An early look at how some of the nation’s largest law firms fared financially last year finds that on average they enjoyed a 5 percent increase in gross revenues—the biggest year-over-year jump since 2008, according to a survey by Wells Fargo Private Bank’s Legal Specialty Group.
Based on results from just over 100 firms—more than 50 in the Am Law 100, approximately 40 in the Second Hundred, and none of them identified by name—Wells determined that in addition to the revenue growth, net income among those firms rose an average of 6 percent between 2011 and 2012 while profits per equity partner increased by 5 percent on average.
Jeff Grossman, national managing director for the bank’s legal specialty group, says that even though the positive results surprised him, “The averages are overstating the performance of the industry. … There is still a wide dispersion in terms of performance.”
The best-performing firm among those surveyed, Grossman says, saw its gross revenues rise 23 percent, with the worst-performing firm’s revenues falling 6.5 percent. On the net income front, one firm saw a 30 percent rise, while the firm with the poorest performance in that category suffered an 18 percent decline. Grossman notes that Wells conducts a more thorough year-end review in the spring and the survey released this week did not include many of the top-performing New York firms (Wells also does not release dollar figure averages until spring).
Am Law Second Hundred firms performed slightly better than their Am Law 100 counterparts last year, the Wells survey found, with firms in the former category seeing revenue increase 6.3 percent on average versus 4.5 percent for Am Law 100 firms and enjoying net profit increases of 6.5 percent on average compared with 5.5 percent among the Am Law 100.
The American Lawyer‘s own reporting on 2012 law firm finances has so far yielded a similar spread from best- to the worst-performing firms. Preliminary results for South Carolina-based Nelson Mullins Riley & Scarborough, for example, show that it saw gross revenue rise more than 14 percent last year, to $271 million (In 2011, the firm ranked 123rd of top-grossing U.S. firms with revenues of $237 million).
At the other end of the spectrum, St. Louis–based Thompson Coburn, which ranked 152nd on the Am Law 200 in 2011, saw its gross revenues fall 2.1 percent to $164.5 million in 2012. Profits per equity partner have also varied widely in initial Am Law 100 reporting. Dickinson Wright, for instance, saw its profits per partner fall 13.3 percent, to $490,000, last year. At New Orleans-based Adams and Reese, meanwhile, profits per partner rose nearly 32 percent, to $600,000.
In September, Grossman had said he was uncertain about how the year would conclude, saying expenses were continuing to rise faster than revenues and that “profit is a question mark.” At the time, he said firms were reporting an average revenue increase of 3 percent through the first half of the year.
Grossman attributes the late gains to robust collections as well as to a sense of urgency in terms of wrapping up transactional work amid the uncertainty created by the fiscal cliff negotiations and before any changes the nation’s tax laws went into effect. Grossman says he hasn’t yet calculated the industry’s realization rate for 2012, but expects it to be in the 80 percent range (As of the end of the third quarter, he says, it stood at 72.9 percent).
He cautions firm leaders not to get too giddy about the positive results for 2012. He says the firms he surveyed are budgeting for an average of 3.8 percent revenue growth in 2013, and will have to continue to closely monitor expenses.
As firms cut back on expenses and minimize capital expenditures, Grossman says they’ve begun to rely less on debt to fund operations. From 2006 to 2011, the average debt per equity partner among half the Am Law 100 that Wells has been tracking fell from $64,338 to $55,491, according to Grossman (It peaked at $85,716 per equity partner in 2008. Numbers for 2012 are not yet available). During the same period, debt as a percentage of net firm income fell from 5.8 percent to 4.2 percent.