Partner Article

Income growth slows for legal firms

Fee income growth among the UK’s top 100 law firms has slowed, according to research from Deloitte.

The latest Quarterly Legal Sector Survey showed fee income growth was 3.4% in the quarter ended October 31, and firms in the top 10 saw relatively flat performance with less than 1% growth.

The figures show the slowest rate of growth for seven quarters and the fourth consecutive in which growth has slowed. At this point last year, firms were growing at close to 10%, say Deloitte.

Clare Boardman, head of Deloitte’s professional services practice in Yorkshire and the North East said: “We continue to see suppressed growth rates in the legal market. Whilst the mid-tier firms appear to be enjoying slightly stronger growth, this is predominantly due to increased merger and acquisition activity.

“Consolidation has long been expected in a sector where supply continues to outstrip demand. A tough, competitive domestic market is forcing a change in the profile of mid-tier firms. Consolidation is one way to expand the client base and also deepen specialist knowledge – whether that is in an industry focus or a practice area.”

In separate research from Deloitte and Winmark, it was found 71% professional services firms have been merger or acquisition talks in the past 12 months. In 2011, 81% of those involved in merger discussions wanted to join with a smaller firm; and this year that figure has fallen to 52%.

Boardman added: “The change in attitude towards merging with bigger competitors only serves to highlight the ‘survival of the fittest’ reality that faces elements of the professional services sector.

“Previously, most firms favoured amalgamating with a smaller peer, retaining management control and their name. However, as clients seek value for money and law firms adopt cost saving measures, merger opportunities continue to become more attractive.”

This was posted in Bdaily's Members' News section by Tom Keighley .