U.S. law firms facing economic threats of inflation and rising interest rates project 5.3% revenue growth this year, down from a 14% increase in 2021, a Wells Fargo & Co. survey shows.
The prediction is close to the result in 2019, the last full year before the pandemic, when firms had 4.6% revenue growth, said Joe Mendola, senior director of sales for Wells Fargo Private Bank’s Legal Specialty Group.
”Law firms will certainly be affected by inflation, increasing rates, and other effects of the economy,” Mendola said in an interview.
The outlook follows a year in which law firms cashed in on record-breaking spikes in deals and other business transactions. Global merger and acquisition activity reached $5 trillion last year, up from $3.5 trillion in 2020, according to Bloomberg’s M&A advisory league tables.
This year, firms that are diversified into areas such as bankruptcy and restructuring are best positioned for any economic difficulties, Mendola said. Litigation is another area that could take off as people sue more frequently and pursue a backlog of pandemic lawsuits, he said.
The top 50 law firms as ranked by American Lawyer grew revenue by 16% last year, the Wells Fargo survey showed. Law firms ranked 51st to 100th by revenue had 11% growth, while the 101st to 200th biggest firms had 9% growth, the survey showed.
Firms benefited from growth in demand, rates, better collection of debts, and stronger control of expenses, Mendola said.
More than 130 law firms participated in the survey, and 65 were among the 100 largest, according to Wells Fargo. The remainder were in the second 100 largest or regional firms.
Firms located in California and the Northeast posted the strongest returns, “benefiting from their hubs for technology, life sciences and capital markets,” according to Wells Fargo.
Those posting the weakest revenues were based in the Great Lakes area, except for Chicago, in the mid-Atlantic and in the Southwest—primarily in Texas, according to the survey.
Texas, where Big Law firms are opening outposts, remained an “attractive growth market,” Wells Fargo said. “Firms headquartered outside the state are gaining market share, dampening the results of homegrown firms, which showed average revenue growth of 9%.”