A wave of consolidation in the UK legal industry has sparked double digit growth among the top 100 law firms for the first time in five years.
The latest Deloitte quarterly legal sector survey today (13 September) revealed a 10.5% increase in fee income generated in Q1 (ending 31 July) compared to the same period last year.
The growth was boosted by mergers within the sector, which accounted for approximately half of the fee income increase, with the balance due to an increase in general market activity.
The highest growth in transactional activity was in the second quartile 26-50 range, which saw growth of 14.6%. This was followed closely by the 51-100 category, which saw a 13.4% increase in activity.
Billable hours per fee earner remained broadly flat on the previous year, with just a 0.3% rise for the 26-50 category and 1.2% for firms in the 51-100 range. However, in an indication that pricing pressures have eased since last year, fees per fee earner saw a 3.5% increase among 26-50 bracket firms and 2.3% in the 51-100 category.
‘This has been a very positive quarter for law firms with the sector achieving underlying growth averaging around 5%. Firms’ property and corporate departments have generally had strong quarters with the more positive macroeconomic environment feeding through to higher levels of activity,’ said Jeremy Black, a partner in Deloitte’s professional services practice.
‘Merger activity continues apace, particularly in the volume space and outside of London where markets remain tough and law firms continue to face a number of challenges. Consolidation outside the top 25 firms has led to significant growth in average fee income and fee earner headcount,’ he continued.
Law firms are correspondingly more confident about the outlook for the coming financial year, forecasting an average fee income increase of 5.1% for 2013-14, with an increase of 4.2% for the next quarter, the report finds.
This summer, Legal Business 100 analysis found that while the year-on-year performance of the second quartile of firms may be collectively stronger than some of the elite firms in many respects, individually some of the 26-50 firms have had tough years as mediocre financial performance and failed merger talks have taken their toll. For some, simply not boosting revenues by virtue of a merger has seen them eclipsed by rapidly expanding rivals, with Holman Fenwick Willan nudged out of the top 25 altogether, despite enjoying an impressive 14% leap in turnover this year to £141m.