Business confidence among the
The quarterly Legal Week/EJ Legal business confidence poll shows 30% of partners are expecting double-digit revenue growth over the next 12 months, down from last year’s high of 70% and significantly down from 66% last quarter.
The figures are among the lowest recorded since the survey was launched in 2001. In the first half of 2003 the percentage of lawyers expecting revenue growth of more than 10% dipped below 30%.
However, the drop in confidence fell short of outright pessimism, with 56% maintaining that they would see a rise in fee income. Twenty-six percent said they thought fee income would remain static and 12% said that they thought fee income would decrease, although only 3% went so far as to say that it would decrease by ‘a lot’.
Clifford Chance London managing partner Jeremy Sandelson (pictured top) told Legal Week: “As a firm we are certainly much better placed to deal with a drop in business levels now than we have been in the past. Our global network is operating better than ever, which means that if activity levels slow down in the
The 265 respondents strongly believe any growth will come from activity in emerging markets. Just 5% expect the
Sandelson added: “There are still many countries out there where liquidity is not an issue. The law firms which are more likely to face difficulties by a serious downturn are those that are over-reliant on domestic clients or one specific area.”
Allen & Overy corporate head Richard Cranfield (pictured right) said: “It is clearly going to be less busy than last year but it is more a return to normality than anything else. Overall, our expectation is that the European market will be busier than
Despite a slowdown in deal flow, corporate finance was once again highlighted by partners as the most popular practice area to expand, cited by 51% of the panel, followed by litigation (27%) and banking (16%) as the top areas to invest in.
Latham & Watkins finance partner Bryant Edwards was upbeat, saying: “One benefit of being diversified both in terms of specialism and where you practise is that you can still do well even when one market is down because another will be up — things tend to balance out.”
Despite the assurance, the results will be watched closely by managing partners across the
Baker & McKenzie London managing partner Gary Senior told Legal Week: “For the past two years we have seen increases all round — this is a different situation. It is not clear whether we are embarking upon a prolonged period of recession or not, but there are definite signs of a slow down in the legal market.”
Addleshaw Goddard partner Richard Linsell said: “In the tighter times we are moving into, law firms will still do well — some being counter-cyclical — but it is those that are innovative and hungry that will outperform.”
What partners said:
It’ll be alright on the night
“Although it is impossible to predict how the debt and equity markets will develop over the next 12 months, it seems highly unlikely that transactional activity, which fuels our growth, will disappear. Our investment in private equity and restructuring expertise over the last five years should enable us to retain a healthy share whatever happens.” Christopher Bown, co-head of global private equity, Freshfields
“Commercial firms operating globally with strengths in the emerging markets, in particular Central and Eastern Europe, will continue to prosper - even more so if the Western Europe offices are structured to embrace all aspects of the credit cycle.” Stephen Finch, chairman, Salans
"Law firms will still do well - some being contra-cyclical - but it is those that are innovative and hungry that will outperform."
Richard Linsell, partner, Addleshaw Goddard“In times of ‘market turmoil’ there will always be opportunities - I remain the eternal optimist for M&A work over the next 12 months, when I expect corporate to take full advantage of these opportunities. 2008 will be a good year for ‘good old fashioned bread and butter’ deal making.”
“There seems to be plenty of good work around, particularly as restructuring work is on the up.”
“The UK is in danger of talking itself into a worse problem than actually exists. The mid-market remains strong, as do most corporate profits. UK businesses are, on the whole, well managed and I think we will achieve growth of 1.5-2% in 2008. Not as strong as 2007, but by no means a recession.”
“We won’t have a true recession in 2008, just an adjustment and a blip in short-term confidence, which will open up opportunities for certain clients to do deals on good terms.”
“There is no reason why it should become as bad as predicted in the general media.”
“There is still an abundance of work out there. Given that many of the major private equity houses raised funds in 2005/6, 2008 is bound to see a further round of fundraising activity.”
“There will be a lack of mega-deals but general M&A, commercial and real estate is surprisingly busy. Therefore, the UK magic and silver circles may suffer from their target acquisition size being out of favour. This will be set off by their investments in other markets to give a year of (just) positive growth. Mid-sized firms will have a stronger year as cost-conscious clients seek best value and also because there are good underlying deal conditions in some sectors.”
“While we are more and more part of a global economy, there are still many regional economies which have their own cycles. Those large regional economies in an up cycle mode will continue to drive fee increases for those firms able to garner the instructions.”
Time for action
“Time for consolidation where appropriate, maintaining strong contacts with existing clients and exploration of areas of potential growth (e.g. major capital projects, renewable energy and environmental sectors).”
