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Private Equity Deals Help Drive Growth at Biggest Law Firms (1)

Dec. 11, 2018, 5:33 PMUpdated: Dec. 11, 2018, 10:11 PM

Big Law is growing at a scale unmatched for nearly a decade boosted by business from private equity deals and is poised for another strong year, but mid-range firms caught up in market volatility could consolidate.

Revenue grew by an average of 6.3 percent in the first nine months of 2018, nearly twice the growth posted during the year-ago period, a report by Citi Private Bank Law Firm Group and Hildebrandt Consulting shows.

Firms overall are expected to continue to build on their “strong reputations and differentiated brands” in 2019. Projected profit per equity partner growth, an important indicator of firm prosperity, also is expected to grow.

“This is a year where the largest firms are knocking it out of the park,” Gretta Rusanow, head of advisory services for the Citi law firm group, told Bloomberg Law.

The data also signaled however that market volatility may buffet some medium-size firms, particularly in the second 100 largest by revenue, triggering consolidation.

The Citi Private Bank 2019 Client Advisory report is based on data provided by 191 U.S.-headquartered firms.

Demand and Billing

Rusanow said the “up year” is less about scale “than it is about brand.” The biggest firms with specific practice focuses are doing quite well as are specialist small and boutique firms.

Much of the revenue growth is due to increasing demand and billing rates.

Billing rates grew 4.3 percent, the highest since the same period in 2014, the report showed.

Growth in demand came in at 2.5 percent, the highest the survey has recorded since 2007, at the start of the Great Recession.

In the recovery years, transactional work tended to be the primary driver of activity. But in 2018, the report found that growth was driven both by litigation and transactions, especially private equity deals.

Collecting legal bills is taking a bit longer, the report said, but when collections are complete, that will push up the overall law firm growth figures for this year even more.

And overall, 2019 is shaping up as a strong growth year, in the range of 6 percent to 7 percent, the report predicted.

Rusanow said the upswing in demand at major law firms is due to the quality of their services.

“In the wake of the recession, there had been a willingness to try gentler pricing, but clients want the best quality work when much is at stake,” she noted.

Stumbling Blocks

Rusanow warned though, that rosy finances are not evenly spread.

Large firms and high-profile boutiques may be doing great, but not all firms sized in-between have proven to be so prosperous.

The largest portion of revenue and profit growth are centered among the 50 largest firms, and the tier between 100 and 200 is not doing as well, according to the report.

Citi found three-fourths of the top 50 law firms recorded positive growth in demand in 2018, but firms in the Am Law 200 tier saw a fractional decline in the same period.

Such faltering demand could lead some firms to merge, a trend which has been brisk in recent years. This year is on track to rival the 100 or so mergers and acquisitions that took place last year.

Total law firm headcount is up by 1.6 percent, according to the new data, but the number of equity partners remains flat.

The report cited a potential for uncertainty ahead as a wave of equity partners in the Baby Boomer generation retire in coming years. They will depart with their capital contributions, which help undergird a firm’s permanent capital base.

Some of that capital will be made up with lateral hires. However, Rusanow also noted that a significant portion of associates do not want to become equity partners, but prefer to pursue varied careers.

(Update includes new information from the report and quotes from Gretta Rusanow.)

To contact the reporter on this story: Elizabeth Olson in Washington at
To contact the editor responsible for this story: Rebekah Mintzer at