Member Article

Top 100 law firms struggle, while mid-tiers consolidate

Revenue growth amongst the UK’s top 100 law firms increased at its slowest rate in seven quarters, while merger activity in mid-tier firms is on the rise.

In the three months up to 31st October, there was a revenue increase of just 3.4% against the same period in 2011 within the top 100 companies.

This is the fourth consecutive month of revenue slowdown for the law sector, whereas last year firms were growing at an approximate rate of 10%.

On the other hand, mid-tier law firms saw a 5.8% revenue increase as a result of increased merger activity, in contrast to the top 10 firms which had flat rates of 1% revenue rises.

Clare Boardman, head of Deloitte’s professional services for Yorkshire and the North East said: “We continue to see suppressed growth rates in the legal market.

“Whilst the mid-tier firms appear to be enjoying slightly stronger growth, this is predominantly due to increased merger and acquisition activity.

“Consolidation has long been expected in a sector where supply continues to outstrip demand.A tough, competitive domestic market is forcing a change in the profile of mid-tier firms.

“Consolidation is one way to expand the client base and also deepen specialist knowledge – whether that is in an industry focus or a practice area.”

A dramatic 71% of professional services businesses were involved in merger activity in the last year, and 52% of these companies were involved in merger talks with smaller firms in comparison with 81% in 2011.

Ms Boardman put this change down to a “survival of the fittest” mentality towards larger competitors.

She said: “Previously, most firms favoured amalgamating with a smaller peer, retaining management control and their name.

“However, as clients seek value for money and law firms adopt cost saving measures, merger opportunities continue to become more attractive.”

Risks in the Eurozone also appear to have had an effect on the legal sector, with 29% of the top 100 firms saying they had made adjustments to protect themselves.

Ms Boardman went on to say: “The instability of the Eurozone continues to cause concern for the UK’s legal sector, particularly for larger firms with a wider international reach.

“Nevertheless, law firms remain broadly optimistic, forecasting 5.8% growth for the third quarter ending 31st January 2013 and 4.7% growth for the year ending 30 April 2013 (both in comparison to the respective period last year).

“To achieve such strong increases in revenue, there will need to be considerable up-tick in activity levels over the second half of the year.”

This was posted in Bdaily's Members' News section by Miranda Dobson .