Law Firm Group
December 1, 2020

2021 Citi Hildebrandt Client Advisory

December 1, 2020
Citi Private Bank & Hildebrandt Consulting
Lighthouse on cliff with blue skies

The year 2020 has turned out to be an extraordinarily complex one for the legal profession in the wake of the COVID-19 global pandemic. While the pandemic created unexpected challenges for the legal industry, we also saw better performance than anticipated, and substantially so for some firms.

This1 is in large part due to the strong start to 2020, the way firms adapted so quickly and effectively to a fully remote working environment, and the robust performance of certain practice areas. This latter factor is an important feature of the legal industry—even during economic downturns, businesses still need legal advice.

While the final results in 2020 might not match the performance recorded over the last few years, law firms’ finances have certainly been helped by growth in bankruptcy and financial restructuring, litigation, and finance and capital markets activity. At the time of writing, the industry is on track to end 2020 with mid-single digit revenue growth and reduced expenses.

As a result, projected net income and profit per equity partner (PPEP) could be in the mid-to-high single digits. Behind the industry averages, we see wide dispersion2 with the market favoring the largest and most profitable firms. That said, within any market segment, we see firms outperform—largely due to their brand and practice mix, with more than a few firms projecting record profits.

Looking ahead to 2021, we envisage the market will reward firms that not only have strong differentiated brands, but also have a diverse practice and industry mix. Growth is more likely to come from the US and UK than from other markets, although some firms are expecting demand growth among their Asian, European and Canadian practices.

Unlike the trend seen in recent years, firms view litigation and bankruptcy and financial restructuring as primary drivers of growth continuing on from 2020. There is mixed sentiment about the expected level of mergers and acquisitions (M&A) activity. But positive momentum seen in M&A, particularly relating to private equity during the second half of this year, is tilting the outlook toward a more positive picture than previously anticipated.

And reflecting the bifurcation in economic performance we have seen at the macro level, we would expect to see growth in demand for legal services coming especially from the technology, life sciences, healthcare, and financial services industries.

Operational efficiency

Having witnessed a successful transition to remote working, the COVID-19 pandemic has also accelerated a number of trends related to greater operational efficiency already evident in the industry. While we do not think this heralds the beginning of an entirely remote legal industry, we expect that some measure of remote working will become a permanent feature of the law firm of the future.

This creates opportunities for greater operational efficiency—including rethinking office space and configuration, and the appropriate level and composition of professional support leverage. We also expect there to be a continued focus on billing and collections, given the direct positive impact this has had on revenue this year.

It also raises questions around how to develop new business and train associates. The longer the COVID-19 pandemic impacts market activity, the greater the likelihood that firms will examine their lawyer headcount and leverage. And with the increasing dispersion in law firm performance, we anticipate lateral poaching to continue, if not accelerate, driving firms to examine how they compensate partners. We also expect more consolidation through mergers between firms of a similar size and acquisitions of smaller firms.

Looking forward, given that law firms tend to fare better than other industries in a challenging economic environment, we remain optimistic about 2021. We expect that the market will favor firms with a strong brand who stay close to their clients and have the right practice mix. While these factors will drive topline growth, we also expect that firms who capitalize on the success of this great experiment in remote working to accelerate further adoption of operational efficiencies, will be rewarded.

Our more detailed findings and projections are presented in this advisory report, and we hope that you will find it to be informative. As ever, we look forward to your 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. For thirdparty providers of legal services, our information is mostly anecdotal. Sources include the “Citi Annual Survey Database” of 212 US-and UK-headquartered firms, including 44 Am Law 1-50 firms, 37 Am Law 51-100 firms, 55 Am Law Second Hundred firms, and 76 additional firms; 138 firms from the “Citi Flash 1H’20 Survey (Q2 Performance and 2021 Projections),” including 32 Am Law 1-50 firms, 21 Am Law 51-100 firms, 37 Am Law Second Hundred firms, and 48 additional firms; 182 firms from the “Citi Flash Survey,” including 44 Am Law 1-50 firms, 31 Am Law 51-100 firms, 48 Am Law Second Hundred firms, and 59 additional firms; 88 firms from Citi’s “Coronavirus: How Are You Responding? Surveys” conducted during March to October 2020; and the “Law Firm Leaders Confidence Index” which reports the forward-looking opinions of law firm leaders from 166 firms.

2 Dispersion is defined as a near even split between firms that see demand increase and firms that see demand decline year-to-year. Volatility is defined as reverse demand growth trends from one year to the next.