Insight
The Untapped Economy Of Scale:
How Private Equity Can Improve Legal Spend Discipline
An expense review of portfolio companies might begin with a seemingly simple question: What did each company spend on legal services last year, and why?
Each company might respond with estimates, random categories, and inconsistently coded invoices. Routine legal work likely migrated from the desks of non-lawyer executives and managers to marquee law firms by muscle memory. Those executives and managers might be confident that everything was “handled,” typically by erring on the side of sending everything that had even a legal-adjacent issue to outside law firms. The pattern of legal spending within portfolio companies is rarely explained with the same rigor applied to freight, cloud, or procurement.
The Legal Operating Model for PE
Private equity prides itself on extracting advantage from scale. Funds standardize finance systems, centralize purchasing, and share talent across platforms. However, legal spend often sits outside the operating model, governed by habit, comfort, and brand considerations. This is not a problem of intent. It is a problem of design.
Treat legal services as an operating discipline rather than an episodic purchase, and the economics will change. Begin with a precise diagnostic of the work and its purpose. Right-source that works across a high-quality fractional legal bench and specialist counsel, when needed, reserving premium firms for matters and transactions that are, in fact, premium. Legal costs will decrease and governance will strengthen.
The First Move: The Legal Spend Diagnostic
A well-run diagnostic can be light lift and high yield. At a high level, the diagnostic will map spend by entity, matter, provider, and rate structure, and will also map the work type to distinguish strategic matters from repeatable processes. The diagnostic will reveal areas of risk and inconsistency. It will identify opportunities to normalize rates and assign work to the best resources, including fractional counsel.
Where Fractional Counsel Fits
High-quality fractional lawyers do not replace elite deal teams. They complement them. Day-to-day advisory, contracting, diligence support, integration work, and policy cleanup migrate to seasoned fractional counsel working at reasonable rates, while the highest-impact matters are handled by outside law firms that specialize in such matters.
Surges in activity, personnel vacancies, and one-off special projects are resolved seamlessly without adding to headcount or overspending on benefits and overhead. Fractional attorneys embedded in an organization improve efficiency and reduce transmission loss that occurs when every legal issue is handled outside the organization.
Private equity has long understood that scale is not only about size. It is also about design. Legal spend belongs inside the design of the operating model. By engaging in a diagnostic and constructing a consistent set of processes, the financial results of the portfolio companies will be positively impacted, and so will the quality of decisions that determine the arc of a fund’s returns.
