Texas market update Design: Roberto Jimenez. Photo: Shutterstock

As out-of-state firms continued to set up shop in Texas—hiring laterals and vying for work—local firms felt the pinch in 2019, which may have dampened the 2019 financial performance of the nine Texas-founded firms among the Am Law 200.

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Revenue increased at five of those nine Texas firms, but only one—Jackson Walker—gained ground in the rankings. With a 10.3% increase in revenue in 2019, Jackson Walker was No. 115, up four spots from the year before. The Dallas-based firm's jump in revenue came with a 6% increase in lawyer head count.

Other Texas firms also posted revenue increases, including 5.9% growth at Akin Gump Strauss Hauer & Feld; 6.1% at Vinson & Elkins; and 10.7% at Baker Botts.

The Citi Private Bank Law Firm Group's report on 2019 found that revenue growth and demand at Texas-headquartered firms trailed the rest of the legal industry, although Lone Star State firms led the market in making rate increases stick. Citi reported that demand in Texas dropped 1.6%, the worst of the 11 regions in the country, in 2019, compared with an increase of 1.1% nationally.

The Citi data suggests that the out-of-state firms opening Texas offices—more than half of the Am Law 200 have planted flags in Texas—may be taking away from the performance of local firms. Gretta Rusanow, head of advisory services for Citi's Law Firm Group, says Texas-founded firms faced a challenging demand environment in 2019 because of all those new firms "taking clients and matters into their fold."

Nevertheless, the nine Texas firms largely had at least a decent year in 2019. Akin Gump and Vinson & Elkins were among the 30 Super Rich firms that posted revenue per lawyer in excess of $1.1 million in 2019 and profits per lawyer of more than $500,000.

Eight of the nine firms improved revenue per lawyer, with Thompson & Knight the exception. Six of the nine firms posted higher profits per equity partner in 2019—Akin Gump, Vinson & Elkins, Haynes and Boone, Jackson Walker, Bracewell and Winstead.

Only four of the firms grew their head count in 2019, including Akin Gump, Vinson & Elkins, Baker Botts and Jackson Walker.

A merger can be a quick way to boost head count, but Texas firms were involved in only six mergers in 2019, according to the Altman Weil MergerLine, with the largest being Midwest firm Spencer Fane's expansion into Houston when it acquired 19-lawyer Zimmerman, Axelrad, Stern & Wise. That relatively small merger contrasts with 2018, when three large Texas firms—Andrews Kurth Kenyon, Strasburger & Price and Gardere Wynne Sewell—were involved in mergers with large out-of-state firms, disrupting the homegrown market.

In part due to the incursion of firms into Texas, lateral hiring continued at a heavy clip throughout 2019. But it's uncertain whether that high level of hiring will continue in 2020 because of the coronavirus crisis.

Recruiter Lee Allbritton of Amicus Search says he's noticed that hiring in the Texas market has changed since firms started working remotely in mid-March and began dealing with the double whammy of the national economic downturn and the steep drop in oil prices. Many firms are taking steps to cut costs by laying off or furloughing lawyers or staff, or reducing pay.

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Since the crisis began, Allbritton says, the firms engaged in hiring are either nimble midsize firms with low overhead or Texas boutiques. Hiring by Big Law has been the exception to the rule, he says.

"Every now and then you will see a large firm make a hire. The only people you are seeing hired by an Am Law firm are people who were in the process in February," he says.

"There was either an articulated hiring freeze, or an unarticulated hiring freeze. Part of it is political," the veteran Texas recruiter says. "How can you ask partners across the country who are absorbing austerity measures to invest in a new partner?"

Read More:

Law Firm Expansion in Texas Continued at Strong Clip in 2019

Five Texas Firms Hold Steady or Fall Behind in 2020 Am Law 100

As Outsiders Took Local Market Share, Texas-Based Firms Saw Slower Growth in 2019