Law Firm Group
December 9, 2021
3 mins

2022 Citi Hildebrandt Client Advisory

December 9, 2021
3 mins
Citi Private Bank & Hildebrandt Consulting
SUMMARY

The year 2021 has been one of the strongest years on record for the law firm industry, even accounting for the aberrational base year created by the disruption of the COVID-19 pandemic. If we measure 2021 performance against a more normal 2019, the industry is still back to both demand and rate growth levels the likes of which we have not seen since 20071.


While some of the largest and most profitable law firms are on track to register above average demand and revenue growth, 2021 has unmistakably been a year of strong growth for all segments of the industry. We have also seen accelerated expense growth, though driven more so by pressure on compensation expenses than the anticipated pressure on operating expenses. This compensation expense pressure was caused by the demand for law firm services outstripping the supply of lawyers, creating an acute talent war.

Meanwhile, we did not see the anticipated level of operating expense growth as many firms, especially those with a presence in large cities, delayed their return to office from the third quarter to at least November, with some delaying it until 2022.

 

We expect to see some of the strongest net income and profit per equity partner (PPEP) results on record.

 
Citi Private Bank & Hildebrandt Consulting
 
With the strong revenue growth seen in 2021, rising expenses have so far been more than absorbed. As such, we expect to see some of the strongest net income and profit per equity partner (PPEP) results on record. In the main, challenges in 2021, and even more so for 2022, include how to successfully implement a hybrid model, win the war for talent and continue to find ways to operate more efficiently. (See full report chart 5, page 15, Growth opportunities and challenges by industry through 2022)

Looking to 2022, we expect that strong demand levels will continue, albeit with some moderation in the growth levels compared to 2021. We would expect to see growth in demand for legal services coming especially from the technology, healthcare and life sciences, financial services, private equity, and energy and infrastructure sectors. (See full report chart 4, page 14, Growth opportunities and challenges by practice through 2022)

 

We expect most of the demand growth to come from the US and UK.

 
Citi Private Bank & Hildebrandt Consulting
 
In terms of practice areas, we anticipate corporate/ mergers and acquisitions (M&A), litigation and regulatory/investigations/compliance, finance and capital markets, and funds/investment management to be primary drivers of growth.

We expect most of the demand growth to come from the US and UK, while there is renewed optimism for some around Europe and Asia. As firms adopt a hybrid model and start to return to a more normal world, we expect expense pressures to accelerate, coming from both continued compensation expense growth and accelerated operating expense growth, making strong revenue growth and the continued focus on operational efficiency imperative in the coming year.

Our detailed findings for 2021 and projections for 2022 are presented in this Client Advisory. We hope that you will find it to be informative. As ever, we look forward to your valuable feedback.

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1 Our analyses and projections are based on data collected from a sampling of primarily US-headquartered law firms by Citi Private Bank, as well as conversations with law firm leaders. Sources include the “Citi Annual Survey Database” of 213 US-and UK-headquartered firms, including 43 Am Law 1-50 firms, 40 Am Law 51-100 firms, 52 Am Law Second Hundred firms, and 78 additional firms; 173 firms from the “Citi Flash Survey”, including 41 Am Law 1-50 firms, 34 Am Law 51-100 firms, 46 Am Law Second Hundred firms and 52 additional firms; the “Citi Law Firm Leaders Survey” of 56 large firms headquartered in the US, UK, China and India; and the “Law Firm Leaders Confidence Index” which reports the forward-looking opinions of law firm leaders from 145 firms.