When the bottom fell out of the public M&A market last year, hot shot corporate lawyers wished they could be in private equity. However, the wishing fairy has not been kind to firms which have tried to get into the transactional side of the sector.

Clifford Chance, Ashurst Morris Crisp and UK ‘golden circle’ firms such as Macfarlanes, Dickson Minto and Travers Smith Braithwaite have simply sewn up the market at every level. Even magic circle firms such as Linklaters and Freshfields Bruckhaus Deringer have never quite managed to break down the door and US blue bloods like Skadden Arps Slate Meagher & Flom are stuck in the ‘still trying’ category.

Accountancy-tied KLegal, an outfit viewed by many traditionalists as an upstart bunch of number-crunchers, is the latest firm to try to scale the ramparts. With a star-studded list of failures in the private equity market, the firm’s initiative may come as something of a surprise.
However, Moray Macpherson, who is masterminding KLegal’s contribution to the multidisciplinary offering, believes that eventually the firm will challenge the golden circle.

Macpherson doesn’t plan to phone CVC and tell them to throw out Clifford Chance. He plans to target the client base of firms such as Macfarlanes, Ashursts and Travers Smith, although he acknowledges that it will be some time before KLegal offers them genuine competition.

What Macpherson and KPMG team leader Oliver Tant are offering is a one-stop shop, with team members from transaction services, tax, insurance and KLegal. KPMG will target transactional work such as management advice and elements of the funds business, which are seen as chinks in the private equity fortress. The firm will also focus on what it perceives as the soft underbelly of non-transactional and portfolio company work.

The commercial and practical advantages expounded by multidisciplinary partnership (MDP) converts are obvious to all but the most hardened accountant-haters. Also, private equity houses help the rich get richer so they are not going to turn away lawyers who can make a decent fist of lower-end work for less money. Despite that, and even with the KPMG machine behind it, KLegal faces an uphill struggle.

The accountancy firm’s relationship with Alchemy encapsulates a major problem. KPMG is Alchemy’s main provider of financial services, but KPMG would never approach Alchemy because Alchemy simply loves its existing legal adviser, Macfarlanes. And private equity is, unfortunately, littered with houses that love their existing lawyers.

What KLegal can offer is full service, particularly in areas such as employment and intellectual property, and this is why it makes sense for it to target the portfolio companies. The multidisciplinary team could easily provide extras that transactional specialists such as Dickson Minto cannot. One problem KLegal faces is that national firms such as DLA, Addleshaws, Wragges and Hammonds can offer great service in the regions at very low cost, while KLegal has no plans for a regional network. As with the national firms, the KPMG/KLegal team will make the best of its relationships with the financial institutions. KLegal has already got itself onto the Royal Bank of Scotland private equity panel through merger partner McGrigor Donald.

Unfortunately, Enronitis has come at a bad time for the new private equity offering. KLegal must convince a sector unused to the MDP concept that there is no conflict between the audit and legal functions. When you are trying to break the mould, gut reactions count.

In the medium to long term the KPMG/KLegal offering should prosper. But if KPMG is serious it must be prepared to dedicate resources to the KLegal team rather than abandon ship at the first sign of trouble. The only other option is to kidnap a private equity supremo from the likes of Macfarlanes or Clifford Chance and indoctrinate them into the MDP cult.