As a strategy to effectively manage legal spending without sacrificing the quality of work or increasing corporate risk, consolidation has multiple benefits if well executed.
Raleigh, NC (PRWEB) August 05, 2014
The CounselLink® business, a leading provider of Enterprise Legal Management (ELM) software, announced today the results of its latest ELM Trends Report: Growth in M&A Billings Benefits ‘Second Largest’ Law Firms. The report found law firm billings for merger and acquisition (M&A) related work spiked in 2013 by 77 percent. As its title suggests, the report also found that a bulk of that work went to law firms in the “Second Largest” category, which the report defines as those firms employing between 501-750 attorneys.
Within the data set, the Second Largest firms accounted for 37% of all outside counsel spending on M&A matters in 2013, a category of work CounselLink solution customers had traditionally directed to the largest law firms – those firms employing more than 750 lawyers. The changeover first occurred in 2012, however the gap widened substantially in 2013 and the disparity is even wider for high-value M&A legal projects. High value M&A legal work is characterized by those matters where outside counsel billings are greater than $1 million. In 2013, the Second Largest earned 52% of all outside counsel spending for this category of legal work.
“General counsel are assigning more M&A matters – especially those with total fees in excess of $1 million – to the “Second Largest” group of firms with 501-750 lawyers,” said Kris Satkunas, director of Strategic Consulting at the CounselLink business and principal author of the report. “With general counsel becoming increasingly savvy in managing outside counsel fees, it is not surprising that many are turning to slightly smaller, but credible firms with lower hourly rates to handle even their most mission critical transactions.”
Law Firm Consolidation Trend Continues
The data also demonstrated that over a three year period median billing rates for M&A matters dropped, from a high of $412 per hour in 2011, to $375 in 2013. There are two underlying causes driving the reduction in hourly rates. First, the “Second Largest” law firms tend to have lower billing rates than the largest law firms and second, the trend of consolidating the number of law firms employed, identified in the previous CounselLink ELM Trends Report: The Rise of the “Large Enough” Law Firms, is continuing.
Fifty-four percent of corporate legal departments in the 2013 data sample have consolidated at least 80 percent of their outside counsel spend with 10 or fewer law firms. Over the past two years, about one-third of companies have decreased the total number of firms used by more than 10%. In looking at the data across six vertical industries, manufacturing and financial companies have the highest percentages of law firm consolidation (70% and 67% respectively), which means for example, 70% of manufacturing companies are using fewer law firms in 2013 versus 2011. A notable outlier rests in the transportation vertical which has dramatically expanded the number of law firms used.
“As a strategy to effectively manage legal spending without sacrificing the quality of work or increasing corporate risk, consolidation has multiple benefits if well executed,” said Satkunas. “A corporation that consolidates the number of law firms it works with increases it’s negotiating power and builds stronger metric-driven relationships with fewer firms. This in turn also yields efficiencies in legal operations insofar as corporations are getting the results they want.”
Unlike survey research, the data sample in this study is comprised of actual law firm invoices processed through the CounselLink system by a wide range of corporate legal departments. Legal spending data is anonymized and aggregated, allowing legal departments to gain access to unprecedented industry-wide benchmarking information that can be easily tailored for comparative analysis on performance, budgets and spending. For this report the data sample included $15 billion in legal spending on more than 3 million invoices covering over 450,000 matters.
The complete report also provides industry-wide benchmark data about blended hourly rates for matters by practice area, the usage of alternative fee arrangements (AFAs), and average partner hourly rates by practice areas and by geography. The complete report is freely available in a PDF format for download and in addition, the CounselLink team will break down the results of the report on a free webinar later this month. The webinar will be held on Wednesday, August 27, 2014 from 2:00-2:45 p.m. EST.
The CounselLink business is a leading provider of cloud-based software for Enterprise Legal Management which includes matter management, legal spend management and legal hold solutions designed to help corporate legal departments manage operations while providing analytics and benchmarking tools for better decision making. Expert professional services and product support teams are available to help users maximize the benefits of the branded solution. The CounselLink business offers innovative and tiered proprietary software solutions to addresses the unique requirements of both large and small legal departments. CounselLink is part of the LexisNexis software division. Visit us online at http://www.lexisnexis.com/counsellink.