Dentons Chair Joseph Andrew says there’s a “fear factor” in competitors’ reaction to news that his law firm is launching a private equity-backed global consulting business.
Competitors view Dentons Global Advisors as a sign of what may be to come if U.S. law firms are able to receive outside investment, Andrew said in an interview. The firm’s ability to tap private equity capital will serve as “jet fuel” for the firm’s continued acquisitions, he said.
“It has caught a lot of peoples’ attention because their minds start whirling about what we might do,” Andrew said of this week’s announcement. He declined to provide more specifics around the private equity firm that made the minority investment.
The investment behind Dentons’ consulting ambitions comes at the same time as regulatory changes that could soon force U.S. law firms to face competitors backed by outside capital. Some law firms have signaled they are paying attention to the changes and could react with new business models.
U.S. law firms have been insulated from competition by rules that limit ownership stakes to lawyers. The rules, which have long been in place in the U.S., are supposed to protect consumers from shady legal services.
“What happens when those other restrictions fall?” Andrew said. “That is the backstory to all of this.”
The prohibition is already changing in some states, such as Arizona and Utah, which recently began experiments to open some legal services to investment from non-lawyers. So far, innovative companies like Rocket Lawyer, a tech-focused platform for filling out legal paperwork, have shown the most interest.
Law firms for decades, though, have feared the entry of the Big Four into the world’s largest legal market. Those consulting firms have already developed major legal practices in Europe and elsewhere, which global firms like Dentons already compete with for work.
“What law firms have been worried about for 30 years is accounting firms doing legal work, but they now realize that turnaround is fair play,” said Robert Couture, a senior research fellow at Harvard Law School’s Center on the Legal Profession and a former executive director of McGuireWoods. “The law firms can bring on billable professionals and a heck of a lot of expertise that doesn’t necessarily require a JD.”
Meanwhile, litigation finance companies have raised billions of dollars in recent years to purchase returns from lawsuits. Some have said they are interested in investing directly in law firms.
Burford Capital, one of the largest litigation finance firms, has said it can structure equity investments in U.S. law firms under the existing professional rules. The company already owns a piece of a London-based litigation firm, PCB Litigation.
Dentons has already been the fastest growing law firm in the world for years. It has notched three of the seven largest law firm combinations so far in 2021, according to Altman Weil Inc.’s MergerLine, which tracks law firm deals. Those three combinations occurred in Nigeria, Ecuador, and Bolivia.
Dentons Global Advisors is separate from Dentons the global law firm, which has some 12,000 lawyers operating in 81 countries. The two will work closely together on referrals.
Andrew said the plan is to expand its services into some 16 areas where companies commonly seek consulting advice. They include M&A, shareholder activism, cybersecurity attacks, leadership transitions, and legislative and regulatory changes.
Andrew said he had already received a flood of resumes from consultants and notes from investment bankers who are keen to sell consulting practices to an eager buyer. He is hoping there will be a slew of “fast follower” acquisitions, noting the business disruption caused by the pandemic has made it a good time to be consulting companies on major changes.
Andrew said he doesn’t view the Big Four as a major threat—they are clients and make referrals for the law firm he leads. But he said it is “an inevitability” that lawyers will face more competition from other professional services firms.
“Every professional service firm will try to move into profitable areas to give a more holistic approach,” he said. “Right now law is one of if not the most profitable professional consulting services in the world. It’s something everybody else will want to be in.”