Improving confidence and increased market activity boosts law firms

THE UK’s 100 law firms have had a strong third quarter, according to the latest quarterly legal sector survey from business advisory firm Deloitte.

The survey found that the level of fees earned by each fee earner increased by 4.5% in the last three months, quarter ended January 31, compared to the same period last year.

This increased to around 6% at firms in the top 25 (by size) and was around 3% for the remainder of firms in the top 100. The increase in fees per fee earner has been driven by an increase in the average rates recovered per hour of approximately 3.5% across firms in the survey.

This quarter, merger activity in the legal sector has been a significant driver of some firms’ fee income growth.

This has been particularly prevalent amongst firms ranked between 51-100, where the growth in fee income of 16.9% this quarter was mainly a result of an increase in fee earner headcount of 15.7%.

Clare Boardman, restructuring services partner and legal sector specialist at Deloitte in Yorkshire, said: “It is encouraging to see that firms across the board have achieved an increase in rates recovered this quarter. Greater confidence amongst lawyers when negotiating rates, particularly against a background of limited fee earner capacity has driven these increases.

“However, the performance of individual firms in the top 100 continues to be diverse and those firms focused on the relatively stagnant domestic market continue to face significant challenges. Furthermore, the mid-market arena for law firms, particularly those without overseas operations, continues to be highly competitive with lower growth levels being achieved.

“While competition is still fierce in the legal sector and clients remain cost conscious, for firms with exposure to the international M&A markets the outlook is looking brighter than it has for many years.”