At a watershed moment in the Big Four’s protracted entrance into the UK legal market, KPMG’s head of legal remains bullish about making a big impact
A provocative 2017 Legal Business cover, featuring EY’s UK legal head Philip Goodstone, questioned: ‘Big Four, Big Threat?’ At the time it felt like a pressing question. These days it feels more rhetorical.
Canvassing management of traditional law firm partnerships today, you would be forgiven for thinking the case is closed. The line goes that, for all the fanfare surrounding them, the Big Four’s assault on the market has largely failed. There is less of the worry about losing ground, and even a hint of condescension.
Says Addleshaw Goddard’s managing partner John Joyce: ‘Their move into legal has delivered them a lot less than they expected. Accountancy is such a different mindset – I don’t think accountants can run a law firm. I don’t think the people they attract are ever going to deliver.’
While neither PwC, Deloitte, EY nor KPMG have truly stormed the market in the ensuing years, it would be naïve to dismiss them as a threat this early. In February 2021, Deloitte, a relative latecomer to the legal market, set about achieving a rapid scale-up by acquiring specialist tech and media firm Kemp Little. The move gave Deloitte 29 new partners and doubled its lawyer headcount to 170.
And news this year of EY voting to demerge its audit and consultancy businesses has caused quite a stir, with many law firm leaders viewing it as a precursor to a substantive buyout of a traditional practice. Sebastian Prichard Jones, senior partner of Macfarlanes, is cautious: ‘If they were to split off their audit function and become independent professional consultants, that would be a time of danger. If they manage to do a buyout successfully you could see a multi-disciplinary practice that could start edging into our area. God willing that doesn’t happen.’
KPMG’s UK head of legal, Nick Roome, is clear that the competition is very much still on. ‘We wouldn’t be experiencing the success we are if the formula didn’t work. Last year we grew revenue by 36%. We’re a month away from our current financial year end and we will probably be up by more than 30% again this year.’
While KPMG is coy on publicly disclosing figures for specific business lines, it is safe to assume that UK legal revenue is significantly up on the more than £12m reported in 2017. Headcount growth has been pacey too, with the number of lawyers nearly doubling in five years, from 100 in 2017 to close to 200 now.
Clear economic headwinds notwithstanding, there is intent to keep up the momentum. Even the most confident of law firm leaders would have sat up and taken note at ambitious plans unveiled in May – KPMG announcing a £300m investment programme designed to supercharge growth. As such, Roome says he ‘has a mandate’ to hire over 200 new lawyers and nearly triple KPMG’s partner headcount, from 35 to 90, by 2024. Perhaps more ominously for law firm management, Roome notes that the expansion would be achieved ‘mostly by lateral hiring.’
For now, anecdotally at least, law firm leaders are largely unfazed by recruitment competition from accountancy firms. In fact, several managing partners speak of the market going the other way. Karl Jansen, managing partner of Freeths, says: ‘I certainly wouldn’t class them [the Big Four] as a competitor. We also haven’t seen recruitment competition from them. In fact, we’ve recruited people from them. Based on our experience, some people have gone there with a particular vision but it wasn’t what they imagined.’
More than a few commentators muttered of ‘internal politics’ being rife at accountancy firms while some question the Big Four’s ability to bring in quality laterals who can effectively collaborate with an accountancy firm’s one-stop-shop, cross-selling model.
Roome is unconcerned: ‘We integrate our lawyers quite widely with the wider firm, because clients will approach us when we are one part of a complex solution. They get to look beyond their natural swim lanes which gives them a better business context, and as a result makes them more rounded lawyers.
‘All of our lawyers work on an integrated basis – if you come to KPMG and don’t integrate with the business you are kind of missing the point.’
However, KPMG’s list of hires from the last year (notwithstanding eight partner promotions) is slim. The last senior legal recruit to be announced with any fanfare was ex-Baker McKenzie partner Richard Needham, who joined KPMG Law’s business reorganisation team in October 2021. In November 2021, KPMG did hire Tracey Brady from investment trust The Law Debenture Corporation, however Brady became a partner in a company secretarial capacity and is predominantly a governance professional.
Before that, there was the double appointment in March 2021 of former Herbert Smith Freehills corporate senior associate Rich Woods and ex-Lloyds Banking Group head of legal and regulatory change, Justine Sacarello. Promising additions, but certainly not evidence of a hiring onslaught.
Perhaps just as telling was the dearth of senior legal departures to UK law firms from KPMG – the last of note being that of immigration senior solicitor Denise Osterwald to Gherson in April this year. Prior to that, corporate M&A director Bradley Quin departed KPMG Law’s team in the Midlands for Lodders in November 2021.
But is Roome looking for something different from your regular law firm management? He says: ‘When we do senior lateral hires, if they bring a book of business that’s great but we are not short of clients. We have thousands. We are more interested in making sure they have the right attitude, entrepreneurial spirit and the ability to integrate effectively. We’ve had lots of lateral hires who have done well.’
That is not to say that KPMG, and its accountancy firm peers, do not have to worry about competition. As Roome notes: ‘We are not insulated from the junior talent wars at all – we have to try to position ourselves at the right end of the equation. At a senior level, we have a lot of success because our proposition is different. If you have spent your entire career in a classic law firm environment and you are ready for a change, we are a good option. We always hear: “I’m not interested in moving to another law firm.” We’re a different platform with different client bases – there’s not much client acquisition involved, and we have a different way of working.’
Work highlights have seen KPMG Law ranked a respectable tier two in The Legal 500’s tax litigation and investigations section. A representative mandate from the last year saw KPMG advise HSBC on a novel VAT dispute with HMRC about whether UK branches of non-UK incorporated global service centre entities are entitled to be in HSBC’s VAT group. As an endorsement of Leedham’s hire, his business reorganisation practice is also ranked tier two, with a standout matter being KPMG’s assistance of JERA Trading on a global restructuring involving a separation of its financial and physical trading business, with complex regulatory issues.
Otherwise, KPMG is ranked in the lower tiers in several regional corporate and commercial niches, as well as placed tier four in the IT and telecoms subsector. On such evidence, the accountancy firm is not threatening the more sophisticated end of the traditional UK legal market yet.
‘When we do senior lateral hires, if they bring a book of business that’s great but we are not short of clients. We have thousands.’ Nick Roome, KPMG
Are any of the LB100 firms feeling under threat of a buyout? If the approach did happen, it is hard to see which firm would accept being swallowed by a multidisciplinary behemoth rife with conflicts. The mood music among law firm leaders is that most firms of suitable size for a Big Four acquisition would reject an advance due to fierce independence.
Roome is not looking to rush into anything: ‘Never say never on a buyout, but we do see a lot of complexity with trying to transact something like that. There’s a big risk that we get more of what we don’t want out of it than what we actually want. We don’t want to be full service – we’re not interested in having a strong commercial litigation practice, for example. Tax litigation yes, but commercial litigation just leads to conflicts for us.’
While many pundits are understandably nervous about the next 12 months, Roome is bullish: ‘I look at our current deals and I am not seeing any drop off, the pipeline looks strong. Because of the size of KPMG I’ve got a number of different reference points to get a better feel. The deal advisory practice is facing a book of business at the moment which is bigger this year than last year, and that’s coming off one of the busiest deal periods they have ever experienced.’