U.S. law firms see a surge in profits in 2025, but slowing mergers and acquisitions send cautious signals

LootboxPhobia · 2026-02-10T16:23:05+00:00

According to Thomson Reuters Institute's Financial Index, U.S. law firms saw a 14.1% profit increase in Q4 2025, the largest year-over-year growth since the pandemic. However, the report warns of declining future M&A demand and rising bankruptcy demand, which may signal an economic recession, posing challenges for law firms.

LootboxPhobia

2026-02-10 16:23:05

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Investing.com – According to the Lawyer Firm Financial Index released Tuesday by the Thomson Reuters Institute, U.S. law firms experienced a significant profit increase in Q4 2025, with profits rising by 14.1%.

This marks the largest year-over-year profit growth since the pandemic boom of early 2021 and 2022, solidifying what analysts call a “remarkable year” for the legal industry.

Bryce Engelland, senior industry data analyst at the Thomson Reuters Institute, stated that the surge in profits was mainly driven by rising billing rates and a slowdown in expense growth.

Although 2025 closed out strongly, the report highlighted some concerning trends for the coming year. Most notably, demand for mergers and acquisitions in Q4 declined significantly, with growth in M&A demand dropping five percentage points from Q3.

At the same time, bankruptcy demand in December surged, potentially signaling an upcoming downturn in the U.S. economy. Historically, economic recessions tend to lead to declines in law firm profits.

Engelland pointed out that countercyclical practices—such as litigation, bankruptcy, labor, and employment—tend to have lower billing rates compared to transactional work, and they often perform well during economic downturns.

“Traditionally, law firms find it difficult to sustain continuous high-speed growth,” Engelland said. “They often experience explosive growth followed by economic hardships, leading to a more challenging phase.”

The Lawyer Firm Financial Index analyzed quarterly financial metrics from 195 large and medium-sized U.S. law firms, tracking factors such as demand, productivity, billing rates, and expenses.

The report also warned that an economic downturn could prompt corporate general counsels to increase the use of AI tools and shift more legal work internally to reduce costs.

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