Biggest U.S. law firms hit hardest by declining demand, report says

People are seen in silhouette on a street on a winter day in Beijing
REUTERS/Tingshu Wang
  • Citi Hildebrandt annual advisory finds 1.2% overall drop in demand through first nine months of 2022
  • Firms saw "modest" revenue growth at 4.1% on average across the industry

(Reuters) - U.S. law firms saw decreased demand in 2022 measured against "aberrational performance" in 2021, with the biggest firms feeling the brunt of the decline, according to a report released Wednesday that said bankruptcy and litigation practices may see growth in 2023.

Client demand dropped 1.2% overall through the first nine months of this year compared to the same period last year, Citi Private Bank's Law Firm Group and Hildebrandt Consulting said in their latest annual client advisory.

The report said firms ranked among the top 50 highest-grossing in the United States by The American Lawyer saw demand drop 1.9% in the first three quarters, while firms ranked 51-100 by revenue experienced a 0.4% decline in demand.

Firms ranked 101 to 200 by revenue and unranked firms saw a "marginal" decline in demand.

The law firms that have been most affected by slowing demand are those that depend the most on M&A and capital markets work, the report said.

Surveyed firms experienced "modest" revenue growth at 4.1% on average, compared to a 14.7% increase over the same period last year, the report said. With declining demand, the report also attributed the lower revenue figure to a longer collection cycle in part as clients take more time to pay their bills.

Revenue growth also diverged by law firm market segment, with firms ranked 51-100 seeing stronger revenue growth at 5.4%, while the top 50 firms saw 3.8% growth, the report said.

Expense growth exceeded revenue growth across firms at 12.9% on average.

While firms will likely see profitability fall in 2022, the report's authors said that firms have "performed very well and proven resilient" when looking at average annual profitability growth since 2019.

And while no firms may be immune to higher expenses and economic headwinds, this year's demand differences across firms is highly dependent on practice area, clientele and industry sector, said report co-author Brad Hildebrandt of Hildebrandt Consulting.

Firms are anticipating growth in bankruptcy and financial restructuring practices next year, although that has not built up just yet, according to the report. Recent turmoil in the cryptocurrency industry, including bankruptcies and the high-profile collapse of the FTX exchange, has kept some lawyers busy.

Firms also expect growth across other practice areas including regulatory and compliance, antitrust and environmental, social and governance work, the report said.

Our Standards: The Thomson Reuters Trust Principles.

Thomson Reuters

Sara Merken reports on privacy and data security, as well as the business of law, including legal innovation and key players in the legal services industry. Reach her at