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
Recent Developments
Apr 2, 2024 - Law Firm Pricing Keeps Pace with Wage Growth
- US producer prices charged by law firms are rising alongside industry wages, which could suggest some firms’ margins are being protected from higher labor costs. In Q4 2023, law firm wages rose at a rate that was only slightly lower than the pace of pricing, according to the US Bureau of Labor Statistics (BLS). Law firm employment increased slightly in Q4 compared to the same period in 2022, according to the BLS.
- 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.
- Lateral hiring in the legal industry – moving from one firm to another – fell 35% in 2023 compared to 2022, according to a report released in late March by the National Association for Law Placement (NALP) and reporting by Reuters. In 2023, both the median and average number of lateral moves per firm were at their lowest level since 2010 when the global economic crisis reduced demand and legal hiring. Competition for legal talent intensified during the pandemic; law firm hiring increased by nearly 111% in 2021. However, NALP suggests that the drop in lateral movement and weaker summer associate recruiting last year suggest that law firms expect a period of reduced demand.
- There is a growing consensus in legal circles that firms that use artificial intelligence (AI) for content creation and decision-making will be liable for those outputs, according to The Wall Street Journal. Current laws governing liability for harmful speech and defective products could make firms using generative AI legally responsible if their applications cause harmful mistakes. Under Section 230 of the Communications Decency Act, internet platforms are protected from liability for what users say on them. However, Section 230 doesn’t protect a platform’s AI-generated speech. Some legal experts warn these exposures to liability could trigger a torrent of lawsuits for firms large and small.
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