After lagging behind the industry in 2021, Texas law firms are strongly rebounding so far in 2022, seeing high demand in the industries they know best and, as a result, above-average financial performance.
“It is going well for us, maybe even surprisingly well,” said Wade Cooper, managing partner of Am Law 200 firm Jackson Walker, which posted a record year in 2021.
“We continue to have good success. We are, on average, busier per person, we’ve grown, and rates have gone up OK,” Cooper said. “So in all of those respects, we will see more revenue this year unless we hit a cliff between now and year-end.”
According to a report from the Citi Private Bank Law Firm Group, revenue improved by 5.6% among Texas firms included in the midyear survey, and expenses were up 6.5%, both metrics much better than the industry average. Also, the Citi survey found, homegrown Texas firms stepped up collections during the first half of 2022.
The Wells Fargo Private Bank Legal Specialty Group Six-Month 2022 Check-In Survey found that the Texas region was the only one that improved productivity during the first half of 2022, and a Wells Fargo analyst said it was good to see that the homegrown Texas firms “kind of held their own relative to the industry,” after 2021, when Texas was one of the lowest-performing regions.
Those positive results come despite a slowdown in some kinds of deals nationally, and a Texas market that continues to be impacted by the influx of out-of-state firms opening offices in the Lone Star state.
Kent Zimmermann, a consultant with Zeughauser Group, said Texas firms are benefiting from money flowing into Texas, putting lawyers to work.
“That’s been a trend that’s been building, evidenced in decisions by Elon Musk and other techie types investing in the state, and in some cases moving there,” he said. “It’s kind of a follow-the-money thing, and Texas really benefits from all of the investment.”
Cooper said litigation, real estate and corporate were “big drivers” for Jackson Walker during the first half of 2022.
“Litigation was super busy last year; it continues to be very busy this year. Real estate is a whole whole lot busier than it was last year, and our finance group — mostly real estate finance [but] not entirely — is a whole lot larger after we had the influx of people from several firms, including what used to be Thompson & Knight,” he said.
And, Cooper said, corporate work is up about 10% when compared with the first half of 2021, although he said the nature of the work has changed and includes fewer large deals.
While Wells Fargo found that the firms it surveyed in Texas lost about 1% of their lawyers during the first six months of 2022, in contrast to 5% industry growth, Jackson Walker is about 4% larger than at the start of the year.
“That is meaningful,” Cooper said, noting that since the Great Recession, the firm has hired associates conservatively.
“We are hiring people because we have work,” he said.
Phil Appenzeller, CEO of Munsch Hardt Kopf & Harr, expects 2022 to be another record year.
“We’ve had a really great year so far. Our demand is up about 11% over last year, and our collections are up about 6% over last year. That’s just our non-contingent revenue. It’s up 22% due to a contingency [fee] early in the year,” he said.
Head count is up about 10% since the beginning of the year, he said.
Munsch Hardt isn’t seeing any decline in the transactional work this year, and the level of deals in the pipeline is strong, he said. Real estate in particular “keeps blowing and going,” he said, a positive note that Appenzeller relates to the number of corporate headquarters or operations moving into north Texas.
Hilary Preston, a vice chair at Vinson & Elkins, said the Am Law 100 firm has studied the Citi and Wells Fargo surveys, and the general observation about how historically Texas-based firms are doing relative to the industry is “certainly consistent with what we are seeing.”
“The first half of 2022 across the industry has had slower growth than the first half of 2021, but I’d say that’s because 2021 had such growth. We’ve seen indications so far that the second half of the year will be much stronger than the first half of the year,” Preston said.
As evidence, she said, Vinson & Elkins is seeing an uptick in deal activity, particularly in the energy transition sector, which is “getting busier and busier.”
One thing that has led to a lot of excitement at the firm, she said, is the expectation that the short-term and long-term impacts of the Inflation Reduction Act will be significant. The firm’s challenge, she said, will be keeping up with the demand as people take advantage of the new tax structures.
The advantages “fall squarely in that energy transition,” but she expects work to develop in other industries as well.
Taylor Wilson, managing partner of Haynes and Boone, an Am Law 100 firm, was not available for an interview, but provided this statement about the first six months of 2022: “Our firm, and likely others with a significant presence in Texas, experienced an uptick in finance, real estate, private equity, and capital markets revenues in the first half of 2022, driven in large part by continuing strength in middle–market activity.”
As for collections, the Citi survey found that the homegrown Texas firms did a better job than the industry on bringing in money during the first half of the year, but Cooper and Preston both said their firms aren’t doing anything extraordinary to lead to that result.
“We are not doing anything special,” Cooper said. “The longer answer is [that] one of the hallmarks of Jackson Walker is we are very good on the back office and part of the reason our numbers are what they are is we are able to turn billable hours into cash more efficiently than some of our competitors.”
Preston said collections on a year-over-year basis have been “pretty steady” at Vinson & Elkins.
“They are exactly where we expect them to be. We have as a firm certainly become a little bit better at staying on top of collections being current. That is important. We haven’t seen any dramatic change,” she said.
At Munsch Hardt, Appenzeller said inventory levels are “strong,” and the firm is collecting faster than normal, in part because of adding employees to the accounting department.
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