Deal,” a recent article on Law.com states emphatically, sounding the popular alarm and framing the acquisition as a hint about the Big Four's plans to invade law firm territory.
That subject is so entertaining, and so often discussed, that one has to step back before realizing: the Ernst & Young/Riverview deal has little to do with law firms at all. Let me build my case for this statement with two preliminary points. First, unlike the Deloitte deal, no law firm is involved. Second, we tend to forget that the regulatory structure in the United States prevents accounting firms from practicing law. There are no indications that the prohibition will be lifted anytime soon.
Although it's not being told, the Ernst & Young deal is really a story about the Big Four encroaching on the territory of ALSPs. Perhaps it's less exciting than talking about the endangerment of law firms but consider this: according to Thomson Reuters, the market that ALSPs sell into is expected to grow from $2 billion in 2015 to $55 billion by 2025. That number has continued to grow as more and more tasks that have been traditionally performed by law firms are taken over by ALSPs. Eventually, that will leave law firms with a relatively small core of work (to include, for instance, bet-the-company litigation, M&A transactions, and IPOs), while ALSPs absorb much of the rest.
It raises an overlooked question. Forget about law firms: who is going after ALSPs?
As the Ernst & Young deal suggests, one answer to that question is accounting firms. But there are other answers as well. Law firms, too, have an interest in acquiring the revenues of ALSPs. Meanwhile, corporate legal departments also have an incentive to pull their capabilities in-house (to reduce costs, among other things). This is not speculation. We have already seen a law firm take an interest in an ALSP, when the Am Law 200 innovator LeClair Ryan created its joint venture with UnitedLex Corp. We have also seen a corporate legal department, DXC Technology, form a long-term partnership with UnitedLex. Integreon has its own, innovative partnerships with Fieldfisher/Condor and CMSNO.
While there is no shortage of players who value ALSPs, the match between Ernst & Young and Riverview makes sense. ALSPs focus on scale on efficiency. They are process specialists, which is something that global accounting firms, with their massive operations, understand and respect. They also have intimate relationships—and valuable knowledge with law firms and corporate legal departments. Finally, ALSPs offer a product that can be used as a point of entry to sell additional services to law firms. For these reasons, ALSPs have characteristics that are uniquely appealing to accounting firms.
Accountants offer ALSPs certain advantages, too. The Big Four, in particular, possess reputations that give general counsel greater security in hiring them. Their brand equity can thus expand ALSP's revenues.
Whether accounting firms, corporate legal departments or law firms become most active in trying to capture the profits of ALSPs—or whether ALSPs seek to remain independent—is yet to be seen. But it is a question that should be discussed. While the overheated conversation about the Big Four's attack on Big Law rages on, it sits in the background as an overlooked, and perhaps far more insignificant, topic of discussion.
Brian Houk is chief revenue officer of Integreon.
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