“Change has come to law’s door”: We speak to Deloitte Legal UK and Kemp Little heads Michael Castle and Andrew Joint

When Deloitte sent out a press release on 3 November describing a ‘significant expansion’ and a ‘landmark transaction’, it seemed to take the market a while to register that Deloitte had actually acquired UK top 200 technology, outsourcing and digital law firm Kemp Little.

A firm with 29 partners and around 57 lawyers, Kemp Little has collaborated on a number of projects with Deloitte Legal and there are many synergies between the pair, including a strength in employment, digital and media, which managing partner Michael Castle tells me: “Sits squarely within what Deloitte advises our clients on.” Both organisations have notably focused heavily on technology and productising their legal services, but back to that in a second.

While legal sector pundits have long speculated about whether the Big Four would again move to grow their legal capability through acquisition, as they did before the collapse of Enron, the acquisition of Kemp Little goes a long way to answering that, perhaps with a little bit of icing on top, and Castle, who joined in January 2019, tells me that it has always been the plan.

“The Deloitte legal strategy has always been clear,” he says: “We’re bringing together leading lawyers and technologist into a leading legal solutions business. Clients don’t just want advice but solutions. That has always been the Deloitte legal strategy. Working within the wider Deloitte firm is a huge advantage given Deloitte’s investment and wider capability.

“We’ve been putting together the various parts including legal management consulting; services; and legal advisory, and right from the outset looking at how we’d grow the legal advisory part beyond what we’ve got in a synergistic way to the Deloitte firm. Areas like employment and digital and media that Kemp Little brings, as well as it’s capability in M&A and employment law, sit squarely within what Deloitte advises its clients on.”

Was this sort of major acquisition always on the cards? Because whether we should have expected and anticipated it or not, most of the legal sector fell off their chair on 3 November. “Yes, we always had it in mind,” Castle says. “Because Deloitte is the biggest professional services firm in the world and law is a professional service. This is the first example of someone bringing together all of those capabilities. We’ve had traditional law firms for years. Then came the alternative legal services but they don’t provide legal services and wider professional services. When I moved from Allen & Overy to Deloitte Legal it was always clear that the strategy was to build a new kind of legal business.”

Kemp Little and Deloitte first entered talks just over 12 months ago. Castle says: “It was very clear from the outset that we shared a vision in terms of the future of legal services.”

What’s interesting is Joint’s own observation about the genesis of the talks. He says: “We’ve been talking as a partnership and we’re proud of our progress to date, but we recognised that change has come to law’s door. We’re proud of our market recognition but we know that we’re not just judged on being great legal advisers but augmenting that with technology, and we’ve been asking ourselves for the last six or seven years about the openness of our clients to receiving advice in different ways. Fortunately, Michael and I started talking and realised it was mutually beneficial to join forces.”

Kemp Little in its last accounts filed saw turnover rise from £14.2m to £16.5m and profit up from just over £5m to £6.3m. Last year it won the FT Innovative Lawyers Award for contract analysis tool 4Corners.

In September we broke the news that Kemp Little was to launch its own IP company, called Dupe Killer, which focuses on creative brand protection. The firm planned to create a series of separate tech entities led by chief digital officer Gerard Frith.

Incidentally, at that time, I asked Kemp Little’s COO Siddartha Mankad if this is the right role for a law firm and he told me (I like to think in the voice of Yoda): “That’s not the right question – it suggests that law firms are vocations and professionals that should just be doing law.  A law firm is a business serving its client and where there is an idea and a construct that is right for the market you should do it.”

Scroll forward to my conversation this week with Joint, and I ask what Deloitte brings to the table that Kemp Little doesn’t already have. “It adds fantastic experience: they have hired around legal advisory services; a team around legal managed services, legal consulting, and technology,” he says. “Secondly, they have experience in professional services: they have done the same thing in tax and audit and now want to bring that experience to bear in legal. For the last four to five years, doing this without experience is hard, so we thought why don’t we combine with people who are doing it better. Plus, there are lots of people and clients who don’t yet use our services and we’d love an opportunity to help support them.”

In terms of the tech products, that business is coming with Kemp Little, although I’m sure inevitably there will have to be some rationalisation. Deloitte’s CTO is Bruce Braude, who joined in July 2019 from Bryan Cave Leighton Paisner. His team includes innovation lead Laura Bygrave and Deloitte’s proprietary technology includes contract management tool dTrax and client compliance portal MyInsight.

It’s not yet clear what will happen about Oracle’s first ERP deal in the legal sector.

The focus for Kemp Little now is on communicating internally how it’s all going to work and I like the emphasis that Joint puts on spending time talking to Kemp Little staff and clients, particularly given how unsettling life already is in this COVID19 existence. Joint says: “We have two big groups we care about – our people who we need to guide and help, and there is a fantastic programme set up by Deloitte to show them what the new world will look like. And our clients, and we are telling them and talking to them about what this means, and that process will continue over the next few weeks.”

Is this acquisition of Kemp Little a repeat of the doomed Big Four growth of the 1990s? There has understandably been plenty of that kind of talk on social media, with parallels drawn between the growth of what was then the Big Five: Arthur Anderson had Anderson Legal, and over 2,000 lawyers; Ernst & Young (now just plain old EY) had EY Law Alliance; KPMG had KLegal; and PriceWaterHouseCoopers had Landwell. All had in excess of 1500 lawyers.

One thing that’s very clear is that, surprise or no surprise, this acquisition doesn’t really come out of the blue. The Big Four have over many years been growing their legal capability and I’d encourage you to read or revisit this really fascinating paper on The Reemergence of the Big Four in Law from as long ago as 2016: https://thepractice.law.harvard.edu/article/the-reemergence-of-the-big-four-in-law/. EY caused its own shockwaves when it acquired Riverview Law in 2018, followed last year by Pangea3 Legal Managed Services.

My personal takeaway from the Kemp Little acquisition is slightly different and I’m reminded of an observation made in January, when Acritas released its global elite law firms index.

The annual research showed that clients’ needs – albeit these results focussed on those of the largest law firms – have become increasingly global over the last decade. Each year, more clients have expressed a greater need for international reach across a broader set of countries, and as a result, an increasing share of spend has been allocated internationally. Clients say they are looking for advisors who can provide multi-jurisdictional support across a range of different practice areas in a consistent and coordinated manner.

Lisa Hart Shepherd, vice president of Research and Advisory Services at Thomson Reuters (who founded Acritas and sold it to Thomson Reuters last year), commented, “Clients segment firms in much simpler ways today. They are either looking for a value choice, premium reputation or global coverage, depending on the needs at the time. Quality can be found in all three segments. For firms, choosing an overarching focus and sticking with it is essential to developing a differentiated brand.”

The bit that sticks with me here, is where she said: “Many large firms are at a crossroads. Seeking a full-service, broader and deeper global capability takes huge investment and management focus. These firms will also need to make large tech investments to stay modern and defend against the Big Four and other disrupters. This is a long-term play that doesn’t maximize profits in the short or medium term. Therefore, many firms instead seek to move to the premium end of the market, replicating at a firm-wide level what they may have in one or two niches. But, being prestigious, by definition, is limited to the few. To succeed in an increasingly dynamic and diverse competitive marketplace, firms need to make realistic strategic choices that stretch the firm but are achievable, and then focus.”

If Kemp Little – which is fairly niche and very tech-savvy – felt concern over its strategic future, what does that mean for firms that are more generalist and, well, not?