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KPMG Expects Legal Revenue, Tax Work to Surge After Pandemic

Aug. 20, 2020, 3:39 PM

KPMG International expects bullish growth globally in its tax and legal divisions over the next few years, fueled by the coronavirus pandemic that many feared would hurt the big accounting firms’ consulting revenues.

“We can double legal revenues over the next five years,” said David Linke, who takes over as KPMG’s global head of Tax & Legal services in October. He is currently in charge of tax for KPMG’s Asia Pacific region.

Linke said KPMG’s global legal revenues are currently around $400 million, a relatively modest portion of the firm’s $6.6 billion global tax and legal revenues, which account for around 22% of global revenues. The pandemic will accelerate tax and legal growth (from 7.8% last year) as companies seek advice on likely tax changes and look to technology to allow more remote work, he said in a recent phone interview.

“People will continue to work remotely after the pandemic,” Linke said, “and there will be changes to tax regimes” as countries look to mend economies ravaged by coronavirus.

Linke said that KPMG could effectively offer a one-stop shop to clients wanting remote access to their corporate systems. “We can offer the technology to join up legal and tax offering for areas such as regulatory and compliance,” Linke said, adding that clients would expect to be able to access all necessary information from their home computers.

In December, the firm announced a $5 billion global technology investment program, centered on cloud technology to deliver professional services remotely. “Technology is disrupting organizations across the globe,” Bill Thomas, KPMG International CEO, said in a statement at the time. “Clients are turning to us like never before.”

“KPMG’s plans look feasible,” Kent Zimmermann, a partner with the Zeughauser Group, which provides strategy advice to U.S. law firms, said in a phone interview. “The key thing is that legal services are integrated with the firm’s other offerings.”

A Different Big Four Approach

Here, KPMG’s approach is typical of the Big Four accounting firms, offering legal services in tandem with its expertise in other areas so that it can offer full client solutions in areas such as employment.

Deloitte LLP, for example, entered into an alliance with U.S. immigration lawyers Berry Appleman and Leiden in 2018, buying the lawyers’ non-U.S. operations so that it could offer a global immigration service. More recently, it announced a new unit designed to “transform the business of law” through consulting and technology services for corporate legal departments. Another rival, Ernst & Young LLP, bought two technology-led law firms in 2018-19 to spearhead its expansion into automating services for in-house lawyers at large corporations.

“The Big Four have been ramping up their rhetoric in legal over the past couple of years, talking of becoming leading disruptive players,” said James Jones, senior fellow at the Center for the Study of the Legal Profession at Georgetown University Law Center. “So far they have been nibbling at the edges of the law market, but they might be set to take a bite out of the meat.”

Jones said that the big accounting firms weren’t active in major legal areas such as litigation but that market changes, such as the shift to doing more things like wills online, bypassed the need for traditional law firms and played into the hands of the accounting firms. “Law firms are not big enough to compete with their technology spend,” he said.

“The biggest U.S. law firms have revenue of $2 billion to $3 billion,” Jones said. “KPMG is ten times as big.” KPMG reported global revenue last year of $29.8 billion.

“KPMG can’t be a credible player in law without being in the U.S.,” said Bruce MacEwen, president of the law firm advisers Adam Smith Esq. He noted that the U.S. accounted for more than half of global legal revenue.

“However, the Big Four already have a big presence in areas like tax, which doesn’t actually require documents to be drafted by a law firm,” he said. “The big U.S. lawyers all had a large tax practice 20 years ago, but that has largely disappeared.”

Almost every U.S. state prohibits ownership of law firms by nonlawyers, meaning the firms can’t be bought by accounting firms. Arizona is in the process of revoking that ban, however, and some other states, including California and Utah, are considering watering down the prohibition to help make legal services more affordable, for example through the wider use of technology.

“Even some law firms accept that the ban on non-lawyers owning legal firms is outdated,” MacEwan said, “and I personally would expect the ownership restrictions to be lifted by many states over the next few years. Then you will certainly see the Big Four buying law firms, and U.S. market share.”

To contact the reporter on this story: Michael Kapoor in London at correspondents@bloomberglaw.com
To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; David Jolly at djolly@bloombergindustry.com

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