It is a treacherous business, making market predictions for the year ahead. Too conservative and the pundit is guilty of clinging to the ‘cautiously optimistic’ soundbite, which is the ultimate in fence-sitting and has become one of the most banal phrases in legal industry history. Too adventurous and you run the risk of being over-zealous in predicting market-altering developments.
Of course, it is better to take a stab rather than be accused of being non-committal.
One such (not completely outlandish) prediction saw LB forecast that the Global 100 group of law firms would break the $100bn revenue barrier by the end of 2016. It did not quite come to pass in our 2017 report, but thankfully came good the following year when the top 100 law firms by revenue amassed turnover of $104.42bn. Five years ago, there were only eight law firms with revenues in excess of $2bn, bookended by Latham & Watkins at the head of the table with $2.82bn and Allen & Overy with $2.06bn. The following year, not only did 11 firms exceed the $2bn revenue threshold, but two of them, Kirkland & Ellis and Latham & Watkins, became the world’s first $3bn law firms.
In last year’s Global 100 report, we bullishly looked forward to the 2021/22 financial year as being a banner year for the group, a punt which turned out to be a huge understatement.
This year, despite fears of economic turmoil ahead, Global 100 firms have torn up the rule book.
Just over half of the firms making up the Global 100 (51) last year generated revenues in excess of $1bn, now 64 firms make the cut.
Just over half of the firms making up the Global 100 (51) last year generated revenues in excess of $1bn, now 64 firms make the cut, a staggering 25% increase on last year. We safely forecasted that Kirkland and Latham could lead the Global 100 this year with revenues exceeding $5bn, however this figure was not pacey enough for Kirkland, which revealed turnover of more than $6bn in 2021.
Another blistering financial metric has seen gross revenue for the group surge a huge 15% to $147.5bn, doubling last year’s 7% turnover increase. Gross profit stood at $63.44bn, up 35% year on year and average PEP at a Global 100 firm shot up 19% to $2.37m.
So, what of the next 12 months? You only have to glance at Mergermarket’s most recent M&A league tables to know that the anecdotal feeling in the deals market that corporate activity has taken a hit is backed up by the data. The league tables for Q1-Q3 show that the value of deals has plummeted from the frothy (and many say unsustainable) post-Covid conditions of 2021.
Will Kirkland recreate its 25% revenue growth next year to become the first $7.5bn law firm? Probably not, if the patchy global private equity figures for this year are to be believed.
Notwithstanding the possibility of a miraculous deals bounce-back for the final quarter of the year (and maybe dealmakers should just accept a welcome break from the frenetic transactional activity of 2021 for the sake of their mental health) the financials for next year must surely be more muted.
As inflationary and interest rate pressures must inevitably play out into 2023, perhaps the restructuring and insolvency lawyers who have been biding their time for so long will finally get their overdue pay day.