Can mid-market law firms survive? That’s the worrying question raised by a survey undertaken by PricewaterhouseCoopers in the UK, who identify that the big law firms can weather the economic storm, but maybe not their smaller rivals.
“Against a challenging backdrop, 2013 could be seen as a turning point for the legal sector with the gap between best and worst performing firms widening further — and clear blue water between the Top 10 firms and the rest of the sector,” David Snell, partner and leader of PwC’s Law Firms Advisory Group, said in a statement.
The survey covered 100 UK law firms which together have the largest fee incomes from global work.
Bloombergs report that pricing pressures, inefficient work allocation and cost-reduction challenges are putting the firms’ survival at risk, according to the survey.
Average profit margins for the Top 10 firms are more than 14 percentage points higher than the next 15 firms, three points more than last year, according to the survey. By comparison, the survey found that there was only a 1.5 point difference between the Top 11-25, Top 26-50 and Top 51-100 firms.
The top U.K. firms are also outperforming in other areas, including in profit per equity partner. At the top 10 U.K. firms, such profit averaged 1 million pounds ($1.6 million), up 6.1 percent from last year, while average U.K. firm profit per equity partner for the Top 11-25 firms was 448,000 pounds, a decline from 481,000 pounds in 2012, according to the survey.
“Continued focus on cost reduction and innovative delivery is required across all firms to maintain profitability in a highly competitive U.K. market,” Snell said in the statement.