U.S. Legal Industry Overview

Understanding the Landscape

3rd Edition - Updated for 2007

Do you and your company understand the legal marketplace? Do you know where to go for statistic and trend information? Envision Agency has been involved in marketing to law firms for years, and we cannot tell you how often we come across companies who are either unaware or misinformed about basic legal statistics. We are referring to information that builds the basis of any market analysis or sales plan - How many law firms are there in the U.S.? What do the top rankings in the industry measure? Where can I go for insightful electronic discovery- specific information? Here is a breakdown of important industry statistics that we have compiled from various sources. Please note that this “overview” is to be treated as just that, and is no means an exhaustive list of legal statistics, research and trends.

• There are approximately 1,150 law firms in North America with 100 employees or more (~45 attorneys+). Of those, 325 firms have 250 employees or more (~110 attorneys+)
• Firms with 100 employees or more account for less than .7% of the entire US law firm market.
• 55.8% of all US firms has 2 to 4 employees.
• 95% of all U.S. firms and legal service providers have less than 25 employees (~10 attorneys).

U.S. Law Firm Market Surveys and Rankings  (Sources: Am Law 100; Am Law 200)

Am Law Revenue Rankings

• The “Billion Dollar Revenue Club” expanded to seven firms in 2006. Skadden Arps continues to lead the pack with $1.6 Billion in gross revenues, and new club members include White & Case and Weil Gotshal.

• 41 of the 2006 Am Law 100 firms had gross revenues exceeding $500 million in 2004, 10 more than in the 2005 ranking.

• Ropes & Gray achieved the largest 2006 Am Law 100 revenue increase with 37.9%, moving up 15 rankings to 34th overall.
• 2006 Am Law 100 firm #100, Hughes Hubbard, had total revenue of $218 million. Ballard Spahr, #100 in 2005, exceeded $213 million in 2006 but slipped to 102 on the Am Law 200 list.
• The Am Law 200 Revenue Gap Widens: As has been the case since the Second Hundred's inception in 1999, the revenue disparity between the top and bottom firms on the list increased. In 2005, Second Hundred firms posted gross revenue of $94 to $217 million, a range of $123 million. In 2004, the range was $116.5 million.

ILTA IT Spending Survey
In 2006, ILTA and Envision Agency developed and administered the annual IT Purchasing Survey of ILTA member firms with 100 attorneys and more. Findings include:

• Budgets increased compared to past surveys: 66% indicated increases vs. 40% in 2004.
• Technology approvals: Significant shift in who approves technology purchases with 38% of C-levels approving technology vs. only 7% in 2004.
• Technology recommendations: 96% of all technology suggestions come from IT, followed by attorneys and clients.
• Technology purchases: Peer-authored articles, product reviews, and independent consultant contributions are most influential in aiding buying decisions.

Industry Trends & Projections  (Sources: Tom O’Connor/LEDI, ACC/Serengeti Managing Outside Counsel Survey Report, Socha-Gelbmann Electronic Discovery Survey, Law Technology News, August 2006)

Fourth Annual Socha-Gelbmann Electronic Discovery Survey
Market Growth: Estimated 2005 commercial EDD revenues were about $1,295 million, up 56 percent from 2004. Estimates indicate that the top 30 providers collected about $450 million. An additional 360-plus providers accounted for another $455 million, while "do-it-yourself" firms (law firms and companies handling EDD work themselves that otherwise would have been sent to a provider) represented $90 million. Judging from consumer and provider expectations, the market is anticipated to grow approximately 37 percent from 2005 to 2006; 37 percent from 2006 to 2007; and 29 percent from 2007 to 2008.

Key factors driving the EDD market last year fell into five broad categories:

1. Costs and cost management.
2. Standards or the lack thereof.
3. The overwhelming volume of data with which litigants must contend.
4. Lack of quality education and in-depth understanding.
5. Fear — of the unknown, of the consequences of not doing EDD right, and of the changes coming with the revisions to the Federal Rules of Civil Procedure.

Law firm merger activity increased in 2006 with 58 total completed mergers and acquisitions involving U.S. law firms, up nine from 49 in 2005 and 48 in 2004, according to Hildebrandt International, leading consultants to the legal industry.

The largest merger of 2006, based on the size of the smaller firm, was the merger between Thelen Reid and Brown Raysman. The second largest merger of 2006 was Bingham McCutchen with Swidler Berlin. Rounding out the top mergers were Buchanan Ingersoll with Klett Rooney, Cooley Godward with Kronish Lieb, and Kelley, Drye and Warren with Collier Shannon Scott.

Only two US firms were involved in cross-border mergers in 2006, both in Paris, France. Orrick Herrington doubled its presence in Paris with the addition of Rambaud Martel in January 2006. In June, Fried Frank Harris acquired the Paris -based bankruptcy boutique of Lantourne.

Looking ahead to 2007, merger activity is expected to continue at an active pace. There are already fourteen mergers that will be effective in the first quarter of 2007. These include the significant combinations of Kirkpatrick & Lockhart Nicholson Graham with Preston Gates to form K&L Gates; Reed Smith with Sachnoff & Weaver and with London-based Richards Butler; Drinker, Biddle & Reath with Gardner Carton & Douglas, and Day Berry & Howard with Pitney Hardin. These five combinations are larger than all but the two largest mergers in 2006 (based on the size of the smaller firm).

# # #