The number of partners at commercial firms expecting double-digit growth over the coming year has dropped to 66% — the lowest percentage predicting such an increase since July 2006 — down from 68% three months ago and from 70% at the start of the year.
The Legal Week/EJ Legal quarterly business confidence poll results show the aftermath of the credit squeeze has left partners tentative over sustained deal flow, with those expecting growth of any kind dropping by 12%.
Eighty-eight percent of business lawyers believe their firms will continue to increase fee income in the next year, compared with 100% of respondents asked last quarter. Six percent said they expected a decrease.
Freshfields Bruckhaus Deringer financial institutions head Will Lawes commented: “If I am being frank, I thought I would come back from my August holidays to a morgue. I am more confident than I thought I would be and there is enough going on. That said, confidence has clearly been shaken and there is always the concern that the M&A boom is beginning to come to an end.”
Of the lawyers predicting fee increases, 3% predicted growth of around 15%-20% — significantly down on last quarter when 23% cited similar growth. A confident 6% thought rises would be more than 20%.
The results show a steady decline in confidence since the beginning of the year, when 90% predicted a rise and 70% thought this would reach double figures.
White & Case London head Peter Finlay said: “The thing to remember is that the dip — and there is a dip — is coming off one of the most extraordinarily busy cycles we have seen for many years, so it is not too bad. We still expect to be on track to exceed 25% revenue growth for London in calendar 2007 and I would be surprised if there is not double-digit growth during next year.”
Despite the slight fall in results, the figures remain significantly higher than in the deal slump of 2002 when 48% of the panel predicted double-digit growth.
One notable shift in the poll following the credit squeeze is a dramatic increase in firms’ plans to invest in litigation. When asked which practice areas firms would be primarily targeting in the coming year, litigation rose to equal corporate, with both receiving 26% of the vote. Last quarter just 9% opted for investment in litigation.
CMS Cameron McKenna corporate partner Louise Wallace said: “In any period of downturn everyone looks to litigation. People start thinking less about resolving issues in a friendly business-like fashion and I think the litigators have started to sharpen their pencils.”
Allen & Overy corporate partner Susan Howard commented: “The market is slower than at the start of the year and mid-market private equity deals have not come back as expected pre-Northern Rock, but we are finding that in certain sectors such as infrastructure, there is still a lot of activity. There is not a flight of confidence but a flight to solid assets, where the leverage is not as high.”
Banking received the next highest wedge, with 21%. Property, employment and insolvency both got 6%, while intellectual property and projects/private finance initiative got 3%.
