Profit margins are expected to improve as firms benefit from a leaner cost structure
Los Angeles, CA (PRWEB) September 10, 2012
Until 2007, the Law Firms industry benefited from strong demand for commercial services due to booming investment markets and corporate activity, such as initial public offerings (IPOs) and mergers and acquisitions. “The global recession led to dramatic declines in these activities, however, and a subsequent drop in demand for legal services,” says IBISWorld industry analyst Anna Son. “This trend weakened the top-tier firms in 2009, since they receive the bulk of their revenue from major corporate clients.”
It was those same firms, however, that picked up the majority of countercyclical work. The Law Firms industry has also started to benefit from an increase in corporate activity, which is expected to drive revenue growth of 1.9% in 2012 as the economy slowly improves. Consequently, revenue has grown 1.0% on average annually to $290.7 billion over the five years to 2012. However, countercyclical activity and an increasing number of IPOs have not been enough to right the balance sheets of some industry firms.
Prior to the recession, midsize regional firms were viewed as too large to specialize in a single practice area and too small to compete for large commercial clients. Nevertheless, they have become “attractive alternatives to national firms with hefty price tags,” says Son. “Smaller firms with less commercial focus have generally been able to continue with business as usual because areas like family and criminal law were less affected by the recession.” The industry, which is largely composed of small firms and private practices, has experienced a 0.6% annual increase in the number of firms to about 425,500 in the five years to 2012. Some of the industry’s larger firms include Baker & McKenzie; Skadden, Arps, Slate Meagher & Flom; Latham & Watkins; and Jones Day.
With profit margins declining following the recession, firms were quick to cut costs. In some cases, the drive to reduce expenses has led to mass layoffs and salary freezes, especially among associate lawyers. These leaner operations are expected to pay off over 2012, with profit margins forecast to improve slightly. Additionally, a massive swing in the business model for many law firms may occur in order to bring perceived value of legal services in line with expected outcomes. Clients are growing weary of paying top dollar, pushing them to look for alternative pricing arrangements. Some firms are trying to accommodate this shift by moving away from traditional hourly rates to performance-based pricing. For more information, visit IBISWorld’s Law Firms in the US industry report page.
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IBISWorld industry Report Key Topics
This industry comprises offices of legal practitioners, known as lawyers or attorneys, which are primarily engaged in the practice of law. Establishments in the Law Firms industry provide expertise on a range of areas or in specific areas of law, such as criminal, corporate, family and estate, patent, real estate or tax.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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