Private equity firms value their legal departments more as a result of the pandemic – and it’s causing them to shuffle their legal spend priorities.
That’s according to a new report from Apperio titled, Controlling Costs in Private Equity: The PE Legal Spend Landscape for 2022 which reveals that 71 per cent of respondents – lawyers and finance professionals working in PE – say the legal team is more valued in the wake of the pandemic.
The heightened appreciation has been hard-earned because the in-house team’s work volume has grown too. Indeed, 73 per cent of respondents say workload, headcount and legal costs have each grown over the last three years. Further, about one-third say those areas have increased significantly, which was quantified as growth of at least 20 per cent or more.
The balance between rising costs and the need for expertise has shifted some priorities. For example, when asked about legal spend priorities for the next year, respondents put controlling external legal costs (57 per cent) and better leveraging data to make decisions (51 per cent) at the top of the list. By contrast, reducing external (15 per cent) legal costs, which has traditionally been a key focus area, was near the bottom of the list. These results point to an emerging effort to better control costs rather than strictly reduce them.
The report also bears out cautionary findings too. Some legal departments in PE lack visibility of accruals and struggle to gain a comprehensive understanding of what their organisation is already committed to paying their law firms. It’s a problem that is liable to a compounding effect as legal work, headcount and costs grow.
This happens for several reasons inherent to the business of law, according to respondents. These include inconsistent data formats (54 per cent), the volume or complexity of legal work (54 per cent), and business units instructing law firms directly (52 per cent), are among seven such challenges detailed in the report.
