There's no denying multiple challenges have emerged to threaten law firm profitability and growth this year, not least falling demand for transactional services due to less favourable economic conditions. However, it is important to note that slowdowns do present new opportunities as well as challenges.
So, what's happened in the first quarter of 2023 and what's coming next?
Shifting hot practice areas
The tricky macroeconomic conditions have reduced the top-tier law firm client's appetite for transactional work this year, which had become the white-hot driver of demand throughout 2021 and early 2022. This is because there has been too much volatility to ascertain the value of UK companies accurately.
We are, however, seeing a dramatic shift as we observe increased activity for corporate tax, financial services regulation and restructuring, as well as in contentious practice areas – mainly commercial litigation, international arbitration and patent litigation. There has also been recruitment activity in the growing practices of Cybersecurity and Crypto Currency.
The graph below outlines the percentage of Associate and Senior Associate moves across some of these practice areas mentioned above within the last six months (September 2022 – March 2023), compared to the previous period (March 2022 – September 2022).
Slower processes
The most significant change from a recruitment perspective this year is that interview processes are moving much slower when compared to 2022.
Firms are keen to hire where there is demand, but they also are perfectly happy to wait and find the most suitable candidate to fill the position. Hiring partners are in no rush to progress a candidate through a recruitment process at breakneck speed for fear of losing out on a strong candidate, as there will be others out there. This means there will be traction in the market for those mid-level associates with a top track record and experience. The difference, however, is that we may not get an interview request the day after sending a C.V., as we did a year ago, and once called in for an interview, that candidate may well still find themselves interviewing for the same position over a month later and sometimes two months. The advice is to be patient and stay with the process, and you will find success.
When the top-tier legal profession roared back to life in the late Summer of 2020, following the first lockdown and the seamless transition to firms' staff working from home successfully, from that date to the second half of 2022, we saw the demand to recruit reach new levels. As a result, firms rushed to secure talent in an extremely competitive market. The reality now is that recruitment activity has returned to the pre-pandemic norm. Firms have gone back to hiring in line with their strategic plans. A top-tier lawyer actively looking for a new role still has huge power in the market and will have many options but not to the same extent as in the last two years- Jonathan Taylor, Legal Recruiter, London Director
Corporate Comeback?
While activity in practice areas such as Private Equity and M&A has seen a decrease in moves within the last six months compared to the previous period (due to hiring freezes and firms taking stock of the market following much recruitment in the last two years), they remain buoyant. Those firms who did not grow their corporate teams considerably in the last two years are now in a good position to grow.
‘’We are expecting corporate practice areas to pick up in Q3 and Q4 of 2023 as the UK gradually emerges from a slow six months. We are hearing from Partners that as inflation falls and other factors that have created volatility in the market subside, there will be a wave of M&A and PE investment once the true value of UK companies is understood.’’ - Jonathan Taylor, Legal Recruiter, London Director
This graph below highlights that slight decrease in moves in the first quarter of 2023 across PE and M&A in the City of London. It still however, highlights the buoyant and active market.
U.S. firms continue to expand London teams
It is clear that London remains at the forefront of the global expansion strategies of U.S. law firms, despite the increasing attractiveness of other international markets across Asia and Continental Europe. The London offices of the leading U.S. firms are continuing to see huge investments. Gibson Dunn and Paul Hastings have seen continued growth, to name a few.
The graph below highlights the increase in moves within the last six months compared to the previous six months. With the U.S. investing within their London team, the most significant growth has been at the senior end and Partner level, where we saw a 22.2% increase.
Brexit Update
While Brexit might seem like old news by now, the Northern Ireland Protocol has only recently passed through parliament. With the passing of this Protocol, hopefully, we can finally see many of the issues which have held up better cooperation between the UK and the EU start to be resolved.
As a result of Brexit, the Irish market is growing, and associates in the area are working on complex, cross border deals and transactions. The demand in Dublin for capable lawyers in key practice areas cannot be understated. Read more about the Dublin legal market here.
ESG influencing firms
Law firms face increased pressure to become experts in ESG issues to serve their customers better and revamp their internal processes. ESG also continues to be a popular topic, with many legal professionals interested in entering the space this year.
There's clear evidence that ESG will only continue to grow as a practice area, with 18%of law firms reporting plans to create an ESG practice area within the next three years. For more details on ESG and its implications for the legal market, read our detailed article here.
While the first quarter of 2023 hasn't seen the same pace in hiring as last year, we enter Q2 with a more positive outlook as we look to emerge from a difficult period, prepare for corporate and transactional work to pick-up and continue to help firms build out teams in contentious practice areas.
If you have any questions or would like a detailed breakdown of the market in London, don’t hesitate to reach out to info@sonderconsultants.com.
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