An Different Exit Technique – Legislation Division Efficiency

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In July 2016, I published a column titled “The
Barbarians1have passed the Gate” (
In this column, I made the hypothesis that “Big Law” did
not believe they needed a dog in this fight as the law firms
operated by the big accounting firms appeared not to be initially
focused on high-value work. Based upon this hypothesis, I
conjectured that it was the mid to small law firms that should be
more concerned as the impact was twofold:

  1. Unlike most law firms, the Barbarians see investing in their
    future as a “no brainer decision” (and not subject to a
    consensus decision making process).
  2. The work they appeared to be going after was the “sweet
    spot” for mid to small size firms.

Both the progress by the Barbarians and the reaction by mid to
small size firms have been underwhelming (a.k.a. complacent). Roll
ahead four and a half years and all four major accounting firms
have their law practices up and running, with varying degrees of

One of the major hurdles continues to be the cultural gap
between accountants and lawyers and how they conduct and manage
their practices is real and palpable (remember Donahue &
Partners). This over-dependency on an accountant’s approach can
cause a stressful “we versus they” environment (e.g.,
length of time to become a partner; titles in an accounting firm
are much more important than a law firm and thus respect for them
is quite different).

Until this issue is addressed to everyone’s satisfaction
there could be a “revolving door” affect at these law

Despite this challenge I have a growing sense that accounting
law firms might become a leading alternative exit strategy for sole
proprietors and small firms? First the statistics from the 2018
Federation of Law Societies states:

  • Less than 1% of the firms in Canada are over 50 lawyers.
  • Over 34% of the members have been practising for more than 25
    years. This group appears to be growing faster than the number of
    new lawyers being admitted (as well, 10% have been practising
    between 21 to 25 years).
  • Over 72% of the firms are sole proprietorships.
  • Over 24% of the firms are 2 – 10 lawyer firms.
  • With most firms being sole proprietorships or less than 10
    lawyer firms, often the “exit strategies” have been
    limited to:
    • Wind up their practice following the local bar society
      regulations, or
    • Find a younger lawyer willing to buy their practice – often on
      an “earn-out basis” – which is a percentage of future
      revenue for a fixed period (a hybrid of a referral fee),

Rarely do either of these approaches result in partners being
compensated for the “goodwill” they have spent their
practice life building up (this “goodwill” relates to the
law practice not to the individual person and is commercially

The accounting law firms offer to a specific group of
practitioners and their firms an alternative “exit
strategy” that does result in their being paid for the
goodwill their efforts have created. These firms have restricted
its focus to areas of law that are supportive of its
multi-disciplinary approach towards client service.

These core areas of practice include2:

Deloitte Legal Canada LLP:

  • Tax litigation and controversy
  • Tax advice
  • Corporate and commercial law
  • Employment and labour law
  • Data privacy and cybersecurity

PwC Law LLP:

  • Tax law
  • Immigration law
  • Tax dispute and resolution


  • Business law
  • Employment and Labour Law
  • Estates and Trusts
  • Immigration Law
  • Tax Law and Tax Litigation


  • Corporate and commercial
  • Corporate secretarial services
  • Business immigration
  • Tax planning
  • Tax controversy

It is deliberate on the part that of these firms that they are
not seeking to grow a Personal, Civil, and Commercial Litigation
practice (other than management side tax and employment
litigation). In part, because of the very nature of their
relationship the magnitude of likely conflicts would render these
types of practices financially unviable.

Like any opportunity, this exit strategy3 has both
pluses and minuses, and firms must weigh the full offer to see if
it works for them (the following are the general pluses and minuses
which will vary depending on what your practice / firm has to offer
and what each accounting law firm is looking for).

The perceived general pluses include (in no order):

  • Dealing with an entity that has the financial wherewithal and
    stability to not only fund the transaction but future investments
    in professionals, the technology required by practitioners wishing
    to practice law at the highest level and the internal resources to
    provide the personnel support to sustain the desired level of
    client service.
  • Receiving payment upon execution of deal – varies from
    firm to firm but generally there is an upfront payment and a future
  • Two-part purchase price:
    • A multiplier4 is applied to the deemed
      “transferable revenue”5 , plus
    • Dollar for dollar of Work-in-Progress (“WIP”) at the
      time of the execution of the deal.
  • All other assets (including accounts receivable) and
    liabilities are left for the acquired practice to wind up as the
    accounting law firms are generally acquiring the practice and not
    the firm (e.g., so no issue if the partner(s) have other assets in
    the practice).
  • They will interview all employees. Those brought over to the
    accounting law firm, any future severance liability transfers to
    them. Severance liability for employees not hired by the accounting
    law firm remains with the acquired firm.
  • Partners in the acquired practices will normally be offered
    either income or equity partner positions6.
  • The criteria their compensation systemin corporates are
    different (not better or worse) than your typical law firm having
    reached the next plateau of incorporating team play and cross
  • Most offer flow-through capital accounts via their equity loan
    program with national banks that the accounting firm does not
    audit. The partner borrows from the bank; pays the interest on it
    (standard is prime plus ½ to 1 percent), and when they
    retire, the money is paid back to the bank (unless, of course, the
    lawyer has already paid the loan off). There is an offset as the
    accounting law firms generally pay the partner prime plus½
    to 1percent on their capital account balances, so it nets out
    (unless the lawyer can negotiate a better rate at the bank and then
    the lawyer can be in the money).
  • Lawyers looking to practice law without being drawn into firm
    management but want consistent execution of management policies
    will see a benefit. Accounting law firms are generally analytical
    organizations (no surprise) where decisions like – staffing,
    pricing, continued investment in areas of practice, etc. –
    are largely driven by data generated by their systems and less on
    instincts (heavier on the analysis).
  • From my discussions and readings, it is apparent that
    considerable thought has been spent on developing a strategic plan
    for these accounting law firms. Unlike many firms, this is not a
    “static” strategy (if it in fact it even exists) that
    sits on a shelf to be dusted off every 3–5 years. These firms
    have embraced what appears to be a dynamic strategy where the plan
    is a continuum rather than an absolute.

