Mid-tier law firms consolidate as Top 100 see revenue growth slow for fourth consecutive quarter

19-12-2012 — /europawire.eu/ — The UK’s top 100 law firms achieved fee income growth of 3.4% in the quarter ended 31 October 2012, compared with the same period last year, according to the latest Quarterly Legal Sector Survey from business advisory firm Deloitte. Merger activity was the primary driver of the 5.8% increase in revenue enjoyed by the mid-tier firms. In contrast, firms in the top 10 saw a relatively flat performance, with less than 1% growth.

This is the slowest rate of growth for seven quarters and the fourth consecutive quarter where growth has slowed. Firms were growing at close to 10% this time last year, so we have seen a sharp slowdown in revenue increases.

Jeremy Black, partner at Deloitte’s professional services practice said:

“We continue to see suppressed growth rates in the legal market. Whilst the mid-tier firms appear to be enjoying slightly stronger growth, this is predominantly due to increased merger and acquisition activity.

Consolidation has long been expected in a sector where supply continues to outstrip demand. A tough, competitive domestic market is forcing a change in the profile of mid-tier firms. Consolidation is one way to expand the client base and also deepen specialist knowledge – whether that is in an industry focus or a practice area.”

Research from Deloitte and Winmark recently revealed that 71% of professional services firms have been in merger or acquisition talks in the past 12 months. In 2011, 81% of those involved in merger discussions wanted to join with a smaller firm. This year the figure has fallen to 52%, with 24% wishing to embrace businesses of a similar size and another 24% seeking opportunities with larger firms.

Black continued:

“The change in attitude towards merging with bigger competitors only serves to highlight the ‘survival of the fittest’ reality that faces elements of the professional services sector. Previously, most firms favoured amalgamating with a smaller peer, retaining management control and their name. However, as clients seek value for money and law firms adopt cost saving measures, merger opportunities continue to become more attractive.”

The latest Quarterly Legal Sector Survey also asked participants about their plans in respect to Eurozone risks. On average, 29% of the UK top 100 law firms have changed their practices and procedures regarding Euro-risk.

Black concluded:

“The instability of the Eurozone continues to cause concern for the UK’s legal sector, particularly for larger firms with a wider international reach. Nevertheless, law firms remain broadly optimistic, forecasting 5.8% growth for the third quarter ending 31st January 2013 and 4.7% growth for the year ending 30 April 2013 (both in comparison to the respective period last year). To achieve such strong increases in revenue, there will need to be considerable up-tick in activity levels over the second half of the year.”

Ends

Notes to editors:

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country’s leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

About Winmark
Winmark is a ‘world class’ standard in the management of membership communities and has been a leader in this field since 1996. Today, over 1,000 directors choose Winmark networks to source new ideas, learn from the best of their peers, and to keep abreast of cutting-edge management best practice. Member organisations range from the largest FTSE & Fortune companies, to leading professional services firms to Central Government Departments, representing trillions of dollars in revenues and millions of people in global headcount.

The information contained in this press release is correct at the time of going to press.

Member of Deloitte Touche Tohmatsu Limited.

Rebecca Holmes
Deloitte LLP
020 7303 8940/07790 005 553
reholmes@deloitte.co.uk