“All change is good for lawyers and recession just requires different skills and flexibility to boom times."
It depends who you are
"Clients in the pharmaceutical and oil and gas services sectors or who are overseas and want to acquire UK, US or European assets, will ensure workloads hold up. As share prices are rebased to more sensible levels, there will be more M&A work too. For some firms, this downturn will enable them to clear out some of the dead wood in their practices - welcome for some - and it should mean that firms will emerge with more efficient structures. Although this will enable the PEP figures to be massaged, the income lines will prove determinative of the impact this downturn is having."
“There is likely to be a shift of emphasis in practice growth throughout London, with less emphasis on corporate and property work and greater emphasis on specialisms such as IP, competition, employment, insolvency and litigation. The firms which will shine will be well-managed firms that have invested in these practice areas.”
“Firms weighted more towards contentious work and/or mid/small cap transactional work are unlikely to be adversely affected - indeed the converse may apply.”
“Although clearly the market is re-adjusting, in real estate there will be opportunities for developers and investors who are not so reliant on bank funding to secure sites and to pick up some ‘fire sales’.”
“At the top end of the debt waterfall there is a credit squeeze, affecting the magic circle, their lending clients and very few others. We are in significant danger of talking ourselves - as a profession and a nation - into the reality of a recession which need not materialise, just because of the cold wind blowing through the corridors of a few.”
"Banking/finance will have a down year. Property will have a very down year. M&A will pick up when the vultures stop circling and begin to dive. Contentious work will pick up but particularly international arbitration will boom (in the UK, for solicitors; the bar will continue to whither and barristers will increase their efforts to pretend that they are international arbitration experts)."
“There will be a recession, but those firms which rely on litigation as the primary source of income will be largely recession proof.”
“The good lawyers will continue to thrive but those without a solid long term client base may struggle.”
“Good for tech and regulation, bad for corporate, better for insolvency.”
“The credit crunch will have a dramatic affect, but not for those firms who are able to consolidate their strength in international transactions, particularly involving those economies which continue to be in growth mode, for example the Middle East, Russia and India.
“This year is looking daunting already; but perhaps the bad times Stateside will prompt a rise in litigation work in the way of ‘swings and roundabouts’ as in the past.”
For whom the bell tolls
““The recent extended boom in legal services has resulted in unsustainable charging supporting unsustainable overheads that have nevertheless allowed unsustainable profits. There is clearly a downturn and the bells are loudly tolling. The question for all law firms is "do they toll for me?"
“Financial performance for firms has been so strong in recent years, it is inevitable that 2008 will see pretty much static growth, given the decline in deals. Some firms like mine will increase revenue, as we are aggressively expansionist, but for most it will be a holding year at best, and some practices, and firms over reliant on those practices, will see fee income decline.”
The current market is going to test firms who are reliant on big ticket M&A, private equity and real state investors. Sudden strategic focus on emerging markets will not be their lifeline as the entry costs are high
“The deal market overall in London will be poor and down from last year.”“Many commercial lawyers (especially junior ones) seem to think law firms are immune from developments in the wider economy. I fear that 2008 will be a bumpy ride.”
“The UK economy is far less benign than it has been for over a decade. Shake-ups are anticipated and some firms will enter a steep, perhaps terminal decline. However, the current dynamic climate also offers opportunities to the better positioned firms whether it be in counter cyclical practice areas or the emerging markets. As was the case in the early 1990s, some firms will rise to the challenges and surge ahead - others will stumble.”
It’s precarious out there
“There will be some consolidation of businesses and this will generate enough activity to keep law firms ticking over; but any actual growth is unlikely.”
“It will be a difficult year. Innovation and creativity in the way in which legal services are developed and marketed will be crucial.”
“Although the credit squeeze has affected the larger deals, we have not seen the smaller end of the corporate M&A market reducing in size and don't expect this to change over the next 12 months. More pressure will be put on the commercial property market. Other areas of the market will remain relatively static.”
“It is unlikely that firms will see the same levels of growth as they witnessed in the first half of 2007, and I expect we will see them turning to new and developing markets in an attempt to bolster revenue in 2008.”
“The length of any recession will partly be determined by how the ‘youngsters’ who have not seen anything but easy trading conditions react - mainly in clients, but also in law firms. I've got a deal on at the moment where the principal on the other side was still at school during the last property crash, and my client says he can't understand why the other side haven't woken up, smelt the coffee and pulled out of the deal.”
Don't ask me
“If we were clever enough to predict this, we would be out making money for ourselves.”
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