The perceived general minuses include (also in no order):

  • “Transferable Revenue”:
    • Because these firms do not embrace a litigation practice (other
      than management side tax and employment litigation) lawyers will
      not receive 100% of the revenue you have built up.
    • Practitioners will not continue to practice with long-standing
      colleagues if their chosen practice area is not one that the
      accounting law firms are pursuing.
    • The practice’s current and future client base could be
      reduced because of “auditor independence” rules. Although
      in fairness given the targeted practitioners / firms’ size, any
      SEC and other public companies conflicts are likely minimal.
    • The accounting law firms tend to adjust any future purchase
      payment for any shortfall that occurs in reaching the agreed upon
      transferable revenue number.
  • The mandatory retirement age could result in the firm’s
    largest business generators not being admitted to partnership and
    potentially taking their “book of business” elsewhere
    which directly impacts the lawyers currently benefiting from the
    senior’s practice.
  • The practice of law in many law firms is not a team sport and
    so the introduction of performance bonuses, both firm and
    individual is somewhat of a foreign concept.
  • While the average realization rate may equalize the hourly
    rates between accountants and lawyers, the standard (rack) rates
    are substantially different (accountants’ rates are normally
    significantly higher). Therefore, quoting higher standard rates
    (even while offering discounts) may drive current and potential
    clients to competing law firms.

Like all exit strategies, the foregoing “alternative exit
strategy” will not work for every practitioner or firm. But it
has sufficient merit that it is clearly worth exploring.

It is also my impression that everything I described is open to
negotiation as part of any eventual deal.

I would be remiss to not address what is in it for the
accounting law firms. Their goals appear to be:

  • Better service for their existing client base,
  • Increase the share of client professional fee spend by offering
    them one-stop shopping,
  • The accounting firms provide many referrals to other law firms.
    By building up their own law firms, they can keep this work
    in-house, and
  • Leverage existing external relationships.

Deloitte Legal Canada LLP (4), PwC Law LLP (6) and EY Law LLP
(7) indicate a presence in the major metropolitan cities in Canada,
whereas KPMG Law indicates they have offices in 41 locations (which
includes those cities).

If you think your individual practice or firm loosely fits
within the above parameters and wish to obtain a fuller
understanding of the possibility of joining one of the accounting
law firm as an exit strategy, I suggest you contact them directly
(websites have contact information) or if I can be of assistance
please do not hesitate to contact me.

No matter which exit strategy you and/or your firm chooses,
remember the age-old axiom:

“In business, you don’t get what you deserve, you
get what you negotiate.”


1. The word originated with the Greeks
and later, the Romans used the same term to describe anyone who was
not Roman.

2. Taken from websites

3. Deloitte Legal have basically been
cherry picking individuals and growth has been slow but strategic
as a result their financial offerings may not be the same as the
other accounting legal firms (e.g., buying WIP)

4. The multiplier will depend on several
factors but normally is reflective of the marketplace and position
of the practice in that marketplace.

5. This means only fees for clients that
meet the core practice areas, and are not conflicted out by
“auditor independence” regulations for SEC and public
companies, as well as some private companies that might already
engage the accounting law firm’s services

6. The accounting law firms like the
accounting firms do have a mandatory retirement age of. However,
they will likely consider “Of Counsel” type positions for
a 2 – 3-year term for partners over the retirement age at the
time the practice is acquired

Stephen Mabey is a CPA, CA and the Managing Director of
Applied Strategies, Inc. Stephen’s focus is on law firms in
general and on small to medium size law firms. He has written about
and advised on, a wide range of issues including –
leadership, business development, marketing, key performance
indicators, strategic planning, mergers, practice acquisitions,
competitive intelligence, finance, mergers, practice transitioning,
compensation, organizational structures, succession and transition
planning, partnership arrangements and firm retreats. In 2013,
Stephen was inducted as a Fellow of the College of Law Practice
Management in recognition of his sustained commitment to the
highest standards of professionalism in law practice management.
For more information, or connect with
Stephen Mabey on LinkedIn.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.