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Mergers & Acquisition activity is often subject to big ebbs and flows. And, that’s what we are seeing now. While Q1 2016 is showing a rather quiet period for M&A, 2015 was a boom year for M&A according to the just-published CounselLink Enterprise Legal Management (ELM) Trends 2015 Year-End Report. This new report shows that that fees paid for M&A legal work more than doubled in 2015, with year- over-year increases since 2012.
The report also reveals that big law continues to command a hefty piece of the M&A pie with 72% of all M&A matters in 2014 and 2015, handled by a firm with more than 500 attorneys. Of those matters, 99% were billed hourly.
Not surprisingly, as M&A activity increases, billing rates for lawyers with significant M&A expertise increases. The report indicates the current median partner rate paid for M&A matters is $458. This represents a three percent compound annual growth rate (CAGR) increase since 2012, one of the highest CAGRs for the groupings of matters analyzed in the report.
“The surge in rates brings to mind the perennial question of cost versus value,” said Kris Satkunas, director of Strategic Consulting for CounselLink and principle author of the report.
“M&A work continues to be partner intensive and as demand for M&A expertise has grown, those partners with significant experience in the practice area are naturally able to command higher rates.”
4 Year-End ELM Trend Report Insights
A majority of clients, 56% are also forgoing hiring new firms to handle their significant legal matters, according to the study. However, clients are willing to bring on new firms for two specific types of legal work—litigation and corporate.
If data tells the story, here is a useful infographic to help bring these numbers to life in a visual context. In the meantime, here are few insights that can be gathered from the report:
- M&A Activity Reaches a Three Year High in 2015. Fees paid for M&A work reached a three year high in 2015, with year-over-year increases since 2012. At present, the median partner rate for M&A work is $638 versus $623 in 2012. Additionally, M&A work continues to be partner intensive with partners accounting for handling one quarter of all M&A activity since 2011.
- Outside Hiring Cools for Significant Legal Work. Just 31% of clients hired new law firms for their significant legal work in 2015. This number only decreases when engaging with two or more firms. Just 23% of clients engaged with at least two new firms and just 15% engaged with at least three new firms. In addition, the median number of firms corporate clients worked with in 2015 is 36. While the trend of law firm consolidation continues, law firm panel consolidation shows slight increases (from 55 to 57 percent) since the last Trends Report.
- Litigation and Corporate Work, the Exception. By contrast, clients are willing to bring in new firms for two types of work: litigation and corporate. Fifty seven percent of companies with significant litigation in 2015 (that is those matters over 100K) brought in a new law firm. Similarly, 46% of companies with significant corporate work in 2015 brought in a new law firm.
- AFA Use Remains Stable with Steady Increases in Four Areas. In 2015, AFAs were used in 9.4% of matters and accounted for 7% of billings. The study indicates four types of legal work came in above the average including: Employment and Labor, Insurance, IP-Patent and Regulatory and Compliance. Of note, Employment and Labor grew from 14.1% to 17.3%. In addition, Corporate, General and Tax matters continue to dominate the AFA field, with the percentage of billings executed under an AFA steady at 12.4%.
Since its inception in October 2013, the CounselLink ELM Trends Report, based on 21 billion in legal spending and nearly five million in legal invoices processed via the CounselLink e-billing system, strives to provide a historical view of how legal dynamics evolve over time.
Just as we’re seeing with a recent cooling in M&A activity, in spite of a spike in spending in 2015, the legal market is always changing. We are eager see what variations are on the horizon for the ELM Trends 2016 Mid-Year Report.
Be sure to stay tuned to find out.
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To learn more about the study findings please join us for a complimentary webinar on Tuesday, May 31, 2016 led by by Kris Satkunas, the principal author, who is also the director of Strategic Consulting for the CounselLink team.
Coverage of previous editions of the report can be found here:
- Legal Spend Trend: Big Law Winning More IP Litigation Work
- Law Firm Bill Rates Rising? Update on Key Legal Spend Metrics
- Infographic Friday: Law Firm M&A Billings Nearly Double
- ELM Trends: Corporate Legal Continues Law Firm Consolidation
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This post is by Carla Del Bove, who provides support to the business of law software product line based in the LexisNexis Raleigh Technology Center.