Why lawyers and accountants are thinking about a one-stop shop

The news that Arthur Andersen has been talking to Simmons & Simmons, one of the City's leading law firms, about a possible merger is a reminder that proposed marriages among the top-flight accounting practices are not the only threat to the fabric of Brit

It has - in the words of a spokesman for Arthur Andersen - long been an open secret that the organisation, which, pending the completion of the currently planned link-ups between Coopers & Lybrand and Price Waterhouse and KPMG and Ernst & Young, is still the world's largest professional services firm, has been seeking to increase its presence in the UK legal market.

Though lawyers and rivals were doubtful when it entered the field back in 1993 by setting up Garrett & Co, four years later that practice has several offices around the country, has acquired two other well-regarded niche firms and in the last financial year contributed pounds 15m to Andersen's revenues.

Moreover, it has since been copied by other leading firms. Price Waterhouse has an association with Arnheim & Co, while its would-be partner Coopers & Lybrand has a similar arrangement with Tite & Lewis; it is anticipated that the two organisations will join forces if the merger goes ahead. And the other big players are keen to follow suit.

While Andersen has been reasonably successful at picking up fairly lucrative but low-key work, it does not stand a chance of gaining an entry to the really serious deals without a connection with a big name. With the largest law firms unlikely to be attracted by such a venture, Andersen, headed by new managing partner Philip Randall, had to look at the next tier down.

Simmons & Simmons was a natural option because it has a longstanding link with J&A Garrigues, the Spanish firm that became part of the Andersen legal network last year. Though the talks have been called off, Simmons & Simmons' managing director, Alan Morris, said a link-up of this nature remained an option for the firm.

The reasons why an accountancy firm might want to gain a foothold in the law are clear enough. First, there is a perception that the profession offers more opportunities for "value-added" assignments. This is especially appealing for people who have seen their central activity - audit - largely become a commodity, with clients reluctant to value it as anything other than something they have to have done for legal reasons. Indeed, it is being argued that the drive for merger at the top of the accounting profession is coming from the firms' management consulting arms, and many are talking of traditional accounting functions being marginalised in the drive for lucrative consulting assignments.

Second, such a push fits with similar moves accountants have been making on merchant banks in corporate finance. Counting on the banks' lack of interest in the lower end of this field, they have made rapid progress in advising on management buyouts and flotations in particular.

But it is less obvious what advantages such arrangements bring for lawyers. David Furst of second-tier accountancy firm Clark Whitehill is one of those who sees definite disadvantages in such arrangements, notably in the threat to independent advice.

In deals it is not uncommon for lawyers and accountants acting on the same side to disagree on certain issues; if they come from different organisations they can debate that openly, whereas if they are both from the same stable it is more difficult, especially if the person who thinks a mistake has been made is comparatively junior, he argues.

He stresses that the one-stop shop argument is not especially convincing, since large clients do not use one law firm for all their legal work as it is, and are unlikely to change this habit if accountancy services are available as well. He is adamant that it is to the benefit of both professional advisers and their clients that they keep their operations separate while co-operating on an ad hoc basis if appropriate.

Mr Morris of Simmons & Simmons accepts that this is what he calls a "potential downside", but he can also see two distinct advantages. First, accountancy firms, by virtue of their greater size, have the resources that firms like his need if they are to achieve their goal of becoming global firms. Second, the international combination that such a multi- disciplinary partnership would produce could be something that would appeal to increasingly global clients.

Though the much-rumoured Simmons & Simmons deal appears to be off, observers do not think the matter will go away. Pointing out that the current boom might persuade lawyers that they are better off on their own, Martha Klein, editor of Legal Business magazine, said a return to recession and pressure on fees might create a situation where an accountancy firm "will convince a top City law firm or national law firm to go for at least a joint marketing arrangement".

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