The private equity industry and the legal firms servicing the space have witnessed an unparalleled digital transformation in recent weeks. Driven by the Covid-19 crisis, the legacy of this dramatic change will endure long after the calamity has passed.
The private equity industry and the legal firms servicing the space have witnessed an unparalleled digital transformation in recent weeks. Driven by the Covid-19 crisis, the legacy of this dramatic change will endure long after the calamity has passed.
Nicholas d’Adhemar (pictured), Founder & CEO at Legaltech firm Apperio, outlines the need for this development: “Law firms have historically underinvested in tech while increasing revenues, and in house teams haven’t always been at the forefront of the IT queue. But the world is changing; businesses and funds realised that legal, one of their larger external expenses, is more than just a rounding error. In PE, having a gentleman’s agreement at the end of a deal when the fees have vastly exceeded budget, is not good enough. If they don’t care, their LPs certainly will.”
The coronavirus pandemic has pushed the industry into the digital space at a faster pace than expected. “PE houses can most likely carry on with the status quo and survive. However, now is the time to re-evaluate their own operations, review how they deploy their capital, understand and control the legal spend and embrace technology and data to thrive,” notes d’Adhemar.
Historically, legal spend has been opaque at best. This is one of the largest external expenses a PE firm undertakes and for decades, it has been managed after the event and on a spreadsheet.
But this is changing, explains d’Adhemar: “Ever since the global financial recession, the balance of power has shifted from the law firms to their clients. Those clients demanded more access and transparency to their legal spend data. Now the technology has finally caught up with that demand.”
He says that with a proper spend management tool, firms can easily answer the question of what they spent and also go deeper to get visibility on what law firms they spend it with, what type of work they spent it on, where the work was being done, who was instructing those firms and how they could accurately forecast future spend.
A Legaltech solution offers PE funds the ability to demonstrate to their LPs that they are responsible custodians of their capital. “It’s both a clear audit trail of spend but also indicative that the fund is looking to continually improve and drive better returns,” notes d’Adhemar.
PE houses with access to real-time legal spend data across all their law firms, will increase their bottom line at the end of the year. This is because they can easily split out what are pass through costs and what is house spend. d’Adhemar gives an example: “Through categorisation offered in Apperio, they can then track and compare the cost of similar deals, fundraises or even LP side letter negotiations.”
Given the current crisis environment, d’Adhemar advises firms to look for solutions which are collaborative rather than adversarial. He says the best solutions look to bring both sides of the market together, not arm one side against the other.
“The crisis has forced the legal industry to use technology in order to survive. Lawyers are realising that technology can make them more efficient and deliver better outcomes for PE funds. They are also beginning to understand that the way they have done things historically cannot remain unchanged for another 20 years.
“Solutions looking to support them to be more transparent with their time/fees whilst streamlining and automating the transfer of this information to their clients will make companies using these tools look more innovative, and ultimately support them in their next phase of growth,” d’Adhemar concludes.
You can hear more from Nicholas d’Adhemar in an exclusive Private Equity Wire webinar – From surviving to thriving: Why data will be golden for today’s business success stories – on 11 June. Click here to book your place…
