The most successful law firms in the last decade have leaned heavily into lucrative transactional work amid a decline in litigation demand, according to a Thomson Reuters Institute report.
Firms that Thomson Reuters categorizes as “dynamic” based on their performance experienced near parity between their litigation and transactional practices as of 2013.
By 2022, those leading law firms had grown their transactional practice proportion to roughly 42%, an increase of nearly seven percentage points.
“Over the last decade, transactional practices have provided opportunities for premium rates and lesser price sensitivity on the part of clients,” the report said. “This, combined with relatively greater demand performance, led the general law firm to rely on transactional practices to bolster productivity. By tapping into this source of growth to a greater degree, Dynamic firms likely further propelled their operations.”
Meanwhile, as of last year, litigation comprised roughly 28% of leading law firms’ work. This was a decline of more than 4.5 percentage points from 2013.
Mix of transactional work
The Thomson Reuters report defined transactional practices as those encompassing general corporate work, corporate M&A, real estate and tax.
The leading law firm’s largest share of transactional work comes from the general corporate category. In the last decade, those firms’ share of such work increased from 20% of their overall work to 25.5%.
Meanwhile, real estate work made up nearly 10% of leading firms’ practice mix and tax comprised 2.6% as of 2022.
Corporate M&A has grown from 2.8% of leading firms’ work in 2013 to 4.2% last year.
While M&A’s percentage of dynamic firms’ work is relatively low, such activity generates comparatively high-dollar billings.
The median partner hourly rate for M&A matters was $955 an hour last year, a 6.4% uptick from 2021, according to a LexisNexis CounselLink report. M&A partners charge more than any other practice area.
Additionally, outside counsel teams working on mergers and acquisitions are typically much larger than teams working on other legal issues for companies, LexisNexis CounselLink found.
Partners on average charge $675 for corporate work and $520 for real estate work.
The leading law firms’ strength in transactional work was on particular display in the final years of the 10-year period examined by Thomson Reuters.
During 2020, which is when COVID-19 pandemic first took hold in the U.S., dynamic law firms saw a slight increase in transactional demand.
Then in 2021, those firms saw transactional practice demand spike to a level that “set the heights of the scale,” the Thomson Reuters report said.
“Interestingly, even when transactional practice demand across the market slumped in 2022, transactional demand for the average Dynamic firm ended the year essentially flat with the prior year, representing an ability of these firms to maintain an incredibly high level of demand for transactional work despite a market downturn,” the report said.
Whether leading law firms can continue their success in transactional practice areas throughout this year remains to be seen.
In the first quarter of 2023, M&A saw a 7.7% decline in demand compared to the same time period a year ago and real estate saw a 7.6% decline.
Tax demand also dipped 3%, Thomson Reuters reported, while litigation demand increased 2.4%.
To help maintain profitability, law firms raised their rates an average of 5.5% in the first quarter, the largest quarterly increase since before the global financial crisis of 2008-09.