Dramatic drop in confidence in the Irish legal sector over 12 months impacted by Brexit, although there is also much to celebrate says new report.
Only 19 per cent of all firms in Ireland, none of the top 20 largest firms, believe the Irish legal sector will have an improved year in 2020. This is down from over 40 per cent in 2018. The results come from Smith & Williamson’s 8th Annual Survey of Irish Law Firms 2019/20, conducted by Amárach Research during autumn 2019.
The survey reveals the legal sector is performing well, with rising revenues rising and an increasingly buoyant market for lawyers. However, there are plenty of challenges bubbling below the surface. Confidence is falling, as Brexit muddies the near-term outlook and global economic growth slips. Nearly two in three Irish law firms (87 percent of the Top 20 firms) are indicating they will change to LLPs once the regulations are finalised by the Legal Services Regulatory Authority (LSRA), demonstrating an appetite for the opportunities and advantages this will bring. The report argues there is plenty to celebrate for Irish law firms. Revenues continued to improve in most firms in 2019, with 43 percent showing revenue growth in excess of 10 percent. Profits also continued to improve in most firms, particularly at the top end. Despite this, there has been a discernible drop in confidence across all law firms. After many years, when legal firms expected the outlook to improve, most firms now expect a stable or deteriorating outlook. The key issue the report reveals is Brexit. The UK’s exit from the European Union is making its presence felt in the Irish legal market in a number of ways. Firstly, the direct impact to cross-border business, but also an exaggerating competitive pressure for staff as UK law firms set up shop in Ireland. In addition, it is generating increased merger and acquisition activity and prospective discussions. This adds to the well-documented market pressures faced by law firms: rising salaries, a technology arms race and increasing operating costs. Smith & Williamson professional services managing director, Paul Wyse said “The findings highlight a substantial drop in confidence for the year ahead due to a squeeze on margins, continuing tough competition for talent and a negative economic outlook. Despite this drop in confidence and continuing inflation beating salary increases, Irish legal firms continue to perform well across the key metrics of revenue, profits and staff numbers all of which are up year on year.”
The legal sector continues its strong performance, with 65 percent of firms reporting an increase in revenues. Profitability is also strong with more than half of respondents reporting an increase in profits - and 67 percent of top 20 firms - albeit with many reporting slower growth than in recent years. Recruitment and retention of staff remain top priorities across the sector, after the economy and Brexit. The firms foresee more pressure over the next three years, particularly from well-known UK law firms entering the Irish market. Salary inflation appears inevitable as firms continue to rely on lateral hires as a route to growing their teams and adding specialisms. The survey results show that female equity partners account for 35 percent of all equity partners and a majority of those surveyed (55 percent) now have more qualified female solicitors than male. The partnership structure of Irish law firms remains a significant barrier to prospective merger and acquisition activity. The survey indicates that 59 percent of firms (87 percent of the top 20) will move to an LLP structure in the medium term. This higher level of activity is primarily driven by Brexit, with UK (and international) firms eying their Irish counterparts as a potential EU foothold. The survey can be found here.