Market insight: EY’s takeover of Riverview Law

The city of Liverpool, with the a view over the River Mersey to the Wirral

UK-based Riverview Law was launched in 2012 on the Wirral, its view being of the River Mersey with the nearby city of Liverpool visible in the distance. The 'alternative legal services provider' quickly made a success of itself, pledging in August 2013 to 'double in size' – and delivering. By 2014 it had more than doubled its revenues, according to CEO Karl Chapman, boasting of the numerous long-term contracts with FTSE 100 companies.

In the years that followed, it won a spate of awards for its innovative use of technology, and set up offices in Liverpool and Manchester, as well as in the US. Its use of technology delighted clients, as did its discarding of the concept of the billable hour. It was clear for everyone to see that this creative, data-driven firm, almost 200 miles from London, was making waves in the market.

What nobody saw coming was the takeover by EY.

"The company was not on sale," Cornelius Grossman, global law leader at EY, tells International Tax Review. "It was more a personal meeting that led to this acquisition and we figured out our businesses were quite complementary."

"We figured out that we could give to Riverview what they were lacking, and they gave to us where we were short of resources and experience – that made a very happy marriage."

The tax and legal market is being transformed by technology. At the forefront of this are robotic process automation (RPA) and artificial intelligence (AI). EY – and most firms, especially the Big 4 – recognise this and are keen to capitalise.

"The legal profession is going through a period of significant global upheaval," says Chapman in a press release announcing the EY-Riverview deal. "Changes in regulation, technology and most importantly customer expectation create an opportunity for a more flexible and customer-centric approach to the provision of legal services."

Channing Flynn, global digital tax leader at EY, told ITR in 2017 that he expected the tax discipline to be "completely transformed" in the next 10 years, saying that firms and companies that were not already on top of their digital tax transformation and digital tax strategy were "already behind the curve".

If not planning for tax transformation is being behind the curve it's fair to say that, through its Riverview acquisition, EY is trying to get ahead of it.

What most interests EY is Riverview's strength in legal managed services. This sector is growing rapidly, and automation means that much of the repetitive work that companies' in-house teams and accounting firms undertake can be done far more quickly and efficiently.

"[AI] can be utilised to connect issues that were once too complex to draw any insights from; to find patterns in the uncertainty ahead and anticipate the unforeseen," writes Brian Peccarelli, chief operating officer of customer markets at Thomson Reuters, in a recent article for ITR.

Outsourcing work such as contract management to professional service firms can save significant time for companies, freeing up staff for more creative work. Some companies are paying for this technology themselves, too. Most smart money is on the sector continuing to grow.

"Riverview has five and a half years of experience in legal managed services," says Grossman. "They grew a team of 100 lawyers and legal technicians specialised in legal technology implementation projects."

"When we got to know the firm we realised that their client base is similar to the top client base of EY," he reveals. "They've served very big clients and help their legal functions to do legal managed services, or help them with contract work or projects. That is a very good fit for us because they… offer services we were not able to offer to clients at scale, or at the level of technology they were using."

Companies love what Riverview, and competing service providers like market-leading Pangea3 Legal Managed Services by Thomson Reuters, offer because it saves their well-paid professionals time.

"The idea is freeing up highly-paid in-house lawyers from work that could be outsourced because it's repetitive and highly standardised," says Grossman. "Technology and specialised teams in legal managed services can take over a lot of that."

Perhaps understandably, this has set the legal profession on edge. Nearly half of all jobs are vulnerable to automation – that's 210 million across the 32 OECD member countries, according to a recent paper by the organisation – and law is a particularly susceptible area.

Automation is not a mortal wound for humans in the legal profession, but it certainly threatens the bottom lines of many established law firms.

"They are a threat to firms in my strata," said Fieldfisher Managing Partner Michael Chissick following the Riverview takeover, which made the front page of business newspaper City A.M. "I wouldn't underestimate them in any way."

But it's not only automation and legal managed services that are a threat. In the UK, accounting firms have been encroaching on traditional law firm territory for some time now.

"Although there was a certain amount of surprise, in some quarters, that a Big 4 accounting practice should acquire a law firm like this, I think that's completely missed the point," says George Bull, senior tax partner at accountancy firm RSM. "This is actually in line with a well-established pattern of accounting practices having their own law firms."

Since the 2007 Legal Services Act, which liberalised the legal market in the UK, law firms have had to compete with accountancy firms – most notably Deloitte, EY, KPMG and PwC, which have the deepest pockets.

While Bull believes the Riverview acquisition fits the trend, other commentators feel that the purchase has made the line between legal and accounting – which has been slowly drifting out of focus in the UK since the Act, and at different speeds around the world – increasingly blurred.

"This development certainly poses questions for mid-market law firms such as whether they can expect other similar acquisitions by EY's competitors," blogs Kimberley Slater of legal PR firm Byfield Consultancy. "More pressing would be what law firms will need to do now to ensure that they are offering their clients an equally competitive service, if not more."

This charge of encroachment, though, is one that Grossman denies.

"I don't think that this is traditional law firm territory, he tells ITR. "I think what we're doing in legal managed services is actually more work, which is done by in-house counsels, which should not be done by traditional law firms because they are expensive with high hourly rates. This is work which should be done by technology at fixed prices."

Following the Legal Services Act, EY grew its UK legal advisory business mainly organically. The Riverview takeover signals a different approach in its quest to get ahead of the curve in the tech sphere.

"We want to accelerate our growth in legal managed services," says Grossman. "We started more than a year ago providing these services to distinct clients, but we felt we didn't have the capacity, experience and know-how to scale it."

"Whether we do further acquisitions is totally up in the air, but for sure we will scale up the business significantly. This business will grow. We are going to use Riverview Law as our global platform for legal managed services and we will aggressively recruit into this platform. We will leverage the client base of EY to get the work in. The feedback we get from our clients is very, very positive and we're going to be very, very busy with this new kind of business."

Traditional legal service providers already have bloody noses from the Legal Services Act. They fear further wounds from legal managed services, and EY has the financial clout and organisational know-how to take Riverview's offering global at an alarmingly quick rate.

While the firm serves clients globally from the Wirral, with a few representatives elsewhere, Grossman is keen to add offices in Asia-Pacific, the US and continental Europe to guarantee time zone coverage and offer clients a 24-hour service.

As it coagulates, the new EY-Riverview partnership will be watched keenly by legal service providers of all guises around the world.