“Accountants Owning Law Firms?” —

• “In a novel move, Big 4 accounting firm KPMG has taken the first step in seeking to own and operate a law firm in the United States. Although permitted in other countries, the United States generally prohibits non-lawyers from owning a law firm. In 2020, however, Arizona became the first state to relax that standard thereby opening the possibility of what is apparently on the horizon. “
• “There are about 1.3 million attorneys in the United States. Competition is considerable, and attorneys strive to develop a brand, a client base, and some way to set ourselves apart from the rest of the pack. Traditionally that ‘pack’ has exclusively consisted of other members of the bar who have met specific requirements necessary to practice law due to the Rules of Professional Conduct governing attorneys. Those rules prohibit non-lawyers from owning U.S. law firms due to ethical concerns governing conflict of interest principles. (See, e.g. ABA Model Rule 5.4.) However, jurisdictions including Arizona and others have recently enacted reforms which would permit non-lawyer ownership under specific conditions. “
• “Critics may worry that allowing non-lawyers to own law firms could lead to conflicts of interest and compromise the quality of legal advice. On the other hand, those in favor of the change may argue that ownership by non-attorneys could improve access to justice through novel, innovative business structures which potentially could reduce costs. This development is certainly worth monitoring.”

Law.com editor Dan Packel writes: “The Law Firm Disrupted: With KPMG’s Proposed Entry, Arizona’s Liberalized Legal Market is Getting Interesting” —

• “In late 2018, I dug into the idea that the Big Four firms, which had already building up their capabilities in legal services outside the U.S., posed a threat to American law firms that few were taking seriously. And in early 2020, my former colleague Dylan Jackson and I took a close look at how a push to reform the way the U.S. legal system is regulated, particularly for the sake of improving how average Americans can access legal services, could impact Big Law.”
• “Now that KPMG appears poised to take advantage of perhaps the most significant reform effort to date, it’s a good time to go back to previous reporting and see what’s actually transpired since then.”
• “Needless to say, some of the most dire predictions—at least from the perspective of Big Law—have yet to manifest themselves. Take the Big Four. One young fund formation partner at a global law firm shared his fears that, by 2024, the accounting firms would have muscled into his territory with ease.”
• “‘What I’m now doing, I won’t be doing. The classic fund formation group of a firm with 10 people won’t exist,’ he said in 2018. ‘I am fully prepared that they will be a competitor, and they will crush me if they wish.’ But Big Law funds formation work remains healthy—the Big Four has not vacuumed up this work. (To reinforce this point, I just flipped over to my email to find a press release with a global law firm announcing the hire of a new funds formation partner.)”
• “One big takeaway from my reporting in 2018 was that if they wanted to muscle in on some of the more sophisticated work that U.S. law firms do—not just funds work, but M&A advisory services—they could potentially pull it off, regardless of what state bar rules had to say about their ownership structure and the unauthorized provision of legal services.”
• “That’s because the definition of ‘legal services’ gives way to a gray area, I learned from former Arnold & Porter managing partner James Jones, who I was sad to hear died recently. Jones said that these Big Four firms could make a credible case that the work they aspired to do didn’t qualify as the practice of law, and he and others also emphasized that these firms’ deep pockets could give them the resources to win a legal fight, if it came to that.”
• “Until now, these firms have been content with indirect strategies for accessing the U.S. legal market, like formal alliances with U.S. law firms. And while the proposed move by EY to spin off its global audit business could have created a standalone advisory shop that would no longer have been constrained by ethical boundaries precluding that firm from providing legal services to audit clients, a revolt by U.S. leaders stopped that plan in its tracks. Over $100 million spent on the proposed split went down the drain, according to the Wall Street Journal. The firms have also faced a global scandal over employees cheating on ethics exams.”
• “Arizona’s move to abolish Rule 5.4, which barred non-lawyer ownership of law firms, and the state’s move to create ABS licenses has had a clear impact, allowing local firms to shake up how they’re organized and attracting some of the more cutting-edge legal businesses to the state.”
• “‘Lawyers also argue that the global dominance of the accounting profession by a very small number of accounting firms is an anticompetitive model that should not be replicated in the legal profession,’ the firms, including Morrison & Foerster, Pillsbury Winthrop Shaw Pittman and Baker McKenzie, wrote.”
• “But now that the Arizona program has established its viability, with over 100 licensees, at least one Big Four firm sees an open door to offering its technological capabilities and scale to help U.S. clients serve some of their legal challenges. It’s only fair to assume the others will follow.”

