Dive Brief:
- Law firm partners handling mergers and acquisitions charged clients a median hourly rate of $878 last year, the highest rate among a wide range of practice areas, according to a LexisNexis CounselLink report released Wednesday.
- Overall, partner hourly rates in the U.S. on average increased by 3.4% last year relative to 2020, indicating legal departments’ efforts to slow annual rate hikes still have plenty of room for improvement.
- The report based on data from more than $49 billion in legal spending also highlighted that the rate differential between the two largest tiers of firms grew wider as the firms with more than 750 lawyers led the way with rate increases.
Dive Insight:
Amid a record-setting more than $5 trillion in mergers and acquisitions activity last year, legal departments’ spending on outside law firms handling such transactions rose sharply.
The median partner rate for M&A work of $878 was a 6.1% increase over the 2020 median, according to the 2022 Enterprise Legal Management Trends Report.
This higher average rate was driven by tremendous demand and resulted in M&A billings making up 7.4% of the total legal billings processed through CounselLink last year, which was a bump up from the 4.3% figure for 2020.
The report noted that M&A work typically involves the most expensive firms and requires significant partner engagement. The largest law firms in the analysis handled roughly two-thirds of the M&A work.
Kris Satkunas, CounselLink’s director of strategic consulting, told Legal Dive that another factor contributing to the rise in merger and acquisitions rates was that “M&A matters are typically highly strategic, mission-critical transactions.”
“Corporate counsel are less likely to push back on rates for work this important to their business,” she wrote in an emailed response.
Practice area breakdown
Other practice areas at the high end of the median hourly rate scale were finance, loans and investments ($725); regulatory and compliance ($690); commercial and contracts ($668); and corporate ($636).
These practice areas’ high rates are also driven in large part because companies typically use larger firms for these matters, the report said.
While labor and employment ranked closer to the middle of the pack with a median hourly rate of $520, the rate was a 3.7% increase from 2020, the second highest bump behind M&A.
The 3.6% rate increase for corporate work was the third largest bump, while insurance work saw the smallest increase of 1.5%.
“Insurance carriers demand and negotiate aggressively for low rates on their high-volume defense matters,” the report said.
The overall 3.4% hourly rate increase across U.S. partners last year was only a slightly smaller bump than the 3.5% increase in 2020.
“Every year firms build a revenue budget and that budget incorporates rate increases in order to hit revenue targets,” Satkunas said. “The fact that they continue to increase at the same level each year is an indication that despite efforts by some corporate counsel to hold rates flat or reduce them, overall there has not been successful pushback against rate increases.”
Larger firms
The largest firms bill the highest rates, as partners at firms with more than 750 lawyers billed an average of $895 per hour last year, according to CounselLink.
The report noted that this hourly figure was 54% greater than the median hourly rate of $580 charged by firms with 501-750 lawyers. The gap is the largest in the eight years CounselLink has tracked that metric.
“The largest firms handle the biggest share of high rate work, including M&A work,” Satkunas said. “Since we’re seeing rates for those practices increase the most, naturally it’s going to be the largest firms that benefit most and have the highest rates.”
In addition to M&A, the largest 50 firms in the report grabbed a majority share of IP litigation and corporate antitrust work, which also command higher partner rates. Overall, the firms with more than 750 lawyers accounted for 46% of outside counsel spend last year.
“Many general counsel have consolidated their legal work to a handful of firms, and they are often the largest firms that practice across a very broad set of areas,” Satkunas said. “GCs should be doing a better job of leveraging the volume of work they provide these firms to reduce rates.”
The report also found that the hourly rate gap between mid-sized firms has narrowed. The median partner rate last year for firms with 51-100 lawyers ($400) was nearly the same as that for firms with 101-200 lawyers ($405).
Partners at firms with 0-50 lawyers charged an average of $300 per hour, while partners at firms with 201-500 lawyers charged a median hourly rate of $506.
