Remaking Law Firms: Will we ever see a $10 billion BigLaw firm?

Will we ever see a $10 billion BigLaw firm? Is a $10 billion BigLaw firm unthinkable? Is the very thought of a firm four times the size of today’s largest far-fetched? Perhaps not, as the following analysis suggests.

When I was quoted some years ago in the Law Institute Journal (of Victoria, Australia) musing whether there might be “ten $10 billion [global] law firms in ten years’ time”, the proposition caused one BigLaw managing partner quoted in the same article to suggest “somebody needs to have a cold shower.”

Is mine a realistic scenario? Is there a rationale for a $10 billion BigLaw firm, let alone ten of them in the world? Or do I need a cold shower?

The prospect of “ten legal juggernauts” is probably implausible for many of today’s BigLaw firms, and if it is a credible scenario, then it’s scary for good reasons. Let’s look across at the evolution of the accountancy profession and then analyse a few numbers on the legal profession.

Transmogrification in accountancy

In 1989, only 26 years ago, the Big 8 existed in accountancy. Then two mergers amongst them gave birth to Ernst & Young and Deloitte & Touche, leaving the Big 6. In 1998 PricewaterhouseCoopers was born, leaving the Big 5, reduced to four by the implosion of Arthur Andersen three years later. Some of these firms date back in trans-Atlantic terms to the 1920s when, for example, Arthur Young Broads Patterson and Peat Marwick Mitchell served international clients from offices in the U.K. and the U.S.A.

The modern Big 4 now all exceed $25 billion in annual revenues, each employing over 160,000 people around the world. Each is larger than many of their clients. Each is a very successful firm. They are capable of massive take-overs, witness PricewaterhouseCoopers acquiring Booz & Company in 2014. On a global basis few firms, if any, can challenge the Big 4. In the talent recruitment marketplace they are the first choice for most graduates in most countries. It’s daunting for any firm competing head-on with the Big 4.

Analysis of BigLaw firms shows the largest seven all with annual revenue greater than $2 billion: Baker & McKenzie, Dentons, DLA Piper, Latham & Watkins, Skadden, Arps, Slate, Meagher & Flom, Clifford Chance, and Kirkland & Ellis (BTW I am not entering the debate on whether vereins count in this analysis; after all many of the Big 8, 6, 5, 4 were/are vereins.) Comparatively, these large law firms are each less than one-tenth of the size of the smallest of the Big Four. So perhaps a cold shower is warranted?

A $10 billion #BigLaw firm?

But wait, if two of these seven merged (only for the sake of the arithmetic and this argument, mind you) and the merged firm grew at 10 percent per year, it would take just 10 years to reach $10 billion (in today’s dollars). If annual organic growth was 5 percent, it would take about 19 years to reach $10 billion.

And, as with accountancy, if two mega law firms merge, others have to follow. Given the contemporary penchant for mergers through vereins, it’s likely $10 billion would be reached in less than one or two decades, respectively, at least by some of the firms that enter this race.

Perhaps the better question is ‘Why won’t the global legal industry evolve in the same way as the accounting industry?’ I think that cold shower can wait.

Note

Remaking Law Firms: Why and How by George Beaton and Imme Kaschner will be available in March 2016, published by the American Bar Association. Register on this website to be amongst the first to be notified of publication.

Author

This post was written by George Beaton, a partner in Beaton Capital and executive chairman of Beaton Research + Consulting. George tweets at @grbeaton_law and @NewLawNewRules.

A version of this post first appeared on the Bloomberg BigLawBiz blog where George Beaton and Warren Riddell are guest contributors.