Legal Services Industry - Forensic Accounting and Business ... · Australian Legal Services...

Legal Services Industry

Source of data: IBISWorld (M6391 : February 2019)

Actual Revenue (2019):

Projected Revenue (2018)

AUD $20.8 billion

AUD $19.8 billion

Historical Annual Real

Growth (2014 – 2019):

1.6%

Projected Annual Real

Growth (2019 – 2024):

2.0%

Industry Profit: AUD $6.2 billion(29.8% of industry

revenue in 2019)

Industry Wages: AUD $6.5 billion (31.3% of industry

revenue in 2019)

Number of Business: 21,322

Australian Legal Services Industry Key Statistics

AUD $20.8 billion for 2019 split as follows

Australian Legal Services Industry Revenue


Commercial law services, 32.2%








Operators in this segment provide legal advice

to businesses, mostly relating to major

corporate transactions such as mergers and

acquisitions and IPOs, and financing methods

and taxation solutions.

The business cycle, investment levels and

overall corporate activity heavily affect demand

for these services.

Due to the complexity of commercial

transactions, legal firms that specialise in this

area of law often command high premiums.

The top-tier law firms primarily provide services

in this segment.

Some commercial law services, such as those

associated with bankruptcy and restructuring

initiatives, are countercyclical.

Over the past five years, this segment has

increased as a share of industry revenue due to

positive business confidence and growing

demand from financial services firms.

Personal legal & industrial

relations, 21.7%




.


relations, 21.7%




.

This service segment includes legal work related to

wills and estates, personal injury, workers’

compensation and family Law.

Sole proprietors and small firms primarily are the

primary providers of personal legal services, as

services in this segment are less profitable than

services in other segments.

Since the Fair Work Act 2009 was implemented,

employers have grappled with good-faith

bargaining, industrial action and permitted

agreements.

Legal firms provide services to both employers and

employees. Legal services related to industrial

relations usually involve unions and large

corporations.

This segment has increased as a share

of industry revenue over the past five

years, despite a decline in the

workplace accident rate.

Growth in this segment is largely due to

law firms increasingly offering a no-win

no-fee incentive to consumers for

personal injury and workplace claims.

Administrative, constitutional & other, 16.3%




Administrative, constitutional & other, 16.3%




This segment includes work related to

government administration, the constitution,

tribunals and other fields of law, such as

environmental law.

The main market for these services is

corporate clients dealing with government

departments and agencies. Some larger

industry firms also provide advisory

services to government departments,

agencies and statutory authorities

regarding forming and implementing

government regulations.

This segment has slightly declined as a

share of industry revenue over the past five

years, as government departments have

increasingly been using in-house legal

teams.

Property law services, 15.5%








Property law services refer to property

conveyancing and other property-related

legal work. Small local law firms primarily

provide these services to households and

businesses engaging in property

transactions. As a result, interest rates and

the strength of the domestic economy

significantly affect demand for property law

services.

Additionally, while property owners and

investors account for a large portion of

clients for this segment, property law

specialists also advise property developers

on issues such as structuring finance for

property sales. Although the number of

housing transfers has declined over the

past five years, a rise in the number of new

dwelling commencements has boosted

demand from property developers over the

same period. However, operators in this

segment face strong competition from real

estate agents and mortgage brokers that

also provide these services. Over the past

five years, this segment has declined as a

share of industry revenue.

Intellectual property, 5.0%




Intellectual property, 5.0%




Intellectual property refers to legal protection,

such as patents, copyrights and trademarks,

of valuable intangibles including ideas,

inventions, words, trade secrets, discoveries

and designs.

This segment comprises a range of clients

across different industries. These include

pharmaceutical and information technology

companies, fashion houses, and food and

beverage manufacturers.

This segment has grown as a share of

industry revenue over the past five years, as

biotechnology and fintech firms have spent

more on research and development.

Criminal law services, 4.8%

Barristers account for a higher proportion of

the criminal law services segment than for

other legal professionals, as clients that

require these services often need in-court

representation.

