1990s Once Again? The Deloitte Law Firm M&A Deal

By Richard Tromans, Founder, Artificial Lawyer

Today, Big Four firm Deloitte announced it is to acquire UK-based, technology sector law firm, Kemp Little. But, what does this mean for the market? Is this the 1990s all over again, when what was previously the Big Five were acquiring law firms and top talent all over the world, scaring the traditional law firms – and often with good reason?

Here are some thoughts:

Kemp Little is not a large firm and if you were not in the field of technology law and regulation you may well be forgiven for not knowing too much about them. That said, if you do operate in that field, then Kemp Little would be extremely well-known to you and your peers. Even so, industry data shows that it is ranked around the 150th largest firm in the UK by revenue, and those revenues, according to The Lawyer in 2019, were £16.5 million.

And as mentioned, Kemp Little is a mid-size tech-focused firm, not a rip-roaring M&A powerhouse or a 2,000-lawyer global employment law super-firm. It will help Deloitte to grow and create a solid foundation for further growth, but this – just on its own – is not the law firm deal to end all law firm M&A deals.

In which case one may well ask: why all the excitement?

The reason is simple: history, and specifically the memory of those who were in the City in the late 1990s up to the point of Enron’s collapse in 2001 that killed Andersen and its Andersen Legal group after a ‘paper-shredding scandal’, and then the arrival in the US of the Sarbanes-Oxley Act, plus a general feeling in some financial centres that law and accounting didn’t mix well.

What had looked like a runaway strategic change in the market resulted in a crisis that in turn killed off the big expansion hopes of the other large accounting firms’ legal arms, such as KPMG’s KLegal. In short, the Big Four’s legal land grab was largely over.

Of course, it was not all over, they carried on providing some legal services, such as on employment matters, even after that, but the days of the big, market shaping moves the scooped up hundreds of lawyers at a time in the UK, Europe and Asia-Pacific were over.

All of that was 20 years ago. And, it’s proof that given enough time compelling ideas will come back to life.

The big question is: how much will this idea come back to life?

There are three potential scenarios:

  1. This is a one-off and Deloitte was in the right place at the right time to pick up Kemp Little. The other Big Four won’t get nudged into action and Deloitte won’t go after another – perhaps larger – law firm. I.e. this is the end of a very short M&A moment, and individual hires will still be the main method of growth. In which case, this is interesting, but not the start of anything systemic.
  2. Deloitte has realised it cannot get to where it wants to be by organic growth and small hiring sprees, it would therefore need to do several deals like this, not just in the UK, but elsewhere. There are several firms outside of the top UK 20 that are much larger than Kemp Little and that would make a very good fit. If Deloitte does proceed with more M&A deals this will inevitably spark competition from the other Big Four that tend to try and match each other’s expansion steps. That would then reshape at least the UK legal scene.
  3. This sends a signal that we are back to the 1990s for real, and law firms around the world won’t sit around waiting for a call and instead look at the tough conditions of 2020 and likely in 2021 and decide life would be better inside the Big Four – setting off a cascade of market-shaping events from London to Singapore. And where we would then end up is anyone’s guess…. But, technically speaking, the Big Four legal arms – outside of the US – can grow as much as they like if there are firms that want to join.

Right now there is just one acquisition of one mid-size UK law firm……but, the thought of what this move might become and snowball into is tantalising to say the least.