Legal businesses branch out to meet demand
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Lawyers pride themselves on being part of a profession — a form of work based on long and advanced training. But, in the past two decades, they have been joined by another cohort: alternative legal service providers (ALSPs), who instead talk of being part of ‘an industry’.
This group, which includes the Big Four accounting firms, focus on the work that lies outside the complex legal advice given by law firms. Now, though, legal businesses of all kinds are expanding their offerings to meet growing demand for this work, but in different ways.
ALSPs have had a turbulent history to date, and one not free of hype. However, Liam Brown, chief executive of law company Elevate, says that if the industry initially failed to meet its early potential, that was not because of any problem with the “underlying dynamics”.
“I am on my third $100mn business,” he points out. “The problem is that entrepreneurs in the space have made wild claims about the future.”
The first alternative legal service providers were set up in the early 2000s, taking on outsourced routine legal work at a low cost for their clients — mainly in-house company legal teams and law firms.
In the past two decades, this has evolved, with providers offering integrated solutions to business challenges with a legal dimension. They cover a range of services, from legal technology and data analytics to process re-engineering and consulting, and — in some cases — legal advice, as well.
ALSPs now originate from various types of parent organisation, including the original outsourcing companies, legal technology companies, and the Big Four accountants. Even big law firms have developed their own ALSPs to complement their core legal advisory businesses.
It makes today’s alternative legal services market difficult to define, as the term applies to any type of legal business working at the intersection of business and law, outside the traditional structure of a law firm.
Participants and investors’ estimates of the size of the market vary. The outsourcing segment is valued at $15bn and the legal technology market is about $20bn, according to Houlihan Lokey, the investment bank. For others, the potential is even greater. “In three to four years, the market will exceed a trillion dollars,” says Tony O’Malley, global legal leader at PwC.
For the Big Four firms, the allure of the ALSP market is an opportunity to draw on their substantial resources to combine legal advice with consulting and technology.
At PwC, O’Malley says his ideal project on which to work would go beyond pure legal advice and cover multiple jurisdictions, and include a technology proposition for delivery at scale: “A workforce of the future project, or a broader transformation programme across 20 or 30 countries, would excite me,” he explains.
Michael Castle, managing partner of Deloitte Legal for the UK and North South Europe, characterises the offering from law firms as “event-driven advice”. He sees growth potential for Deloitte Legal beyond lawyering: “There is a whole world [of business outcomes] that general counsel need to engage with that requires more than this type of [legal] advice”.
Shahzad Bashir, chief executive and founder of Morae Global, a tech-driven legal services provider, is clear about his company’s place in the sector. “We are not in the practice of law, we are squarely in the business of law,” he says. “It is an important distinction — the two might touch each other but we are not legal practitioners.”
Brown says Elevate’s role is to help clients streamline their business operations, of which legal process is an essential part. The company also has tie-ups with law firms to help them provide a more cost-effective service to clients, by offering low-cost legal labour as part of the service.
Bringing all the offerings together is a challenge faced by all the ALSPs. “I want to be the Accenture to law firm managing partners and general counsel,” says Bashir. “There are many providers that implement contract technology and services, whether out of India or elsewhere, and people who bring about processes to make it more efficient. But the solution has to be integrated.”
Scale is also becoming a critical component of ALSP success. The Big Four legal services teams already have this. But, to gain it, Morae Global has been on a buying spree, taking on change consultants such as Janders Dean in 2020 and ancillary tech offerings before securing BlackRock funding in 2021. At Elevate, Brown is on the hunt to raise more capital to expand quickly.
Changes on the demand side are also propelling the market forward. “The client buying pattern has shifted around integrated services,” says Stuart Fuller, global head of KPMG Legal. This has been partly fuelled by the growth of data held by multinationals, which is driving the need for more standardised systems. Some ALSPs, such as UnitedLex, have put a data strategy at the heart of their offering to corporate legal departments.
There has been a mindset change towards ALSPs from clients, too. At Haleon — the UK consumer health spin-off from drugmaker GSK and one of the FTSE’s largest 20 companies — general counsel Bjarne Tellmann is building the legal department from scratch. He turned to UnitedLex to help him with flexible staffing support, using work-intake technology to manage requests from the business for legal advice.
Data is central to this, says Tellmann. Working with UnitedLex from the start will help Haleon achieve the breakthroughs to create a forward-looking legal department, he says: “If we can link to the other data in the organisation, we can create a flywheel effect.”
Asked if the term “alternative” is still appropriate to describe this part of the legal industry, Brown laughs. “With the Big Four in the market, we are working in an ocean not a pond,” he says. “I am convinced there will be a number of billion-dollar law companies in the next couple of years. Call that alternative?”
Five case studies
When Deloitte Legal acquired law firm Kemp Little in 2020, it doubled its lawyer headcount in the UK to more than 170 and acquired new technology. One example is the intellectual property protection tool Dupe Killer, which is used by luxury fashion brands such as Jimmy Choo. It applies artificial intelligence processes to hunt down counterfeiters: the tool scans images online to detect design infringements and provides clients with an assessment of whether a legal action is worth pursuing. Assessments are based on data points, such as how many page views the counterfeiter is getting and how that affects the client’s product over time.
Elevate and Expedia
To enable its legal team to focus on higher value work, the travel booking business is working with law company Elevate to support the legal operations function. Billing queries and review are handled by a rotating team of six people at Elevate, allowing the in-house legal operations team to concentrate on projects that require a deeper understanding of the business. The team at Elevate also handles about 1,000 of Expedia’s routine regulatory queries per month, which used to be dealt with by paralegals. The fee the business pays to Elevate is a fraction of what it saves, thanks to the invoice review service.
Factor and BT
Law company Factor has been working with BT since 2013. Initially, this was to enable the telecommunications company’s legal team to outsource low-value work, such as managing non-disclosure agreements. But, over time, the relationship deepened. Today, more than 60 lawyers from Factor are integrated into BT’s legal team and customer-facing units, where they work on more complex agreements relating to sponsorship, intellectual property, and more. Factor has also helped to introduce further efficiencies for BT’s legal team, such as self-service contracting and other process improvements to accelerate time to market.
LOD, Syke and Therme Group
The lean legal team at wellbeing resort company Therme Group needed to improve its processes in order to help it scale. The team turned to flexible legal resourcing business LOD and legal technology consultancy Syke (the two businesses recently formed a partnership to offer combined services). Syke has implemented an intake system for legal work, along with a contract management system, while LOD provides access to a more diverse pool of legal talent than a small team of permanent hires would, allowing Therme Group to respond quickly as its needs change.
PwC and Bridgewater Associates
In 2020, asset management firm Bridgewater Associates began to develop new products and expand into new geographies. So its legal team, already at full capacity, turned to PwC to improve its efficiency and allow for business expansion. PwC and Bridgewater’s legal team worked on an offering to automate the creation and approval of several agreements, capturing data to allow for continuous improvement. PwC has also hired additional staff in Europe to provide round-the-clock service to the asset management firm.
RSGI, a legal industry think-tank, selected the companies above, taking into account third-party market commendations and interviews with these businesses and their clients.