All practices, except real estate, logged fewer hours in Q2 2022, compared to Q2 2021, according to Thomson Reuters’ Law Firm Financial Index “LFFI”, analyzing data from over 160 law firms. But it is helpful to put the “slowdown” in context.

Law firms are much better positioned for any downturn than they were in 2008. Capital contributions are up. According to Citi Private Bank Law Firm Group, the average paid-in capital per equity partner by the end of 2021 was $618,000 (compared to $285,000 in 2007), and partner capital levels for the average firm are more than double what they were at the beginning of the Great Recession (less than $70 million in 2007 to $145 million by the end of 2021) .

The publication of the AmLaw 200 survey last month confirmed that 2021 was a very good year for the AmLaw 200. 101 firms saw double digit revenue growth. Relatedly, only 7 firms lost revenue. Firms with more active corporate / M&A practices saw greater revenue increases, while litigation boutiques like Robins Kaplan, Boies Schiller, Kobre & Kim saw revenue decline.

Thomson Reuters’ Law Firm Financial Index composite score for Q1 2022 represents the lowest quarterly score since 2009. However, the underlying fundamentals are not nearly as negative as the score and associated reporting suggest.

Deal volume fell in February, down 33% compared with January and 35% below February 2021 (As M&A Quiets and Headwinds Pick Up, Dealmakers Reckon with a Slowdown, Dan Packel, 3/23/22, American Lawyer). Inflation, war in Europe, and increased antitrust enforcement are all concerns. However, several M&A practice leaders view February’s slump as temporary, as companies, funds, and lenders are flush with cash, and many companies are prepping for sale and will take to market soon.

Recent office openings in “hot” markets like Austin and Salt Lake City have received a lot of attention in the trade press. A report by Wolters Kluwer ELM Solutions suggests which cities will garner interest from BigLaw in the future, using measures of population growth and rate growth.

Thomson Reuters’ 2022 Report on the State of the Legal Market showed that demand was up in 2021, worked rates increased, realization was high, and profit growth was strong but was tempered by significant increases in compensation and turnover.

Revenue at law firms was up 14% through the first three quarters of 2021, compared to the same period in 2020, according to Wells Fargo Legal Specialty Group’s Check-in Survey. WF Legal Specialty Group credited a “‘best of all worlds’ environment with almost everything going right: growth in demand, rates, and productivity.”

Firms appear to have met client expectations in 2020, perhaps reflecting clients’ appreciation of the challenge of performing while navigating the pandemic (BTI Consulting Survey, noting that the % of clients who would recommend their primary law firm to a peer increased from 49% in 2019 to 69% in 2020).

The 1st half of 2021 was very busy for law firms, according to a recent survey by the Legal Specialty Group at Wells Fargo. The pandemic’s onset in Q2 2020 set a lower baseline for year-over-year comparisons; yet still revenue, demand, rates, & productivity grew by impressive margins.

Florida is the latest state to consider law firm ownership by non-lawyers, as a state bar committee recently recommended that the Florida Supreme Court consider instituting a 3 year “laboratory” program, based on the “regulatory sandbox” model established in Utah.

As vaccinations rise, trials resume, and capital is deployed, demand for legal talent is back near pre-Covid levels.  There were 4,107 lateral moves in Q1 nationally, short of 2020’s highwater mark of 4,366 but north of the 5 yr avg of 3,759. Litigation (36%) and corporate (18%) led the way.  Similarly, lateral moves in North Carolina (74) eclipsed the 5 yr av. (68), but fell short of last year’s mark (83). 

As vaccinations rise, trials resume, and capital is deployed, demand for legal talent is back near pre-Covid levels.  There were 4,107 lateral moves in Q1 nationally, short of 2020’s highwater mark of 4,366 but north of the 5 yr avg of 3,759. Litigation (36%) and corporate (18%) led the way.  Similarly, lateral moves in North Carolina (74) eclipsed the 5 yr av. (68), but fell short of last year’s mark (83).