Revenue and client demand at Texas-based corporate law firms were down during the first six months of 2020, but they were not as bad as everyone expected.
Business law firms headquartered in Texas saw revenues during the first half of this year remain flat, even as law firms across the U.S. witnessed revenue increases of 5.3%, according to a new report from Citi Private Bank Law Firm Group.
Jeff Grossman, head of business development at Citi’s Law Firm Group, said Texas firms reported that demand for work by clients declined 4.9% January through June.
“Demand has dropped more for associates than for partners because clients are seeking traditional counseling and they want more senior lawyers,” he said.
Texas law firms were hit harder than those in other regions, Grossman said, because many businesses in the state were on the receiving end of a double whammy: the economic pinch due to COVID-19 and a double whammy from depressed oil and gas prices, which severely reduced M&A activity in the oil patch.
Grossman, who is a nationally recognized expert on corporate law firm economics and management, said that the second half of 2020 “could be more problematic” because firms are reporting that demand for work has dropped off a bit.
Profits are up slightly, which is mostly attributable to increased hourly rates and a steep 5.6% decrease in expenses. Firms reduced spending in areas such as marketing, business development, branding and new IT initiatives, he said.
Grossman is quick to note the Citi data for Texas does not take into account the financial successes being achieved by national law firms that have offices in Texas. For example, firms such as Kirkland & Ellis, Gibson, Dunn & Crutcher, Latham & Watkins, Sidley Austin, Weil, Gotshal & Manges and other firms have large presences in Texas but are headquartered outside the state and thus are not included in any Texas data.
Editor’s note: Grossman did not name any specific law firms. Those were added by the writer. The same with the paragraph below.
In addition, several corporate law firms in Texas, such as Jackson Walker and Porter Hedges, will not see revenues from their work in a couple dozen large, complex business bankruptcies and restructurings until late fall or early next year.
A new Texas Lawbook report scheduled to be published next week will show that a dozen firms operating in Texas will likely generate between $50 million and $500 million in revenues from legal work they are doing related to the wave of corporate bankruptcies.