Over the past year of lockdown, Clocktimizer has partnered with industry-leading organisations like Elevate and Law Vision to deliver a series of webinars around pricing, LPM and change management. We’ve covered a whole range of topics, from how to predict the future for resource management, to C-Level insights for profitability.
This month, we teamed up with Apperio’s CEO Nicholas D’Adhemar to look at value creation in the M&A process. We were lucky to be joined by Eugenia Frenzel, Director of Pricing and Practice Management at Perkins Coie and Robert Potts, Senior Vice President, Corporate Securities & Finance Counsel and Assistant Secretary at Dell Technologies. The webinar was filled with useful tips, advice and insights so we’ve put it all together in this handy wrap-up for those who couldn’t attend. A recording of the webinar is available here.
The change in scoping and pricing for M&A work
Before diving into advice, the panel first framed how much pricing and scoping of M&A work has changed. For Robert, recent years have seen a change in the conversation around pricing. External counsel are more willing to look at alternative fee arrangements. Particularly where that work is larger or more complex. For Dell, the relationship with a firm is built on the expectation of long term work. As such, they prioritise firms which are proactive in working with them on unique fee structures and service delivery models.
Happily, it seems that this view was one welcomed by Eugenia. Clients are not universally ready to embrace value based pricing, in her opinion. As such, it has been equally enjoyable to see an increasing openness from internal counsel, as well as within firms, to alternative fee structures. Increasingly, she has to prep partners for calls to look through the range of pricing options available. From collaborating with ALSPs to fee structures.
As a counterpart to Eugenia and Robert’s insights on increasing fee arrangement adoption, Nicholas pointed to the most recent Altman Weil survey. “Something like only 7 or 8% of surveyed firms were using alternative fee arrangements. The vast majority are still relying on hourly billing to generate revenue.” Clearly, not much has changed yet. However, in-house counsel are under increasing pressure to deliver legal services to a strict budget. In turn this is driving their push for transparency and predictability in relationships with external counsel. However, this is still a huge challenge in unpredictable areas like M&A.
How to add value in the pricing process
So how do firms like Perkins Coie create that ‘value-add’ in the M&A pricing process? For Eugenia, a lot of it is about how you combine an understanding of the data, with an understanding of your client. She shared a few key ways to generate more accurate and responsive pricing:
- Have a conversation when you close a matter. Sitting with a team after closing is a learning opportunity. It gives a chance to understand what happened, the challenges, the pricing and the build that into your next fee arrangement
- Document what influences price. Building a picture of the circumstances which affect the pricing of a matter is essential. Do M&A matters in a specific industry take longer than others? Do market downturns affect matter length? Once identified these factors can be flagged and brought into any future pricing conversation
- Balance technology with understanding. Technology is essential at identifying the cost of services for activities. However, it should be balanced with your understanding of your clients. It is still a very personal relationship, and your ability to recognise whether a matter is contentious, or that your in-house counterpart is inexperienced, will be essential for sophisticated pricing. Bringing the whole picture into focus gives you a stronger foundation.
What do in-house counsel value during the matter lifecycle?
From identifying how firms can identify value, the conversation pivoted to highlight what in-house counsel value in pricing and matter management. For Robert, this can be broken down to three key drivers; identifying inefficiencies, introducing project management and identifying how technology can help.
It seems that many drivers of inefficiency have changed very little. At Dell, document review is still one of the largest costs, in spite of tools like Kira and Luminance. Identifying ways to reduce these costs is important. Particularly when this is done in a data driven way. In answer to an audience question, Robert suggested that hybrid document review is one way of addressing high costs. Low risk documents can be reviewed automatically by technology. High risk documents however still need to be manually checked.
This in turn should be kept in check by better project management. For Robert, one of the biggest challenges is in reducing value leakage through inefficient process management. As such, appointing an LPM to larger transactions, and identifying ways to improve communication and collaboration are of huge value to Dell.
Finally, both Robert and Nicholas identified the importance of technology in supporting value creation. It is important to identify and share tools between internal and external counsel for collaboration. Further, identifying a single source of truth on pricing and matter management creates transparency and drives efficiency. As Pieter noted, technology can also be useful in identifying potentially challenging activities. Document review is the most variable price in any matter according to data collected in Clocktimizer. Recognising this allows you to open a conversation with the client to identify strategies to reduce this.
The challenges of pitching and selection
Having identified ways to develop value in M&A pricing, the debate centered on the challenges of pitching and selecting counsel. First Eugenia and Nicholas shared their view on four key difficulties faced by firms pitching for work:
- Lack of time – much pricing work needs to be done quickly, particularly in M&A work. Sadly this means you lose much of the nuance in the conversation. Without time to work with partners on the value add that the firm brings, it becomes a less value driven conversation.
- Knowing you are in the running – RfPs are particularly challenging. Not only is it very difficult to know whether you are in the running, but they also require a lot of analysis and work. It can be difficult to gauge success without that personal relationship.
- You can’t just wave a magic wand – Pricing is far more complex than just pressing a button. It requires a conversation and a deep understanding of the matter to develop a fee structure.
- You need to stand out – There is very little to separate firms at the top of their game. They are all filled with highly intelligent lawyers who work hard for clients. You need to develop relationships and use technology wisely to separate yourself from the competition.
Next, talk turned to the internal challenges for in-house counsel in selecting firms. For Robert and Nicholas, this also presented four key problems:
- Setting boundaries – Whenever you start working with a new firm it takes time to get to know each other. Conveying risk tolerances is a challenge to any new relationship.
- The changing role of the lawyer – External counsel are being asked to pivot to a more business minded role. Like in-house counsel they now must be problem solvers and understand the business concerns of their clients rather than just doling out legal advice. This can be challenging for some.
- Cross border complexity – For Robert, the vast majority of matters cross borders. This adds a significant layer of complexity to any matter. Finding lawyers who understand and can competently manage matters across jurisdictions is difficult.
- Communicating certainty – finally for Nicholas, the majority of firms are failing to communicate clearly and on time. Budgets and timelines are important and it should be easy to share updates on these, and start conversations early where things aren’t running to schedule.
Final words of advice from our panel
To round off the discussion, each of our panelists shared their final piece of advice. For Eugenia, it is to focus on the relationship. Firms should identify what they bring to the table in terms of business solutions. By understanding the clients goals and business you can always generate a fee arrangement that will support them.
For Nicholas, the focus was on radical transparency. He shared a memory of working in-house and receiving a phone call right at the end of a matter from external counsel saying that although budget was set at 250, that actually hours had been logged at 500k. Calls like these would send the whole department into a panic and kill the relationship. Communicating transparently should be an absolute priority.
Finally, for Robert the focus was on looking for business minded lawyers who are solutions oriented. The worst thing you can say in M&A is ‘this is the way it’s always been done’. Counsel which work together with clients to identify the challenges and possible solutions will always be prized.