As the private equity industry further expands into new geographies, sectors and product lines, GPs are becoming more sophisticated about what lawyer and law firm they should be using on deals.
The end result is greater demand for lawyers who are sector specialists, according to market sources.
“Firms come to us because we are an expert in insurance deals, but might use someone else in a different sector,” said one UK-based M&A lawyer.
One UK-based GP says her firm uses a handful of lawyers to handle most legal work , but often hires lawyers with specialist sector knowledge to advise on specific transactions.
GPs also pick law firms based on geographical expertise. For instance a deal involving US financing will almost always have a US firm on the deal, added the lawyer.
In the past GPs placed less emphasis on sector expertise and more weight on the bond established with their chosen M&A lawyers over time, agree multiple market sources.
But these relationships are no longer preventing GPs from trying to create greater competition between law firms for their work, a strategy used to prevent “the law firm from becoming complacent”, says one UK-based M&A partner.
Indeed a strong majority of private equity firms now use multiple law firms on deals, meaning there can be multiple lawyers working on different aspects of a transaction. For instance, “one law firm on the straight M&A piece, another law firm on financing and so on”, said David Innes, corporate partner at Debevoise & Plimpton.