Slow recovery but steady improvement

Thankfully, with an improved outlook, business confidence has increased over the last 4 consecutive quarters.    M&A work has more than doubled, and employment for junior lawyers is also forecast to improve.

Here are the figures to give you renewed faith in the legal market.

Quarterly legal confidence

The quarterly legal confidence survey compiled by the Commonwealth Bank and Beaton Research & Consulting shows that business confidence among law firm leaders is still in negative territory but is now at its highest point since July of last year and has been improving for 4 consecutive quarters.    Those surveyed included the leaders of 30 law firms – 8 top-tier practices and 22 mid-tier practices.

% of firms who believe that business conditions are negative is as follows:-

  • 17% October 2014;
  • 23% in July 2014;
  • 28% in April 2014;
  • 43% in November 2013;
  • 70% in July of 2013.

While it is a slow recovery, there is a steady improvement.

Corporate/M&A

Australia has become the second biggest/most active market for Corporate/M&A deals in the Asia-Pacific region, after China.  The Australian market accounted for almost a quarter of the M&A deals completed in the Asia-Pacific.  The recovery in M&A work has contributed to a big improvement in business confidence at the most senior levels of the nation’s lead law firms.  The M&A work has more than doubled in value compared to last year, and the value of completed mergers and acquisitions within Australia in the 9 months to October more than doubled to the same period last year.

Many of the recent transactions have a cross-border element and another noteable aspect was the return of private equity.

A Partner from HerbertSmith Freehills has said it is the strongest start to the year since records began in the Asia-Pacific – a return of the “bold/strategic type M&A” rather than deals that were triggered by corporate distress.

Many positive deals are now part of people’s forward-thinking and strategic planning.     For the first time, activity is being seen in M&A across a range of sectors and from different buyers.

The top-tier firms are the main beneficiaries from the increase in M&A.

Other areas of law/improvement

Despite the boom in M&A, revenue is expected to only improve over the next 6 months in just 6 of the 15 surveyed practice areas.   The biggest decline in revenue is expected in insolvency and restructuring.

The improved outlook for law firms was in line with what was happening in Canada and the US.    Corporates are cashed up again and there are opportunities to gain market share and rationalise industries at that phase in the cycle.  Most firms expect Partner and Senior Associate numbers to grow at a slower rate over the next 6 months (primarily due to a more cautious approach to hiring at top-tier practices).    Top-tier firms expect no change in equity partner numbers in the next 6 months and believe they will continue to reduce the number of salaried partners and Senior Associates.

Junior Lawyers

There is strong improvement in the employment outlook for junior lawyers – 50% of firms expect to increase the number of lawyers with up to 3 years of experience (up from 39% in July of 2014).  Of those 50% of law firms, 55% of mid-tiers and 38% of top-tiers expect to be hiring.