An increase in illicit drugs, weapons and

explosives offences has supported demand

for criminal law services over the past five

years. These cases are generally more

complex than other crimes, such as traffic

violations, allowing lawyers to charge

higher fees. However, demand for criminal

law services has slowed over the past five

years, due to weak growth in criminal

activity. As a result, this segment has




Community legal services, 4.5%

This segment includes legal aid authorities

and community legal centres. Eight legal aid

authorities operate in Australia, one in each

state and territory.

Legal aid provides funds that allow access

to legal representation, while community

legal centres often provide free legal advice

and services. Almost 200 community legal

centres operate throughout Australia,

providing free legal services to the public

with a focus on helping disadvantaged

individuals.

.

State and federal

governments provide most

of the funding for these

services, with a small

proportion derived from

other sources such as

philanthropic organisations.

This segment has declined

as a share of industry

revenue over the past five

years, due to Federal

Government funding cuts




Criminal law services, 4.8%Intellectual property law

services, 5.0%


relations, 21.7%

Administrative, constitutional & other, 16.3%Community legal

services, 4.5%






Australian Legal Services Industry Key External

Revenue Drivers

Australian Legal Services IndustryKey External Revenue Drivers

Projected for 2019

according to IBISWorld

Property transactions



Projected for 2019



Demand from financial services industry



Projected for 2019




Business confidence



Projected for 2019




Business confidence

Level of criminal activity


Projected for 2019




Business confidence

Level of criminal activity

Divorces



How to quantify business value


Future maintainable earnings

(somewhat objective as profit can be quantified)




X




X

Multiple i.e. a number usually to one decimal place

(subjective because it relies on qualitative factors)




X

Multiple i.e. a number usually to one decimal place

(subjective because it relies on qualitative factors)

=Value of legal practice

What makes one law firm more valuable than another (assuming similiar profit)?

1. Service lines & geography

More service lines, across different geographical areas, the greater the spread

of risk, ergo HIGHER MULTIPLE

2. Fee generating ‘equity’ partners per service line

Less reliance on one key partner to preserve service line income, ergo

HIGHER MULTIPLE

3. Spread and depth of repeat annual customers

Quality, spread and depth of repeat clients is KING, ergo HIGHER MULTIPLE

4. Staff turnover and working capital management

Rigid focus on billable hours and other KPI can lead to burnout – balance is

needed as people drive revenue & profits. Low staff turnover, with strong

working capital KPI leads to HIGHER MULTIPLE

1. Top Tier Firms have expanded into international markets with global clients increasing revenue (independent of domestic conditions) and also opening opportunities for domestic boutique firms which have increased in number.

2. International based firms opening up offices in Australia, e.g. Pinsent Masons, Kennedys, Clifford Chance.

3. Recent amendments to the Singapore-Australia Free Trade Agreement (SAFTA) have made it easier for Australian legal firms to practice in Singapore. Similarly, the China-Australia Free Trade Agreement (ChAFTA) allows Australian law firms to establish commercial associations with Chinese law firms in the Shanghai Free Trade Zone.

4. Big 4 accounting firms recruiting law firm partners will increase competition and reduce demand from some large corporate clients. Government departments and private companies also growing in-house legal teams.

5. Clayton Utz introduced Forensic & Technology Services which will compete with accounting & insolvency firms. Expect other legal firms to expand service offerings beyond traditional legal services.

Australian Legal Services Industry 9 Observations and Trends

5. Some law firms ‘merging’ to generate accretive revenue but stagnant recent

acquisition activity by consolidators as law firms prefer opportunistic growth via

recruiting rainmakers as lateral hires who can attracting other lawyers to follow.

6. Some movement towards fixed fees driven by increased competition and cost

conscious clients.

7. More online legal services and savvy use of digital marketing to promote brand.

Blockchain technology and smart contracts will impact delivery of legal services.

8. Wages as a percentage of firm revenue expected to increase as legal work

requires more highly trained and more specialised experience to compete via

promotion of niche areas.

9. Firms seeking to improve operating efficiencies and employ practice managers

to drive improvements in profitability.

Australian Legal Services Industry 9 Observations and Trends

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Legal Services Industry - Forensic Accounting and Business ... · Australian Legal Services...

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