Monday, February 20, 2012

BigLaw consultant predicts demand for legal services slow in 2012

From the AmLaw Daily:

Law firms can expect yet another year of limited growth in 2012, according to the 2012 Client Advisory released Wednesday by the Hildebrandt Institute and Citi Private Bank.

The 2012 advisory the industry's economic prospects as uncertain following a year that, according to Thomson Reuters Peer Monitor data, showed signs of recovery in the first six months but saw demand for legal services tail off in the second half.

At the 116 firms surveyed by Peer Monitor—86 of them Am Law firms (45 from the Am Law 100, 41 from the Am Law 200)—demand in 2011's fourth quarter dropped about 1 percent compared to the same period in 2010. In December 2011 alone, demand fell by almost 3 percent compared to December 2010. Factoring in the end-of-year swoon, demand for legal services overall increased just 1 percent between 2010 and 2011.

The minimal uptick echoes last year's numbers, when the client advisory also reported an increase in demand of just 1 percent between 2009 and 2010. Though the market for legal services has yet to enjoy a significant increase in demand for two years running, the bright side is that 2010 marked the first uptick since 2008, when demand rose by nearly four percent, as we noted last year.

Bankruptcy was the practice area to show the biggest drop-off in demand last year, according to the client advisory. On the flip side, intellectual property litigation saw demand increase by nearly 6 percent in 2011.

One sign that the demand for legal services remains weak was the increase in law firm mergers in 2011, which suggests that firms are looking to mergers as a growth strategy. As we noted last month, a competitive lateral market, lower client fees, and a decline in work have all been factors in encouraging U.S. firms to grow through mergers.

The Hildebrandt/Citi Private Bank advisory cites Hildebrandt's January merger report, which showed a 67 percent increase in completed mergers involving U.S.–based firms last year over 2010, with 45 mergers in 2011 compared to 27 in 2010. The advisory predicts 2012's law firm merger activity to at least equal, and perhaps exceed, last year's.

Firms with an eye toward growth will also likely focus on professional development and globalization as ways to stay ahead of competitors, the advisory states. Hildebrandt/Citi Private Bank cite U.S. firms with major global footprints as being poised to take advantage of the growing demand for legal services in emerging markets like Asia.

The advisory notes that firms prepared to be flexible and creative in terms of delivering their services will experience the most success. Hildebrandt/Citi Private Bank expects the use of alternative fee arrangements to continue to rise this year, with the total firm revenues attributable to those agreements expected to hit 13.4 percent this year, after increasing from 10.8 percent to 11.8 percent last year, based on the Citi 2011 Managing Partner Survey of primarily Am Law 50 firms.


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