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The American Lawyer reports that the U.S. law firm industry had another strong year in 2019 and revenues for 2020 are predicted to continue growing at a healthy rate, according to a new report from Citi Private Bank’s Law Firm Group and Hildebrandt Consulting. The report found that after a slow start to the year, firms progressively improved their financial performance, and are expected to grow revenues between 5.5% and 6.5% over the course of the full year.

As in other post-recession years, the primary driver of revenue growth was an increase in billing rates, rather than demand growth, the report revealed. During the first nine months of 2019, billing rates had the highest growth rate since before the recession, growing by an average of 4.7 percent. By contrast, demand grew far less than in 2018 at a rate of 0.9 percent. The most significant impact on revenue growth was the continued trend of a lengthening of the collection cycle, which was largely driven by clients delaying payment of their bills, the report revealed.

The report also identified an active lateral recruiting market as a key trend in 2019, combined with a majority of firms hoping to grow the size of their equity partnership in the coming years.“The success rate of laterals has improved. In the past, half the laterals weren’t really accretive to the firm,” explains Brad Hildebrandt, Chairman of Hildebrandt Consulting. “But firms have become much more cautious about who they’re hiring.”

The key reason for the better success rate is even greater rigor on the lateral hiring process, Hildebrandt argues. Firms are aligning hiring with their overall strategy, improving their due diligence, and working harder to integrate new partner hires. “This eagerness to add talent at the top of the leverage pyramid will likely continue, with 61% of leaders surveyed saying they aim to add equity partners in the next two years,” Hildebrandt adds.

“Looking ahead, we expect that the most successful firms will continue to expand and innovate—despite ongoing geopolitical and macroeconomic uncertainty and volatility, and a challenging talent market. For those firms, expansion will be closely aligned to the firm’s business strategy—more so than pursuing opportunistic growth,” Gretta Rusanow, Head of Advisory Services at Citi Private Bank concluded. “For many firms, the steps they are taking to do more with existing clients and broaden their client base, focus on growth practices, industries and regions, and introduce further efficiencies in the way they deliver legal services will go a long way to ensuring that 2020 is a successful year.”

See highlights from the full article on The American Lawyer.

Contact Bill Sugarman for more information.

The American Lawyer reports that law firm demand in 2018 was the highest on record since 2011, according to a recent report by Thomson Reuters. Further amplifying evidence that law firms, especially the largest, reached new financials highs in 2018. Another report, conducted by Citi Private Bank’s Law Firm Group, found that revenue growth was up 6.4 percent at the 191 firms surveyed by the bank. And in the last two weeks, Wells Fargo reported average law firm revenue growth at 5.9 percent and average net income growth at 7.6 percent, the strongest numbers since before the Great Recession.

Thompson Reuters report specifically revealed that law firm demand, billing rates and lawyer productivity all rose during the year. According to the analysis, demand, measured as the number of hours billed, rose 1 percent for the year among all firms. Among the Am Law 100 firms, that number was 2.8 percent. Am Law Second Hundred firms and midsize firms saw demand growth in 2018 of 0.4 percent and 0.2 percent, respectively. The Am Law 100 was the only segment of firms that saw demand growth in all four quarters of the year, the report found, (as quoted in The American Lawyer).

Fortunately for smaller firms, rate growth was more evenly distributed, the report notes. The Am Law 100 saw rates grow 3.8 percent in 2018, compared to 2.9 percent for firms in the Second Hundred and midsize categories. The report also notes that Am Law 100 firms were the only segment of firms to show positive full-year growth in productivity, which measures hours worked per lawyer. The 100 largest firms by revenue grew productivity in 2018 by 0.8 percent, while that figure was flat at Second Hundred and midsize firms, (as quoted in The American Lawyer).

Mike Abbott, a Thomson Reuters vice president for enterprise thought leadership and content strategy, said that while 2018 was a banner year for law firms— especially the nation’s largest—there remains uncertainty around 2019, especially after the fourth quarter was somewhat softer than earlier quarters. “Whether the tailwinds will continue in 2019 remains to be seen, as client rate pressure and a shifting competitive landscape for legal services continue to pose challenges,” Abbott said in a statement. “And while the entire market was improved in 2018, we saw an increasingly segmented market where the very largest firms gathered the lion’s share of the gains last year.”

See highlights from the full article on The American Lawyer.

Contact Bill Sugarman for more information.

The American Lawyer reports the legal industry is poised to have its strongest annual performance in a decade, according to a recent report by Wells Fargo Private Bank’s legal specialty group. The report, drawn from a survey of 120 firms, found that revenue was up 7 percent industry-wide, buoyed by demand growth of 3.3 percent when compared to the same time period last year. The results, Wells Fargo said, “almost certainly assure that the industry will report its strongest annual performance in a decade.”

The report revealed revenue at the 50 largest firms grew by 8.2 percent, compared with 5.7 percent at firms ranked 51 to 100 and 2.3 percent for the Second Hundred firms. In addition to revenue growth, law firm demand increased 4.3 percent for Am Law 50 firms; rose 2.5 percent for Am Law 50-100 firms; and dipped 0.2 percent for the Second Hundred. Firms also reported strong increases in profitability, with income to equity partners up 7.7 percent from a year ago at the same time. That is partly driven by shrinking partner head count. The survey noted a 3.5 percent decline in equity partner full- time equivalents in 2018, with 75 percent of firms reporting a decline in partner head count, (as quoted in The American Lawyer).

See highlights from the full article on The American Lawyer.

Contact Bill Sugarman for more information.

The American Lawyer reports that law firm profitability is at a record high, according to a recent report released by ALM Intelligence. The report revealed that the average equity partner, at an Am Law 200 firm, received $1.8 million in profit sharing compensation last year. This is higher than any point in recorded history (the Am Law 200 data goes back to 1984). In addition, average profits per equity partner are nearly $500k dollars more, in nominal terms, than they were at the peak in profitability experienced before the past downturn. Even after adjusting for inflation, profits per equity partner are $125k per year more than they were a decade ago.

Given the myriad of obstacles law firms are currently facing, this raises an obvious question — how are law firms doing it? Director at ALM Legal Intelligence, Nicholas Bruch investigates, positing that there are four ways to increase firm wide profitability. The most straightforward path is to focus on increasing revenue per lawyer, notes Bruch. This can be achieved in several ways. Firms can increase worked hours by, for example, increasing hourly targets on associates. They can also increase utilization rates or realization rates. While these “levers” can boost a firm’s revenue per lawyer the most potent lever is rate increases. Increasing prices – which most often means increasing hourly rates – is the most rapid and straightforward path to increasing revenue per lawyer, (as quoted in The American Lawyer).

The next, most obvious, path to higher PPEP is to reduce costs. Again, there are multiple ways to accomplish this goal. According to Bruch, firms can reduce salary costs. This can be accomplished by cutting salaries or, more realistically, by shifting work to lower cost resources – either less skilled individuals or individuals who are based in lower cost locations. While these strategies have been pursued by some firms, Bruch notes that the more common route to lower costs has been to reduce both direct and indirect expenses, or more broadly speaking, “overhead”. Bruch adds that the last two paths to boost a firm’s profits per equity partner are to increase the firms’ leverage by either hiring more associates or by shifting the structure of the partnership to include more non-equity partners and fewer equity partners, (as quoted in The American Lawyer).

See highlights from the full article on The American Lawyer.

Contact Bill Sugarman for more information.