Law Firms

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 160,400 law practices in the US provide advocacy and advisory services to businesses, non-profit organizations, individuals, and government agencies. The practice of civil law accounts for 94% of the legal industry’s revenue, while criminal law accounts for only 4%.

Client Cost Cutting

Businesses have cut their legal budgets, resulting in reduced spending on outside legal services.

Alternative Fee Arrangements

Driven by client demands for cost containment, firms are offering alternatives to the traditional billable hour model.

Industry size & Structure

The average law firm operates a single location, has 6-7 employees and generates $2 million in annual revenue.

    • There are about 160,400 law firms in the US with over 1 million employees and generating about $320 billion in annual revenue.
    • Another 290,300 lawyers practice solo.
    • The industry is highly fragmented with the 20 largest law firms representing less than 10% of revenue.
    • The largest US law firms by revenues are Baker McKenzie; Skadden, Arps, Slate, Meagher & Flom; Latham & Watkins; Jones Day; and Kirkland & Ellis.
                                Industry Forecast
                                Law Firms Industry Growth
                                Source: Vertical IQ and Inforum

                                Recent Developments

                                Apr 29, 2024 - Moderate Industry Sales Growth
                                • Law firms’ sales are expected to notch moderate growth over the next several years. The industry’s year-over-year sales rose 3.2% in 2022 before rising to 4.5% growth in 2023, according to Inforum and the Interindustry Economic Research Fund, Inc. Sales are projected to moderate to 2.4% growth in 2024 and 3.5% in 2025, then see average annual growth of about 3.5% through 2028, according to Inforum and the Interindustry Economic Research Fund, Inc.
                                • In April, the US Federal Trade Commission (FTC) issued a rule that, in most cases, would prevent employers from requiring employees to enter noncompete agreements, according to The New York Times. Supporters of the ruling say it will free workers to pursue better wages, increase business competition, and create new jobs. Critics, including the US Chamber of Commerce, argue that the FTC doesn’t have the authority to issue a ruling on noncompete arrangements and that the issue should be addressed at the state level. The FTC rulemaking will become law 120 days after it is entered into the Federal Register, but its implementation could be slowed or blocked by lawsuits. Noncompete contracts are most prevalent in the professional services and finance industries, impacting about 20% of the workforce, according to a report by the Federal Reserve. The FTC estimates about 30 million workers are impacted by noncompetes. The new rule doesn’t affect executives, which the FTC defines as workers in “policy-making positions” who earn at least $151,164 per year.
                                • In mid-April, the US Judicial Conference’s Advisory Committee on Evidence Rules heard comments from academic experts and computer scientists about the potential risks of artificial intelligence (AI) being used to manipulate evidence and adversely affect trials. However, two of the panel’s judges suggested that trial judges currently have sufficient tools to deal with AI’s potential to undermine evidence but conceded that that could change as the technology progresses. The panel determined that a proposed AI-related amendment that aimed to address challenging evidence as “deep fakes” needed to be reworked. One of the judges expressed skepticism about another proposal that would require AI-generated evidence to be subject to the same reliability requirements as expert witnesses. The judge worried that prosecutions could be hindered if defense attorneys could challenge any digital evidence without good reason.
                                • A string of jumbo-sized mergers and acquisitions (M&A) early this year could signal that a sleepy dealmaking environment is stirring back to life, according to The Wall Street Journal. Recent high-dollar deals include Capital One Financial’s $35.3 billion bid for Discover Financial Services and Home Depot’s agreement to purchase roofing materials distributor SRS Distribution for $18.2 billion. So far, in 2024, there have been 11 deals valued at $10 billion or more, marking one of the hottest starts for megadeals in more than 20 years, according to Dealogic. M&A activity in 2023 was muted as high interest rates pushed up borrowing costs, and stock-market volatility made it hard for buyers and sellers to agree on valuations. Some deal watchers suggest the flurry of high-value dealmaking indicates the early signs of a surge in M&A activity. However, an M&A rebound could be undermined if anticipated Fed rate cuts fail to materialize. Election-year political uncertainties could also chill dealmaking.
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