Companies Giving More M&A Work to Mid-Sized Law Firms
This week, CounselLink published a report titled "ELM Trends Report: Growth in M& A Billings Benefits 'Second Largest' Law Firms." The report found that companies have continued to consolidate their legal work and pare down to a few trusted providers, and in doing this the clear trend is to provide more M&A work to 'Second Largest' law firms.
The biggest law firms are called upon only when the nature of the work is considered too sophisticated, complex, and involving too many entities. The legal software service provider analyzed more than 3 million invoices and $15 billion in legal spending representing 450,000 matters over the past five years to come up with its report. Unlike normal survey research which depends upon the responses of those surveyed, this report is built upon actual industry data.
According to the report authors, the principal highlights of the report include the following:
- M&A billings almost doubled as a percentage of legal spend in 2013
- Increased M&A activity has benefited 'Second Largest' law firms
- Companies continue to consolidate their legal work
- Employment & Labor has the fastest growing partner hourly rate
In 2013, the report found that M&A related work increased by almost 77 percent and 37% of all outside counsel spending was directed to the second-largest law firms (501-750 attorneys) rather than to the largest law firms (750+ attorneys), in a marked departure from traditional patterns. The trend took off in 2012 and became stronger in 2013. In fact, in 2013, 52% of all outside counsel spending in matters worth over $1 million went to the second-largest firms and not to the largest ones.
Kriss Satkunas, director of Strategic Consulting at CounselLink and principal author of the report, said, "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 … 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."
Consolidation of outside counsel keeps growing at a rapid pace and the report found that in 2013, 54% of corporate legal departments consolidated 80% of their outside counsel providers to 10 or fewer law firms. Manufacturing and financial companies have had the highest consolidation rates regarding external legal services providers. Seventy percent of manufacturing companies consolidated the number of outside law firms they dealt with and 67% of financial companies did the same. However, in a move away from the mainstream trend, transportation companies have actually increased the numbers of law firms they use as external counsel.
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