William_Blair-全球-商业服务业-法律行业发生重大变化，创造新的增长机遇-2019.2.7-32页_1mb

Legal Industry Transformation and Growth Opportunities

Core Content

This report discusses the accelerating changes in the legal services industry and highlights the emerging trends that are creating new growth opportunities for alternative legal service providers and legal technology companies. It outlines the structural and operational shifts in the sector, emphasizing the impact of technology, alternative business models, and evolving corporate legal strategies.

Main Trends and Changes

The legal services industry is undergoing significant transformation driven by several key trends:

1. On-demand labor platforms are growing, offering more flexible and cost-effective solutions for legal work.
2. Large-scale outsourcing and managed services are becoming more common as corporations seek efficiency and cost control.
3. Contract management is gaining traction, with a shift towards more structured and transparent processes.
4. Intellectual property management is evolving, reflecting increased corporate focus on IP as a strategic asset.
5. Alternative law firms are emerging, challenging traditional law firms by offering different business models and pricing structures.
6. Big Four accounting firms are becoming more important competitors in the legal services market, leveraging their expertise in compliance and risk management.
7. AI, natural language processing, and automation are no longer just buzzwords, but are being actively implemented to improve efficiency and reduce costs.
8. Electronic discovery (eDiscovery) technology is shifting towards cloud-based and end-to-end solutions, enhancing accessibility and integration.
9. eDiscovery services are consolidating, with larger firms acquiring smaller ones to expand capabilities and market share.
10. Court reporting and legal support services are also consolidating, driven by the need for efficiency and scale.

Key Information

• Market Size and Growth: The U.S. legal services industry is estimated to generate $290 billion in annual revenue, with the global market valued at $849 billion in 2017 and expected to exceed $1 trillion by 2021.
• Corporate Legal Departments: These are becoming more business-like, with a focus on cost control and efficiency. Legal operations professionals are growing in number and influence.
• Legal Spend Management: Corporations are increasingly using software tools to manage and analyze their legal spending, with companies like Bottomline Technologies and Onit showing significant growth in this area.
• Alternative Legal Service Providers (ALSPs): The market for ALSPs is growing at an annual rate of 13%, with managed legal services showing the highest growth rate at 67%.
• Technology Adoption: Law firms and legal departments are adopting cloud-based solutions and automation tools, which are expected to drive broader changes in the industry.
• Pricing Models: Alternative pricing arrangements, such as fixed fees and value-based billing, are becoming more prevalent as corporations demand more transparency and efficiency.
• Legal Barriers: Regulatory changes in the U.S. and U.K. are allowing non-traditional entities to offer legal services, opening new avenues for competition and innovation.
• Investment Activity: Over $10 billion in investment has been directed towards legal technology and alternative legal service providers in recent years, signaling strong market confidence.

Industry Overview and Performance

• The legal industry has grown steadily over the past few decades, with the U.S. market growing at a low-single-digit rate.
• The top 20 law firms generate about 5% of the global legal services revenue, indicating a highly fragmented market.
• Despite the overall growth, large law firms face increasing pressure due to cost control efforts, transparency demands, and the rise of alternative service providers.
• Revenue growth for top law firms has been mixed, with some showing strong growth while others have seen declines.

Investment Opportunities

• Public equity investors have limited ways to directly participate in the legal sector transformation, but they can engage with information services companies (e.g., Thomson Reuters, RELX Group, Wolters Kluwer) and technology firms (e.g., FTI Technology, IBM, GE).
• These companies are well-positioned to benefit from the shift towards digital and outsourced legal services due to their strong market positions, subscription models, and high renewal rates.

Conclusion

The legal services industry is at a pivotal moment, with traditional models facing increasing challenges from technology, alternative providers, and evolving corporate strategies. The transformation is expected to create substantial growth opportunities for companies that can adapt and innovate in response to these changes. Public equity investors should closely monitor the sector for potential investment opportunities.