ELM Trends:  Corporate Legal Continues Law Firm Consolidation

by | Aug 5, 2014

Law firm consolidation

It takes just ten law firms.  That seems to be the preferred number of law firms for many corporate legal departments.

By year’s end in 2013, more than half of corporate legal departments had consolidated at least 80% of their corporate legal work with 10 or less firms, according to the newly released LexisNexis Enterprise Legal Management Trends Report (ELM).

The report, which was just released today, and reported by the Wall Street Journal, analyzed more than three million law firm invoices processed through the LexisNexis CounselLink system.  The report is freely available for download without registration.

Second Largest High Value MA Billing

Corporate Legal M&A Spending Spiked

Recent headlines suggest M&A spending is back in vogue and an announcement highlighting the key findings reinforced this notion:

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 accounted for 37% of all outside counsel spending on M&A matters in 2013.

Within high-value M&A legal work, the Second Largest law firms fared even better:

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.

Free Webinar:  Highlights from the ELM Trends Report
With trends report principle author Kris Satkunas
Wednesday, August 27, 2014 from 2:00-2:45 p.m. EST
Link: http://bit.ly/WWGG9W

partner rates small

Industry Metrics and Benchmarks

While the report strives to identify big picture spending trends among corporate legal departments it also provides a range of useful industry benchmarks, which included the following among others:  

  • Blended average rates paid on M&A matters drop year-over-year. The shift of M&A work to the “Second Largest” law firm group is the dominant cause of the average rate drop. A closer look at associated partner rates for M&A matters rationalizes the shift in work – the largest firms have average rates 18% higher than the new category leaders.
  • AFA utilization remains steady. 12.4% of matters utilize alternative fee arrangements in whole or part. The percentage is virtually unchanged from the previous 12 month period.
  • Average partner rates have modest 0.8% gain to reach $386 per hour. This useful trend-spotting metric is representative of multiple law firm sizes, locations, lawyer experience levels and practice areas. For a partner in a U.S. law firm specializing in advice and counseling related to M&A work, the average hourly billing rate continues to occupy the top spot at $589 per hour among 12 practice categories.

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Unlike survey research, the data sample in this study is derived from law firm invoices to corporate legal departments.  Corporate legal departments that have agreed to opt into the system permit their legal spending data to be anonymized and aggregated and in return gain access to unprecedented industry-wide benchmarking information that can be easily tailored for comparative analysis on performance, budgets and spending.

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