Amid Segmented Market, Demand in 2018 Soars for Largest Firms, Report Says
Reports of good fortune are rolling in for the largest firms. Last year was the best year in demand growth since 2011, Thomson Reuters says.
February 12, 2019 at 12:53 PM
4 minute read
The market for law firms last year enjoyed the largest growth in demand since 2011, a report from Thomson Reuters said Tuesday, amplifying evidence that law firms, especially the largest, reached new financials highs in 2018.
A report from Citi Private Bank's Law Firm Group on Monday said law firms in 2018 notched their best financial results in a decade, with revenue growing 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 of 5.9 percent and average net income growth of 7.6 percent, the strongest numbers since before the Great Recession.
While Thomson Reuters' report does not contain a revenue number, it has all the underlying indicators that would suggest robust top-line growth in 2018: Demand, rates and lawyer productivity all rose during the year.
Still, the results were largely driven by a surge in the Am Law 100.
Demand, measured as the number of hours billed, rose 1 percent for the year among all firms, Thomson Reuters said.
Among the Am Law 100, 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 said.
Fortunately for smaller firms, rate growth was more evenly distributed. 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 Thomson Reuters report said.
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, the report said.
The report issued by Citi this week also showed a wide disparity in results between the nation's largest firms by revenue and their competitors.
Firms among the 50 largest saw revenue growth of 7.7 percent, driven by demand increasing 2.9 percent and billing rates rising 4.6 percent, Citi said. Their peers in the Am Law 51 to 100 category reported revenue growth of 4.8 percent, as demand rose 2.2 percent and billing rates rose 3.7 percent. Am Law Second Hundred firms, Citi said, saw revenue growth of 2.2 percent, driven almost entirely by rate growth of 2.8 percent. Demand for this group rose a mere 0.3 percent for the year.
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.
A composite average of financial indicators known as the Thomson Reuters Peer Monitor Index fell slightly during the fourth quarter, as demand growth softened compared with the third quarter.
“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.”
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