Business of Law

Growth in BigLaw slows to lowest level since recession; a 'daunting year' lies ahead

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The growth in revenues at the nation’s top 100 law firms last year was the most tepid since the recession in 2008 and 2009.

According to the American Lawyer’s analysis of the top 100 firms by revenue, total revenue growth increased 2.7 percent last year and net income increased 3.3 percent. “It was a middling year for much of this group in 2015,” the publication says (sub. req.).

The growth in revenue was much slower than in 2014, when revenue increased 4.6 percent and net income jumped 7.4 percent.

The slowdown was especially surprising because of a jump in mergers and acquisitions that provided work for many law firms. Some of the slow growth, according to the article, was due to “the continued flattening of demand for legal services and patchy conditions in core markets, particularly in Europe.”

Also slowing last year were revenue per lawyer, which increased 2.6 percent compared to 3.7 percent the prior year; and profits per partner, which increased 4 percent compared to 5.3 percent the prior year. Almost half of the firms that had increases in profits per partner had decreases in the number of equity partners.

The numbers raise several questions, according to an overview by the editor (sub. req.). They include: Is there room for firms to continue to grow “or are they relegated to snatching market share (read lateral hires) from each other”? Have billing rates topped out? Will future growth in partners per partner be achieved only by cutting equity partners? If so, “what does that say about business model of Big Law?” the article asks.

The American Lawyer summarizes the findings this way: “For many Am Law 100 firms, the last fiscal year was a challenge. The bad news is that this performance is unlikely to be a one-off blip. U.S. economic growth slowed in the first quarter of 2016, raising fears of another recession. The continued slump in global oil prices and instability in Europe—a region to which many of the larger Am Law 100 firms are heavily exposed—are also contributing to widespread market uncertainty. Mergermarket data shows a 24 percent reduction in M&A deal activity in the first three months of the year, while there was not a single U.S. IPO in January—the first monthlong hiatus in over four years. The Am Law 100 faces a daunting year ahead.”

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