How Did Law Firms Fare In The First Half of 2014?

Pretty decently, as it turns out.

A year ago, in writing about how major law firms performed in the first half of 2013, I wondered whether Biglaw might be the proverbial frog in boiling water. I now wonder whether the analogy might still hold, but in a good way: could we be witnessing a quiet boom for Biglaw, happening so gradually that we don’t even realize it’s here?

In the past few weeks, a slew of mega-mergers have made headlines — which will hopefully turn into contributions to law firm coffers. But even if you focus just on the first six months of 2014, excluding the busy months of July and August, there’s good news to report.

Our friends at Citi Private Bank, a leading law firm lender, just released their report on how Biglaw fared in the first half of 2014. What are the key findings?

Here’s what John Wilmouth of Citi writes over at Am Law Daily:

The strong start for the legal industry we reported on three months ago continued in the second quarter of 2014. While demand growth slowed slightly, rates grew at modestly higher levels compared with the first three months of the year. And although expense growth picked up, revenue gains remained higher, suggesting full-year profit margin growth.

While the industry is well ahead of where it was this time last year, there are headwinds. Demand growth accelerated in the second half of 2013, so the year-over-year comparisons in the second half will be more challenging. That said, we still forecast 2014 to be a better year than 2013.

That sounds about right. The flurry of dealmaking in July and August, which shows no signs of abating, should allow 2014 to end up as a stronger year than 2013.

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Of course, the gains weren’t equally distributed. Wilmouth notes that Am Law 1-50 firms did better than their smaller counterparts, that global and international firms did better than their U.S.-focused rivals, and that transactional practices did better than litigation.

Here are the specific numbers from the Citi report:

  • Revenue: up 4.4 percent, an improvement on the first quarter’s 2.3 percent.
  • Billing rates: up 4.4 percent.
  • Demand: up 0.9 percent (slower than the first quarter’s 1 percent, but remember that at this point last year demand was actually down).
  • Expense growth: up 2.1 percent, faster than the first quarter’s 1.6 percent (a bit surprising, given all the layoffs, buyouts, and other cost-cutting measures we’ve been covering).
  • Lawyer head count: up 0.4 percent.
  • Equity partner count: up 0.1 percent (“up marginally… as firms continued to manage the number of their equity partners very closely”).

All in all, not bad. Gradual heating up is just fine — hopefully we’ll still end up in a nice warm Jacuzzi, without getting burned.

Citi Report: Firms See Continued Strength in Second Quarter [Am Law Daily]

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Earlier: How Did Law Firms Fare In The First Half of 2013?