The legal sector has changed significantly in the past five years as a result of the pandemic, Brexit, and ever-changing technological advances.
The sector has proved to be one of those most able to embrace the move to a new, hybrid working model. However, that appears to have opened Pandora’s box and the legal sector is now suffering a growing issue due to what has been labelled “The Great Resignation”.
Is the sector equipped to adapt as employees increasingly understand their power amid record vacancies and demand a better work/life balance?
The market is also facing a technological crossroads. As with all aspects of modern life, clients increasingly expect a digital interaction with their legal representatives. Likewise, fee earners require advanced data tools to be effective in a rapidly changing world. The investment required to join up both sides of that equation, while necessary to increase productivity long term, will incur short-term costs that will add further pressure to margins.
Finally, inflation and the cost of living crisis will likely put pressure on other operational functions in the legal sector. Legal professionals are already voting with their feet but with so many unfilled vacancies across the economy, how much longer before non-fee earning support staff demand pay increases or start to look elsewhere, adding further pressure on practice margins?
So, how are all of these challenges affecting the overall values of legal companies? Based on the latest financial data for the thousands of leading firms, values are still growing at double-digit rates of around 11%. This compares to a UK-wide average increase of 2% growth.
The top-level average masks some serious fragmentation in business value by company size and reflects the value of niche legal services offered within the wider sector. Over a quarter of the UK’s leading legal firms saw their value fall in the latest year, despite strong average growth. Only 303 firms have seen their value rise in each of the previous three years.
Within the industry, there is a growing divide in valuation performance based on size. The 10 largest legal firms have seen values grow by 15%. In contrast, the next tier of companies, large but not the industry titans, have seen a more moderate 4% growth in value.
According to the latest Plimsoll Analysis, average company values across the legal sector have risen in the latest year by around 11%. This is more than double the 4.4% rise we saw in the previous, pandemic-affected year and beats the all-industry, UK average of just 2%. In fact, values across the legal sector have risen in the last three years.
The final area worth mentioning is that of niche service providers within the wider legal sector. There are sharp contrasts in fortune depending on the type of legal services offered. Perhaps unsurprisingly, immigration and conveyancing were the two areas of law that saw the highest growth in business value; 26% and 21% respectively. Elsewhere, medico-legal and probate providers both saw values fall in the latest period.
It is clear that the legal sector is under increasing pressure due to changing working patterns, HR costs and increasing technological advances. To help our readers make sense of some of the impacts within this sector we are offering a free insight report looking at business value trends across the legal market.
For a free copy of the latest Insights Report, please click on the link here or email me at c.evans@plimsoll.co.uk and I will get this processed for you immediately.
