【ask the dust by john fante】More Evidence Rolls In: Law Firms Boosted Revenues, Profits in 2018
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Law firm lenders at Wells Fargo and Citigroup,ask the dust by john fante Inc. have been predicting for months that 2018 would turn out to be a post-recession high mark for the industry. On Thursday Wells Fargo finally revealed some full-year numbers, and they didn't disappoint.
The Wells Fargo "year-end check-in," featuring survey data from 150 law firms primarily in the Am Law 200, reported average revenue growth of 5.9 percent and average net income growth of 7.6 percent, the strongest numbers since before the Great Recession.
"The big differentiator was that in 2018, for the first time in a really long time, what drove revenue was more than just rate increases," said Joseph Mendola, senior director of sales with the Wells Fargo Private Bank Legal Specialty Group. "It was the combination of rate increases and increases in demand."
Wells Fargo saw demand across all firms, measured by total billable hours logged, rise 2.3 percent over the previous year, ahead of the 1.3 percent growth of 2017. Meanwhile, rates increased steadily in the 4 to 6 percent range.
Break down the numbers between the Am Law 100 and the Second Hundred, however, and the firms in the latter grouping continue to have grounds for concern. While demand grew among the Am Law 100 by 3.9 percent, compared to 2.1 percent in 2017, for the Second Hundred, growth was just 0.1 percent. Still, this figure was a jump from the 0.8 percent decline from the previous year.
Contrary to other recent findings
suggesting that the Am Law 50 were pulling away
from the rest of the pack, the Wells Fargo survey revealed that growth in the Am Law 50-100 was almost as strong. While the strongest revenue gains were in the top 50, at 7.7 percent, the figure for the second 50 was not far behind, at 6.5 percent. Meanwhile, the second 50 actually grew net income at a higher rate: 8.2 percent compared to 8 percent for the top 50.
Mendola credited the robust performance of the second 50 to growth in litigation and other counter-cyclical practices, noting that the A
m Law 50 has a bigger concentration of firms that are more heavily weighted towards transactional work.
"The d
eal business was still alive and well in 2018, but I think demand was more balanced in 2018 than 2017," he said.
Still, stratification between the elite firms and the rest of the market remains a reality, Mendola noted.
"Th
ere’s certainly a segment of firms that are identified by clients as 'go-to' firms for certain matters. It's a segment that has become more price insensitive," he said. "
The brand in that type of firms attracts deal work at rates that are significant different from what you see as you go down market."
In spite of some predictions of dark clouds forming over the wider economy, thanks to uncertainties over international trade and the consequences of the record-setting government shutdown, the survey indicates that 2019 will start well for law firms.
Just as in 2018, firms reported beginning this year with a strong inventory level, and in all market sectors, firms forecast revenue growth for the year: 5.9 percent in the Am Law 100 and 3.5 percent in the second hundred.
"They're not huge increases," Mendola said. "But participants are feeling positive."
Story continues
Read More:
Best Year in a Decade for Law Firms? Maybe, But Not for Everyone
Wells Fargo Adds to the Consensus: The Law Firm Market Is Setting Records
Demand, Revenue Continued to Grow in Third Quarter, Citi Survey Says
Law Firm Leaders Express Growing Anxiety Over Global Economic Outlook
Law Firm Revenue, Profits Up in 2017: Wells Fargo Report
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