Wells Fargo Report Gives More Evidence for Big Law's Financial Rebound
ICYMI: Surveys are bullish on law firms' performance during the first six months of 2018.
September 05, 2018 at 12:24 PM
3 minute read
Citi Private Bank. Thomson Reuters. And now, Wells Fargo.
All three companies have now issued reports finding that law firms just turned in their best six-month financial performance in years.
The latest report, from Wells Fargo Private Bank, reveals that a survey of 125 law firms showed revenue growth up 6 percent from the prior midyear report, driven by a post-recession rarity: Rate increases coupled with rising lawyer productivity.
“Almost all the key financial metrics are up tremendously,” said Joseph Mendola, senior director of sales with the Wells Fargo Private Bank law firm specialty group. “When you combine the revenue growth of 6 percent with the inventory backlog we're seeing in the inventory, it certainly looks like it's going to be the best year in close to a decade for the legal industry.”
Inventory, often referred to as accounts receivable, has surged 9.4 percent since the midyear point of 2017. That compares to only 4.3 percent growth at the same point last year. Mendola said firms entered 2018 with a strong inventory buildup from the last three months of 2017, but accounts receivable have stayed healthy as demand for lawyer hours increased during the year.
Firms with profits per partner of more than $2 million led the charge on the inventory front, with a staggering 16.3 percent increase from the prior midyear point, according to Wells Fargo. Rates grew by 4.7 percent from the last midyear report, buoyed by a 5.5 percent increase for Am Law 50 firms. Second Hundred firms saw rate increases of 2.2 percent.
Productivity, which has seen a pervasive post-recession decline, ticked up 1.2 percent, according to Wells Fargo. Total head count grew 1.7 percent as demand for lawyer hours rose 2.9 percent. Productivity per lawyer through the first six months of this year came in at an annualized 1,627 hours; up from 1,609 a year ago, Mendola said.
“We haven't seen that in quite a while, so that is also very encouraging,” Mendola said.
The results are in-line with a strong U.S. economy that grew gross domestic product by a 4.1 percent annualized rate in the second quarter, according to the U.S. Department of Commerce. Transactional practices have also been closing deals at a record pace. The value of mergers and acquisitions in the first half of 2018 set a post-recession record, according to Mergermarket, which tracks deals. Private equity deal levels also set a new six-month record.
The Wells Fargo report stated that firms are more bullish on their full-year projections than they were at this time last year. Nearly three-fourths of the firms expect revenue growth of 2 percent or more, while 4 percent expect revenue will be down by 2 percent or more.
“That speaks volumes for where we think the full-year will come out,” Mendola said. “My expectation is that it will continue for the remainder of the year and it's going to be a great year.”
The heady times have extended to the law firm groups of major financial institutions. Citi Private Bank brought back former managing director Jeff Grossman, a co-founder of Wells Fargo's legal specialty group, as a head of business development earlier this year.
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