By Sara Merken
Dec 6 (Reuters) - Major law firms in 2024 plan to grow their bankruptcy and litigation teams and will face challenges such as attracting lawyer talent and navigating the spread of generative artificial intelligence, according to a report released on Wednesday.
Legal industry analysts in the latest annual client advisory from Citigroup's Citi Global Wealth at Work Law Firm Group and Hildebrandt Consulting nevertheless predicted a stronger year for law firms in 2024 than in 2023, when revenue and profit growth have been modest.
Firms saw revenues grow 4.8% on average and client demand decline 0.7% in the first nine months of 2023, Citi found. The time it takes firms to collect client bills lengthened by 5% and average lawyer billing rates increased by 8.2%, the report said.
Declines in client demand were widespread but uneven. The top 50 highest-grossing firms in the United States as ranked by The American Lawyer saw a 1.2% decrease in demand on average in the first three quarters the year — more than other segments — which the report attributed to the greater dependence at those firms on big-ticket mergers and acquisitions and capital markets work.
The top 50 firms also had the largest growth in total lawyer headcount at 3.3%, and the biggest drop in productivity, reporting a 3.6% decrease. Revenue growth of 5.2% for the segment outpaced expense growth of 4.9%.
Firm collections in the fourth quarter could lead to stronger revenue growth for large firms by the end of the year, the report said.
The data was collected in surveys from primarily U.S.-based law firms and from conversations with law firm leaders, Citi said.
Law firms that prioritized certain areas including litigation and investigations, bankruptcy, and funds and investment management likely had a better year than those focused on transactional work, said Gretta Rusanow, head of advisory services for Citi's law firm group.
"It's been a year very much around your practice mix," Rusanow said.
Firms increased their ranks of both equity and non-equity or income partners in 2023, a trend the analysts expect to continue. Sixty percent of large firms increased their equity partner ranks from 2017-2022, and 79% of large firms anticipate growing equity partnerships from 2022 levels by 2025, the report found.
Maintaining growth amid significant macroeconomic and geopolitical headwinds is a key challenge for firms in 2024, the report said, though the authors were optimistic that transactional practices, which have been dampened by an extended global M&A slowdown, would rebound next year.
Firms plan to expand in areas such as bankruptcy, litigation, private equity, digital and cyber, and private capital, Citi's research found.
Law firms also told Citi they are paying attention to how generative artificial intelligence will affect the legal industry, including implications for the ratio between partners and other lawyers, and between lawyers and staff. The report said the technology has had limited impact at law firms so far.
Legal research, sifting through evidence and drafting legal documents have been key areas for artificial intelligence companies, which have debuted several new or enhanced products and courted major investments this year.
Legal AI race draws more investors as law firms line up
(Reporting by Sara Merken)
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