State of the Midsize Business Market: Resilience is Key – Insolvency / Bankruptcy / Restructuring
United States: State of the midsize market: resilience is key
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Despite daunting challenges, mid-sized law firms have shown creativity and agility to prove surprisingly resilient in 2020. 2021 report on the state of the medium-sized legal market from the Thomson Reuters Institute (TRI) examines how midsize companies have overcome the challenges of 2020 and the opportunities that may arise.
An earlier TRI report on the state of the global legal market concluded that changes in the industry, such as the shift to more remote working and a greater emphasis on productivity-enhancing tools, are likely to change dramatically. permanently providing legal services. The latest report suggests that midsize businesses are uniquely positioned to take advantage of these changes because of their value, flexibility and agility.
The start of 2020 has started off strong for midsize businesses as they build on the momentum of 2019. As the COVID-19 pandemic began in the spring of 2020, demand has declined dramatically as markets continue to grow. companies have shifted their priorities and that courthouses have closed. Litigation, which typically accounts for about a third of billings, fell 2.9% due to courthouse closures and restrictions. However, the second half of 2020 marked the start of a slow and steady recovery. This trend continued until early 2021. Demand was helped by an increase in personal and business bankruptcy filings. The peak of demand for the practice was bankruptcy, which jumped 2.8% in 2020. But all other major practices, such as labor and employment, real estate, intellectual property and taxation , ended the year down.
In addition, weak demand has been offset to some extent by discretionary cost reductions. Office costs, which account for around 8% of overhead, fell 25%. Recruitment, business development and marketing have been cut by over 40%. These reductions, along with other cost savings, such as travel, have contributed to the strong growth in profitability, even in the face of declining demand. As a result, mid-sized companies saw their average earnings per equity partner increase 5.8% in 2020, nearly double the pace of 2019.
Mid-sized businesses will need to closely monitor the impact of current trends on their customers and plan effectively. This will include capacity management even if demand improves. Mid-sized firms struggled to balance these factors last year, as the productivity of mid-sized firms fell 2.5% – the worst among all of the law firm segments tracked. Much of this was because mid-sized companies weren’t as efficient at matching their workforce with available work.
Data from market research firm Acritas indicates that while larger companies boast greater brand awareness with customers, it has more to do with workforce than anything else. Indeed, medium-sized companies are more often recognized for their value and price than large companies. So, to capture a larger share of the market, the recent TRI report advises midsize companies to grow their brands, improve their technology platforms and market their competitive advantages.
For example, they should position themselves to benefit from an upsurge in litigation, after so many cases were put on hold during the pandemic. Following the 2008-2009 financial crisis, almost all types of litigation tracked by Thomson Reuters Monitor Suite saw their volume increase for two and sometimes even three years after the start of the economic recovery. It’s too early to predict when litigation work will resume, but it’s critical that companies position themselves to take advantage of it. In addition, a wave of additional bankruptcy work offers another growth opportunity for mid-sized companies. Despite government assistance programs, many businesses are expected to close their doors within the next year.
The 2021 report warns that the window of opportunity may be short, as it might prove difficult to repeat some of the factors that drove profitability last year. For example, further cost reduction may not be possible. To build on the current momentum and achieve long-term success, midsize businesses need to seize their inherent advantages as soon as possible.
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