Cautious Optimism
Most large commercial law firms have been impacted by Covid but optimism is growing for H2 2021 as the pandemic nears endgame,
Ireland’s largest commercial law firms have performed better over the past year than smaller practices, even if they have emerged dented from the pandemic’s impact on their growth, turnover and profitability. In its annual survey of the sector, published in November 2020, Smith & Williamson reported that the outlook had deteriorated across three-quarters of top 20 firms. Interviews for this survey suggest more optimism. The conclusion of Brexit negotiations and the vaccine rollout progression are the two main reasons.
Smith & Williamson’s report revealed the extent of Covid’s impact. Nearly half of Top 20 firms saw reduction to their revenues as a result of the pandemic, generally less than 20%. Two out of three non-Top 20 firms also took a revenue hit, and generally it was more than 20%.
More than half of the law firms surveyed saw their profits decrease year-on-year through 2020 (40% of Top 20 firms and 50% of all other firms). The decrease in profits amounted to an average of 10% in the Top 20 firms and more than 20% in other firms. Nearly half of all firms implemented wage reductions and deferred pay reviews. Among the largest firms, S&W found that nine out of ten cut salaries. Partner distributions were deferred in 80% of Top 20 firms, while 60% of the Top 20 reduced partner payments.
Outside of the financial impact, law firm operations were upended by the overnight move to remote working. Although it was well prepared for it from a technological viewpoint,
Owen O’Sullivan, William Fry’s new managing partner, says home working was never in anybody’s game plan.
“A year ago we were scared and really didn’t know what this was going to be like,” he recalls. “We probably thought it was going to be shorter and sharper than it actually turned out. Overall, fee income last year was marginally down on 2019 – an outcome we would have been delighted with had we known it mid-year, taking the global pandemic and Brexit into account.”
O’Sullivan had always contemplated the possibility of moving up through the management ranks. During the summer of 2019, he undertook a law firm leadership course in Harvard University. When he indicated an interest in the job of managing partner, O’Sullivan was head of Fry’s litigation and dispute resolution department, and was described as ‘deadly efficient, thorough, cool and analytical’ by law trade publication Chambers Europe.
O’Sullivan’s litigation background enables him to provide insight on the state of the Covid-impacted courts system, which also has had to implement remote digital working practices. “There are some cases that lend themselves to virtual hearings far more easily than others,” O’Sullivan explains. “Cases that don’t require large numbers of witnesses, and that are much more based on legal arguments than oral testimony, have continued to progress. Others have slowed down.”
On balance, O’Sullivan remarks, the vast majority of commercial cases, especially the urgent ones, have progressed well. “Many things that we have started to do successfully online, like motion lists and other purely administrative applications, may well stay online in the future and be far more efficient than having large teams traipse up and down to court every day.”
Through the pandemic year, William Fry’s performance has been
“surprisingly resilient”, according to O’Sullivan. “While certain sectors were badly impacted, there are other sectors that did well. We have counter-cyclical areas of business that tend to improve when other lead areas are quieter. For example, while real-estate transactions went quiet, advisory work in real estate improved.”
O’Sullivan also notes an increase in demand for corporate restructuring and tax advice. He adds that there was a notable uptick in M&A activity from September 2020 onwards. “If the reports of the amount of money flowing into private equity investment are anything to go by, there are indicators that 2021 will be a busy M&A year. There is still growth around and the second half of the year should be quite strong.”
The law sector dreaded the possibility of a no-deal Brexit last year, but sentiment at William Fry has since swung in the opposite direction, as UK financial services entities ratchet up their presence in Dublin. “Brexit has presented significant opportunities,” says O’Sullivan. “We have been able to capitalise on the authorisation of financial services operations for UK firms moving here, which have been obtained from the Central Bank. We acted in 40% of the e-money applications that went through.”
O’Sullivan adds that his firm continues to recruit. “We have just completed a trainee recruitment round in addition to offering jobs to trainees who recently qualified. We have also made a number of strategic lateral hires during 2020 into areas that we have targeted for growth.” The firm will also continue to invest in new technology, O’Sullivan says. “I think we are only starting. One thing that Covid has taught us is that people have learned to trust technology a little bit more.”
Mason Hayes and Curran is the only large commercial law firm that discloses annual fee income. “We were down 6% for the year to €80m arising from Q2 and Q3 2020,” says managing partner Declan Black. “We grew every year in the financial crisis so the pandemic is worse! I don’t whinge in the slightest about that because I think it’s a perfectly good outcome in the circumstances.”
Black adds that the firm had experienced strong demand in the technology, energy, financial services and life sciences sectors, but it was impacted by a pronounced slowdown in transactional activity, especially in Q2 last year. “It came back at the end of Q3 and the rebound has been sustained. We are specialists in the energy sector, which hasn’t been affected by the pandemic because its investment cycles are so long. We had a number of practice areas that were completely unaffected by the pandemic, including technology and life sciences.”
In relation to litigation, Black observes that the High Court is functioning well and the Circuit Court less so. “If you’re going to finish cases,