Private equity firms spend millions of dollars each year on legal services and increasingly are taking a closer look at this expense category according to a new study by Apperio entitled “Rocketing Scrutiny, Eroding Trust – The Changing PE Legal Spend Landscape.”
The Apperio study reveals that in-house attorneys at private equity firms feel intense pressure to examine and reduce legal expenses due to drops in both transaction and fundraising activity which, according to Apperio, are likely to decline further due to the COVID-19 pandemic. How big is the opportunity? US private equity firms spent an average of $10.5 million on external legal services in 2019 while UK firms spent an average of $8.6 million.
Apperio, a provider of automated legal spend tracking and analysis, commissioned the study from independent research firm Coleman Parkes, which polled 100 senior in-house legal professionals at large US and UK private equity firms with an average of more than $10 billion of capital under management.
Legal spend has been a longstanding blind spot for private equity firms.
The results of the study show that more than half of UK respondents said their legal spend is not transparent and they are surprised by their legal bills. Among US respondents, trust in law firm billings are even worse with nearly eight in ten (79%) reporting that legal spend is not transparent and they are surprised by legal bills.
Respondents also said that billing promptness and accuracy are chief sticking points with their law firms. Only 53% of senior in-house legal professionals in the US and 55% in the UK trust their law firms to bill them promptly; and only one in three US and 45% of UK respondents trust their external legal counsel to bill them accurately.
According to Apperio, legal spend has been a longstanding blind spot for private equity firms with four in ten senior legal professionals believing they do not do enough to manage legal expenses. But this is changing fast. Why? Reasons abound including a reduction in transaction volumes that are putting pressure on external legal spend for about four in five respondents (72% UK, 89% US); and another trend that has all areas of service-related expenses receiving higher levels of scrutiny (62% UK, 68% US).
“Trust between in-house and outside legal counsel is paramount for the relationship to work.”
Apperio reports that 91% of private equity firms surveyed still collate and analyze legal spend data manually in Excel rather than using current technology that gives real-time insights and holds law firms accountable for prompt and accurate billing.
“Trust between in-house and outside legal counsel is paramount for the relationship to work,” said Nicholas d’Adhemar, CEO and founder of Apperio (he is also a former private equity professional – Platina Partners – and a former lawyer). “Real-time transparency and granular visibility of legal spend provides crucial information to keep budgets and commercial partnerships on track. Empowered with the right data at the right time, in-house legal teams at private equity firms can make informed decisions and achieve optimal results while participating law firms benefit by retaining their clients’ loyalty and trust. Technology will be an essential partner that private equity firms can leverage to optimal advantage.”
London-headquartered Apperio (the name comes from the Latin verb Aperio, which means to uncover, open and make clear) was founded in 2013 and provides a cloud-based legal spend tracking platform that is used daily by more than 50 in-house legal teams.
To download a copy of the Apperio study, click HERE.
Private Equity Professional | July 16, 2020
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