Do the Big Four accounting firms pose a big threat to Big Law?

A new study has warned that law firms should prepare for a “significant increase in competition”, as the Big Four accounting firms continue their push into legal services.

The report, Elephants in the Room Part I: The Big Four’s Expansion in the Legal Services Market, by ALM Intelligence, states that the Big Four’s formidable brand strength, client base and ability to offer multidisciplinary services has helped them take market share from traditional law firms.

Deloitte, EY, KPMG and PwC have invested heavily in their legal services arms in recent years – particularly in Europe – and now collectively employ about 8,500 lawyers globally.

PwC Legal, the largest legal arm of the Big Four, has 2,500 lawyers, making it the world’s sixth-largest legal services provider by that measure – up there with the likes of Clifford Chance and Jones Day.

PwC Legal, which last year fully integrated with the accounting firm’s UK business, also has offices in 85 countries – far more than any other law firm. Earlier this year, PwC sealed an innovative five-year deal to take on the in-house tax law department of General Electric, including 600 staff.

Each of the Big Four’s legal arms has regularly achieved double-digit revenue growth – EY’s revenue has risen by more than 10% for five consecutive years. However, their focus on lower-value work is reflected in a relatively weaker financial performance compared to top law firms. PwC Legal’s $500m (£375m) revenue would put it in the bottom quartile of the Global 100 by that metric.

While the Big Four have historically focused on practices that complement their audit and tax advisory businesses, such as tax, labour and employment, and immigration, the report finds that they are increasingly branching out into other areas, including M&A.

Two thirds of law firms surveyed by ALM Intelligence said they were “concerned” about the threat posed by accounting firms and other alternative service providers, while 45% consider them to be a “major threat”.

ALM Intelligence will release a second report, assessing the Big Four’s prospects in the legal industry and examining three possible scenarios for their further expansion, on 27 September.