EY eyes joint venture for UK legal arm amid cost cuts

In a significant shift, EY is reportedly exploring a joint venture for its UK legal business as it grapples with economic pressures and an evolving strategy.

According to Financial News, Once aiming to make a significant mark on the UK legal sector, EY’s ambitions have recently been scaled back amid a challenging market for consultancy firms, and the potential joint venture indicates a possible path forward for the Big Four giant’s legal division.

The global consultancy had initially set high aspirations for its UK legal arm, which it launched in the wake of the Legal Services Act 2007, a move that enabled non-lawyer ownership of law firms in England and Wales. This legislation opened the doors for major consultancies like EY to expand into the legal services market. But, just as EY was planning to grow its UK legal headcount from 200 to over 1,000 lawyers, the tides have turned.

Led by global law head Jeff Soar, EY has reportedly been reviewing its UK and Ireland legal division in recent months. The review comes after a period of job cuts, business closures, and financial adjustments aimed at containing costs and refining strategic focus.

According to sources cited by Financial News, one option under consideration is a joint venture with a major international law firm, allowing EY to share investment costs as it navigates the constrained climate that has impacted the Big Four firms’ ambitions in the legal space.

A Tough Market

EY’s legal team had high hopes for Project Everest, a proposed split between the firm’s audit and consulting arms. The split, originally expected to free up EY’s legal business from audit-related conflicts, was aimed at allowing the firm to pursue a broader range of clients and, potentially, acquire other law firms with IPO funding. However, the split was cancelled in April 2023 due to internal disagreements, ushering in a new era of cost control that included downsizing across business units.

Among the cutbacks was EY’s alternative legal services business, Riverside Law, which the firm acquired in 2018 as part of its push into the legal sector. The decision to close Riverside was followed by the closure of EY’s UK financial services law business in January, resulting in key departures, including head Chris Price, who moved to Alvarez & Marsal. Recently, fintech head Fiona Ghosh departed to join Ashurst, marking a continued drain in EY’s legal talent pool.

Joint Ventures and Future Directions

Amid cost pressures, EY’s potential joint venture could reduce financial risks by distributing investment costs with a partner firm. While some view this as a stepping stone toward eventually divesting its UK legal arm, a source close to the company insists there are no plans to sell.

“We are fully committed to our law business in the UK,” an EY spokesperson stated in Financial News’ analysis, emphasizing the firm’s commitment to the legal market despite its strategic shift.

This pivot comes as EY’s UK partners have felt the impact of market conditions, with partner pay dropping by 5% over the past year, from £761,000 to £723,000. Meanwhile, EY’s rival KPMG announced it would be closing its Australian legal business, instead opting for alliances with local firms, suggesting that other Big Four firms face similar pressures.

Leadership and Next Steps

The appointment of Anna Anthony as EY’s UK and Ireland managing partner, effective January 2025, could influence the firm’s next steps. Her leadership may bring a fresh approach to EY’s legal ambitions, balancing the need to control costs with opportunities to grow or restructure. As EY considers its options, including the joint venture, its direction remains a telling sign of how Big Four firms are navigating a legal market increasingly pressured by economic challenges and global uncertainties.

EY’s journey in the UK legal market is emblematic of the shifting landscape for consultancies seeking to expand beyond their traditional audit and advisory roles. Whether through partnerships or restructuring, EY’s future in the legal sector reflects the broader question facing the Big Four: how best to balance ambition with sustainable growth amid an increasingly challenging market.