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LexisNexis recently hosted serval Managing Partner forums to review findings from our recently released Gross Legal Product (GLP) Report. A version of Gross Domestic Product (GDP) for the legal market, LexisNexis’ GLP report aggregates and leverages over 100 publicly available datasets to determine, predict and quantify growth or decline in demand for legal services across 13 practice areas. Download the report here.
There is no doubt that this has been a difficult year for the legal industry. Dependent on the vertical practitioners specialise across, they’d have seen unprecedent demand or decline for legal services. Tax (+17.1%) and Employment (+10.2%) realised strong growth across Q1, where as Immigration (-20.1%) and Property (-24.8%) were hit hard over the same period leaving many property and immigration lawyers in limbo. Fast forward a few months and property activity appears to have bounced back with a vengeance with many of the managing partners we spoke to reporting of unprecedented demand for property law specialists.
Despite a common perception of pessimism about firms’ income, the majority of our roundtable attendees in fact reported that they are outperforming expectations and are considering opportunities for business development and growth. On average, attendees reported revenue 15-25% behind 2019 levels but found their cost line had fallen at least as much, meaning profitability was broadly on track.
All reported volatility - in one case, a firm saw their revenue down c.40% in April and May, however, July turned into the firm’s best performing month for new matters ever, driving a revenue rebound to above their pre-COVID target for the year. Another noted that while their firm’s revenue was down 16% year to date, demand was recovering well.
Looking beyond the immediate fallout of the crisis, one managing partner predicted that revenue would we be down by approximately 15% by the end of the year, with a similar outlook predicted for 2021. Most attendees had identified opportunities for growth in the market, but are keeping a careful check on unnecessary spending until the path forward is clearer.
One managing partner reported that an acquisition was postponed until later in the year, but their strength and diversity of practice areas has kept them afloat. Overall, attendees said that they would likely end the year with profitability on par with last year, due to the decrease in overheads firms’ have been able to realise (particularly through the furlough scheme).
Performance across practice areas has been noticeably varied. Teams responsible for areas such as Employment, Litigation and Family have seen a demand for services spike. Forms of Litigation including medical negligence, have been on the rise while others such as catastrophic injuries have experienced a decline.
While Commercial has been a quieter area for some, others found it to be surprisingly resilient – many clients have decided to see matters through to completion despite the lockdown. Other areas such as Private Client have remained largely unaffected – Trusts, Estates and Wills saw a spike of activity at the start of the crisis, but activity has now levelled out and to the surprise of many underperformed against expectation.
Overall, the general consensus was that the impact of COVID-19 hadn’t been as bearish as expected. One cautiously optimistic managing partner had admitted that even though the firm had dedicated more time to cost-saving initiatives, even more time had been spent sourcing and reviewing business development opportunities expected to yield a positive return in one-two years. This included the recruitment of junior talent from firms where staff had been furloughed indefinitely or made redundant and at a management level where the high-growth opportunities had been identified.
Firm leaders agreed that talent no longer needed to be sourced locally but could now be found further afield due to what’s expected to be the new norm, a hybrid model of home and office-based working. This didn’t mean that all the firms we spoke to were rushing to build out their teams though, some erred on the side of caution and parked business development, instead, opting to solely focus on client retention with what was in many cases a skeleton staff.
In summary, despite early fears, 2020 has not been as bleak as initially expected. For the most part, losses as a result of declines in new business have been balanced out by savings on overheads. And while nobody knows what the future holds for demand in legal services, the general outlook seems to be one of positivity.
LexisNexis would like to thank all of the managing partners who attended our GLP Managing Partner Forums for their input and insight into how they’ve fared during the COVID-19 period.
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