In a down M&A market, it’s not surprising that PE and VC firms would be taking a close look at their legal fees, and a recent survey of 300 in-house lawyers at those firms confirms that the amount of their legal spend is a source of growing concern. Here are some of the key findings:
– Pressure to control legal costs builds. Nearly nine in 10 respondents (86%) say their organization feels some pressure to control legal costs. That pressure has been building over time as well: 62% say the level of pressure to control legal costs has increased compared to last year.
– LPs are scrutinizing legal expenses. 84% of respondents say LPs are scrutinizing legal expenses. More than half (62%) said the level of scrutiny LPs have exhibited over legal expenses has increased over the last three years.
– Legal expenses are a material concern for investment firms. More than two-thirds of respondents (71%) say their organizations are at least moderately concerned about overall legal costs. Nearly half say legal costs around “house spend,” which is often tied to bonuses, is a significant concern.
– Top three challenges in controlling legal costs. 57% said legal work, and therefore costs, are unpredictable; 46% pointed to a lack of transparency around time, billing and invoices; 40% said they sometimes get billed for unnecessary legal services.
If you’re a law firm with PE and VC clients, the survey responses provide some hints about the things that you should and shouldn’t be doing in the current environment. For example, in-house lawyers prioritize timely (66%), transparent (55%) and predictable (47%) invoices from their law firms over lower legal fees (32%). The survey also highlights some law firm “own goals” to avoid – like exceeding fixed fee agreements and initiating matters without the law department’s knowledge.
— John Jenkins, DealLawyers.com, November 8, 2022