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Trends in the Lateral Market: Are Firms Growing or Not – And Why?

Jan 9, 2018 | Law Firm Clients

The employment of lawyers is projected to grow 9 percent over the next decade. Because the lateral market is often considered to be volatile, it can be difficult to accurately predict just how much law firms are growing. But, the number of notable mergers and transitions among the nation’s largest firms recently suggests that some law firms could be expanding in the foreseeable future.

Lateral Recruitment

In this market, an increase in lateral transitions seems inevitable. According to the Legal Intelligencer, “Most law firm leaders now recognize that growing by lateral acquisition is essential for growth.” This climate is great for firms that are expanding into new markets and it signals growth ahead. And since the lateral market will continue to be a “seller’s market” into the future, lateral growth will continue to be strong. Law firms should strongly consider investing in attorneys who can generate business and may not be able to maximize their work on their current platform.

Am Law 100 Firms

Results indicated that the nation’s largest firms managed to increase their revenue between 2015-2016 from 2.7 percent up to 4.3 percent. Equity partners also saw their profits grow by 3 percent. Even though the report depicted a slowdown in the growth of revenue per lawyer (RPL); it also pointed to the largest law firms around the country experiencing healthy RPL growth versus their smaller competitors. Those law firms that are renowned for their exceptional quality in specific practice areas are expected to continue growing in 2018. This wave of growth is reflected in the current market. When the economic climate for the largest corporations is strong, then Am Law 100 firms also experience an increase because work from the biggest companies goes to the biggest firms. When that wave peaks, often those revenues go toward the next size of companies which moves the wave down to increase the Am Law 200 firms’ revenues and so on.

Am Law 200 Firms

The Am Law 200 didn’t fare as well concerning revenue or profit growth in 2016. RPL increased 1.5 percent from the previous year to $658,989, while PPP inched up 1.6 percent, to $748,960. Rate pressure along with an overabundance of lawyers and not enough work are some of the factors that are the hindering growth of many midrange firms. However, there were some Am Law 200 Firms that did enjoy double-digit growth in gross revenue. The Am Law 200 did really well in 2015 when Am Law 100 didn’t do as well, so these changes also reflect the aforementioned wave.

The Record Pace of Mergers

One of the trusted methods used to determine the growth of law firms is to examine the number of mergers that are recorded each year. A report that was released by legal search firm Fairfax Associates that indicated 49 law firm mergers for 2017. The 10-year average sets at 41 mergers. The National Law Journal stated that a majority of the mergers involved small firms with less than 10 lawyers along with high-profile combinations too. Firms are consolidating and moving into new markets; they are merging with smaller firms and building by lateral acquisitions. This may be a good time to start thinking about whether a merger should be a part of your strategy.

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