For U.S. law firms, 2018 stands as one of the strongest years in recent memory, with 5.5 percent revenue growth in the first half and equal or greater growth expected for the second half when all is said and done, according to Citi Private Bank Law Firm Group.
Some will assume that the industry’s marquee names are the beneficiaries of the remarkable results, and there is some truth to that, as the surge is concentrated within the Am Law 100. But firms in the tiers below have also enjoyed noticeable growth, in some cases outpacing the results claimed by the industry’s leaders.
Gary Wingens, managing partner of Lowenstein Sandler, an Am Law 200 firm, reported 51.4 percent revenue growth at his firm over the past decade, as well as 38.5 percent growth in revenue per lawyer, more than twice the rate experienced by the top 50 firms. Lowenstein also reported a strong revenue-to-head-count growth ratio—51 percent to 9.3 percent—compared with the Am Law 50’s average ratio of 47 percent to 37 percent.
“The hedge fund industry is attracted to good value, and it’s not just about price, it’s a value proposition that they’re after—the whole package of what we’re able to provide,” Lowenstein partner Ben Kozinn says.
Even so, the largest and most prestigious white-shoe law firms know what they’re doing and are raking in profits like never before.
“2017 was a record year for us, and 2018 is on track to be a much better year than 2017,” David Chapin, managing partner of Ropes & Gray, says.
In Chapin’s view, law firms’ impressive profitability is not solely a function of the steep rates they are charging. Chapin sees a number of macro factors having a direct impact on Big Law and on firms’ revenues in 2018 and well beyond. For example, ongoing concerns throughout much of the world about Brexit have inspired law firms to launch and build entire practice areas devoted to related issues.
Although President Donald Trump may have spoken during his candidacy about ushering in a more business-friendly regime in Washington, D.C., the reality is that there is still more than enough work for lawyers in numerous industries and sectors. In the pharma and life sciences sectors, the government’s heightened scrutiny of both pricing and product labeling has driven numerous manufacturers and distributors to seek out expert counsel.
Despite the “regulation lite” rhetoric, Chapin sees deals involving foreign investment into the U.S. as having grown trickier as Committee on Foreign Investment in the U.S. enforcement has expanded. Tariffs, anti-money-laundering efforts and international sanctions have increased in volume and complexity under the current administration. Outflows of capital from China to the U.S. have slowed, Chapin notes, a fact partly attributable to CFIUS and partly to currency controls put in place within China. “This makes getting through the process a little more cumbersome and trickier, and clients tend to gravitate to Ropes & Gray and our peer firms for those sorts of issues,” he says.
“Looking at the overall numbers, you’ve seen a growth in demand for the Am Law 50, which means increase in demand for lawyers to help solve these complicated problems,” Chapin adds.
Strong capital markets combined with historically low interest rates have encouraged institutional investors to put capital to work and to reap returns by exiting investments they made in past years, Chapin says.
“In certain respects, the regulation-lite mantra of the Trump administration has probably reduced some of the concerns, but in other areas, depending on the nature of your investors, the regulatory environment is as complex as it was or even more uncertain,” Chapin says. “And that is fertile ground for lawyers.”