Biglaw

Top Firms Build Bigger Gap Over The Field... Like They Do Every Quarter

The mid-tier law firms are falling further behind.

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Mid-tier firms are left looking.

Mid-tier firms are left looking.

It must be Spring.

Flowers are blooming, birds are chirping, and the top Biglaw firms are obliterating the competition in every conceivable metric. Perhaps that last one isn’t so much a sign of Spring as the refrain of every single Biglaw financial report for the last few years.

The Citi Private Bank Law Firm Group’s first quarter results are finalized and David Altuna, Citi Private Bank’s Law Firm Group client adviser, and Gretta Rusanow, its head of advisory services, have taken to the pages of Am Law Daily to tell us what we all already instinctively knew: the top firms are killing it:

Analyzing the industry results by revenue size, we noted that Am Law 1-50 firms outperformed the other segments in top-line growth. They saw the greatest growth in revenue (6.5 percent) and inventory (4.4 percent), driven by the highest growth in demand (2.4 percent) and billing rates (4.2 percent).

It’s good to be king. The survey also notes that these firms felt the biggest expense increases, but who cares when you’re already so far ahead of the game. And more importantly, who cares when you’re slowly driving your competition under:

Most notable was the very challenging first quarter for Am Law Second 100 firms. They saw the largest decline in demand (4.1 percent) and the lowest revenue growth (2.4 percent) among the Am Law 200 segments. This segment also experienced more pronounced levels of dispersion and volatility than all other segments. Seventy-one percent of Second Hundred firms saw demand decline (compared to 38 percent of Am Law 1-50 firms), while 65 percent experienced volatility. Heading into the second quarter of 2017, Second Hundred firms also have the lowest growth in inventory (0.3 percent).

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David Cowen recently asked who among the Am Law 200 won’t be here in the next 5-10 years. Quarter after quarter of those results piling up and we’ll have to start to really wonder.

The legal industry as a whole continues to see tepid demand:

Revenue grew 4.9 percent during the first quarter of 2017. While total demand was up a modest 0.4 percent, lawyer demand, the portion that commands the higher rates, was up a healthy 1.9 percent. Billing rate increases, the primary driver of revenue growth since 2010, were up 4 percent, stronger than the 3 to 3.5 percent range we have seen throughout the post-recession years. A strong collections effort also aided revenue growth, as the collection cycle shortened by 1.6 percent.

When clients publicly balked at paying higher rates last summer, we all laughed heartily behind the scenes. Cravath’s still going to Cravath after all. But there was cause for real concern. Because while anyone looking to hire one of the top firms in the country for a matter is going to pull that trigger regardless of cost, it’s those mid-tier firms that are going to hurt. There are just too many small, niche firms out there ready to do the job. To that point, Citi Private Bank noted that niche/boutique firms were the only segment outside the Am Law 50 to see positive demand growth.

Behemoth firm structures really only work for the very top. As much as the next-tier firms want to be just like the top 50, it’s time to do some serious reckoning with the books and realize that they’re never going to be as desired as those firms and if they aren’t as cheap as their leaner rivals, there’s just not a lot of room for them.

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It would seem that in the legal industry, as in politics, if you try to play in the middle of the road, you’re only going to succeed in getting hit.

Citi: Biggest Firms Fared Best in First Quarter [Am Law Daily]

Earlier: Top Firms Get Richer In Otherwise Poor Year For The Legal Industry
Biglaw Strikes Back: The Rich Firms Get Richer This Quarter

HeadshotJoe Patrice is an editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news.

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