“UK Funder Joins With Law Firm, Insurer to Form Legal Behemoth” —

• “A litigation funder is forming a novel company designed to oversee cases from inception to resolution.”
• “UK-based Asertis is now the funding arm of newly formed Legatus Holdings Limited, which includes other subsidiaries KP Law, an insurance managing general agent, and a mass tort and group action claim acquisition company.”
• “The new venture aims to put under one roof two mainstays of the litigation funding ecosystem: investments in mass torts claims and insurance offerings for parties in lawsuits. It highlights the opportunities for funders in the UK and other places where restrictions on law firm ownership have been relaxed.”
• “‘There’s nothing in the UK that mirrors this, that has those four subsidiaries vertically integrated into legal assets,’ said Legatus chief executive officer Philip Holden. ‘We have created a unique and compelling vertically integrated group, where each operating business is led by market-leading professionals with established pedigrees in their respective fields,’ said Holden, who formerly served as Asertis general counsel, in a statement.”
• “The new venture streamlines litigation finance, according to Holden. Instead of outsourcing for claim aggregation or insurance to cover adverse costs, it will all happen in one place. The companies are not required to only work within Legatus and can work with the rest of the market.”
• “The law firm subsidiary KP Law is the result of a 2024 merger between the UK divisions of two massive US mass tort firms: Keller Postman and Lanier, Logstaff, Hedar & Roberts. Asertis bought Keller Postman UK in 2023 and acquired Lanier Longstaff the following year. Lanier’s docket includes both the UK and European claims in the talcum powder litigation against Johnson & Johnson. It cut ties with both Keller Postman and Lanier in the US after the purchase.”
• “These kinds of arrangements—often referred to as ‘alternative business structures’—are far less common in the US, where most states ban nonlawyers from having ownership interests in law firms. Arizona, Utah, and Washington, DC are among the jurisdictions that have loosened the restrictions to varying degrees.”
• “Stephen Mayson, a professor of law at University College London and a chair of an ABS in the UK, says a structure like this has been a long time coming and the original intention of the ABS provision was to encourage multidisciplinary businesses. But combining businesses that are all regulated differently could present difficulties.”
• “‘Putting this together under one umbrella looks great from a multidisciplinary perspective,’ said Mayson. ‘This will be enormously complex from a regulatory perspective.'”
• “He added that this could influence how the US looks at nonlawyer ownership, ‘If this sort of thing happens in a crossborder situation there might be more pressure on US regulators to look closely to how they do this.'”

“M&A Service Providers, M&A” —

• “Private equity has discovered the accounting space— and it can’t get enough. ‘There’s an M&A frenzy right now,’ says Allan Koltin, CEO of Koltin Consulting Group. If all goes according to plan, private equity firms may soon own a third of the 30 biggest accounting firms in the United States, according to projections from The Financial Times.”
• “TowerBrook Capital Partners’ 2021 investment in accounting firm EisnerAmper was the first private equity deal in the indus- try. Since then, there’s been a flurry of activity in the space— with private equity investing in firms like Citrin Cooperman,
• “Grant Thornton, Cherry Bekaert and Baker Tilly, as well as mergers of firms such as BKD and Dixon Hughes Goodman.”
  Private equity is attracted to these firms for straightforward reasons. Accounting firms are sticky businesses, with loyal client bases and stable recurring revenue streams. They’re low-risk and largely recession-proof. ‘People don’t switch their tax provider. And in a good or bad economy, you still need to file taxes and get audits done,’ says Andre Moura, managing director at New Mountain Capital, which invested in Citrin Cooperman in 2022 and Grant Thornton in 2024.”
• “Furthermore, the industry is still highly fragmented. There are over 80,000 accounting firms in the United States, according to IBISWorld data, and as of 2020, nearly three-quarters of the CPA workforce had met the retirement age, according to the American Institute of Certified Public Accountants (AICPA).”
• “Confronting Conflicts of Interest. Independence is one of the main pillars of the accounting industry, meaning an auditor must have no ties to or conflicts of interest with the company it is auditing.”
• Regulations also stipulate that CPAs must hold a majority ownership stake in audit practices. To comply, accounting firms taking on private equity investment must adopt an alternative practice structure, splitting the practice into two parts: an audit and attestation unit, owned by CPAs, and a non-attest unit (e.g., tax and consulting), which can be partially owned by outside investors.”
• The concept of independence still applies. But many worry the presence of an outside investor inevitably introduces complications. ‘The private equity firm that owns part of the business already has its own other portfolio companies. The accounting firm now must be independent not only of its own clients but also of the private equity firm and quite possibly of all the portfolio companies of the private equity partner. The private equity firm needs to share in this responsibility as well,’ says Jey Purushotham, practice group leader of compliance solutions at Intapp.”
• Regulators like the AICPA and the Public Company Accounting Oversight Board (PCAOB) have taken note of the shift in the industry and are keeping a close eye on this dynamic.”
• Accounting firms can stay compliant by communicating frequently with the investor to stay updated on its portfolio companies and ensure no conflicts of interest or independence impairments arise. But some find it hard to believe that an accounting firm’s audit practice can truly maintain professional independence within such”
  a structure. “
• Furthermore, some fear private equity doesn’t understand the gravity of the professional independence standards. ‘The ramifications are very black and white. You cannot have even one potential independence impairment that you have failed to eliminate when required, or that you have not safeguarded or reduced to an acceptable level when allowed—and if you do have an independence impairment with a publicly traded company, the consequences can be very high,’ says Purushotham.”