The bad news for Texas-based corporate law firms is that revenues, profits per partner and demand for legal services significantly trailed their out-of-state competitors during 2024, according to new Citi Law Firm Group data provided Monday to The Texas Lawbook.
But the good news is that those outside national law firms — including Kirkland & Ellis, Gibson Dunn, Latham & Watkins and Sidley — growing faster and richer now make up about 60 percent of the Texas corporate legal market, according to the Texas Lawbook 50 report for 2024.
Citi data shows that 2024 revenues for business law firms grew a healthy 12.3 percent over the prior year but that the Texas-headquartered law firms increased their revenue by only 2.2 percent.
Michael McKenney, a senior specialist with Citi’s Law Firm Group Advisory Team, attributed some of the disparity to “a 2023 aberration” in which one or more law firms in Texas saw their revenues spike due to the collection of large contingency fee payments. Citi declines to disclose specific firm data, but Texas Lawbook 50 data last year showed that Houston-based Susman Godfrey’s firmwide revenues jumped from $374 million in 2022 to $744 million in 2023 thanks to its representation of Dominion Voting System in a case that settled in 2023 for $787.5 million.
The “aberration” also impacted profits per equity partner data. Citi reports that PEP nationally jumped 16.5 percent in 2023, while Texas-based law firms saw just a 4.3 percent bump. However, Citi reports that if the firm or firms causing the aberration are removed from the data, Texas firms’ PEP increased by 7 percent.
The Citi data shows that client demand for legal work increased 3.3 percent nationally but only 1.3 percent for the Texas-headquartered law firms.
McKenney said that lawyer headcount at Texas firms grew 2 percent last year compared to only 1.4 percent for the legal industry as a whole. He said that equity partner growth, which was 1.7 percent, was higher among Texas-based firms than any other region.
Inventory, which is essentially legal work that firms have already done but have yet to bill, jumped 11 percent for Texas-based firms, which is slightly lower than the 11.5 percent for the industry as a whole.
One final piece of good news for Texas legacy firms: Their 2024 expenses increased by only 6.5 percent — primarily driven by increases in lawyer compensation — which was substantially lower than the 9 percent uptick for the legal industry as a whole.
“Firms in Texas are seeing strong pricing structure, increased demand and healthy headcount growth, which should set up the firms for a strong 2025,” McKenney said.
Editor’s note: The Texas Lawbook has sent its annual Texas Lawbook 50 firm finance survey to law firms. Here is a link for the survey: https://www.surveymonkey.com/r/BXXHZ89.