Legal Business Blogs

Tough times predicted for mid-tier firms, says NatWest report

Law firms across the UK with revenues below £46m ‘should expect tougher conditions in 2016’ despite generating a 6% increase in average fee income last year, according to NatWest’s latest Legal Benchmarking Report.

The research, now in its fourth year, looks at the performance of law firms operating in the SME space with revenues below £46m and saw over 390 firms take part. The results showed ‘healthy improvement in both revenue and profit levels’ as fees grew on average by 6% in 2015 – considerably above inflation. Confidence levels remain ‘strong’ despite dipping slightly for the next year with 44% of firms predicting fee growth to rise by 10% in the next year, compared to 56% last year.

In terms of average fee growth, there was some regional variation with London achieving 10% and the North East and North West reaching 4%.

Those firms within the 2015 edition of the LB100 with revenues below £46m range from those ranked from 63rd onwards, including Lewis Silkin, Howard Kennedy, Forsters, Capsticks, Bristows, Winckworth Sherwood, Kingsley Napley, Veale Wasbrough Vizards and Harbottle & Lewis. Those specialist firms and focused City firms in the second 50 of the LB100 thrived in what remained an uncertain market last year, according to our research.

NatWest head of professional services Steve Arundale said: ‘2015 was another positive year for firms, with most measures of performance continuing to improve. However, this is at a slightly slower rate than we saw in 2014. Early indications suggest that 2016 could carry some performance challenges for many firms. Business levels witnessed in 2015 could be described as the new, post-recession norm; and many firms appear to be struggling to deliver growth levels achieved in the previous two years.’

However not all agree with the findings. Forsters managing partner Paul Roberts (pictured), whose firm enjoyed a 14% uptick in revenue to £41.4m while profit per equity partner rose 11% to £539,000 – reflecting buoyant conditions in the City and private wealth sector – told Legal Business: ‘We have had a great year. Everyone expects some uncertainty with work levels because of the upcoming Brexit referendum but generally the work is there, not least because we’ve witnessed continued consolidation by mid-tier firms in the last couple of years. I don’t predict majorly tough times.’

Arundale concluded: ‘Although growth appears to be slowing to a new operating norm, firms still have a great opportunity to maximise their operations and prosper. Leaders need to make sure they are asking the right questions around operating efficiency, performance and reward and taking proactive steps towards investment around technology benefits.’

For more on our annual financial data, see ‘The LB100 2015 – Through the looking glass’