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8 reasons private equity firms should consider legal process outsourcing
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Legal process outsourcing (LPO) is when an organization (for example, a private equity firm) hires a third party — a law firm or a service provider — to take over end-to-end management of a legal workflow. Outsourcing is not a new concept in the private equity world; firms have outsourced everything from legal and compliance tasks to accounting for years in an attempt to keep headcount at the management entity lean and efficient.
However, LPO is surging in popularity because of global economic factors contributing to a considerable increase in routine contract work over the past few years and the rise of Alternative Legal Service Providers (ALSPs).
A Funds Europe survey, for example, showed nearly three-quarters of firms worldwide (73%) “expect to increase the number of services they outsource to external partners over the next two years.” The reason for this surge are the significant benefits LPO can bring to the private equity world.
Why should you consider legal process outsourcing?
Here are the 8 reasons a private equity firm should consider legal process outsourcing:
- Significant cost savings. Firms need every edge in the narrow-margin world of private equity. Astronomical bills from legal counsel and increased spend on in-house personnel are a financial burden private equity firms don’t need. With legal process outsourcing options, firms can keep their legal spend to a reasonable amount. Additionally, firms may be able to allocate LPO expenses at the fund level, allowing even more savings at the management level.
- Easy access to experienced legal professionals. It’s not easy to find skilled legal professionals in the current market. This lawyer “market crunch” hurts private equity firms in two ways. First, it’s tough (and expensive) to add lawyers to your team. Second, the routine contract tasks law firms used to do might not be available for clients anymore, as firms focus on other higher-value operations. With the shortage of lawyers in the market, LPO organizations fill in the gaps with experienced talent.
- The ability to move quickly. Speed to close makes all the difference in the private equity world. With LPO providers’ on-demand services to reduce turnaround times and get contracts done quickly, a firm can easily stand out in a crowded marketplace.
- Freeing up internal resources for higher-value work. One of the top benefits of legal process outsourcing is allowing internal resources to focus on work that “moves the needle.” Routine contract work may take up huge chunks of time for high-powered in-house counsel and other skilled associates. Outsourcing allows legal teams more flexibility to work on strategic tasks that grow revenue.
- Improving morale. Another benefit of legal process outsourcing? A boost in morale. In a recent survey conducted by Wakefield Research and commissioned by Ontra, 64% of respondents said “routine contract work can hurt employee morale.” In the age of The Great Resignation, excessive amounts of routine contract work could cause valued employees to look elsewhere. LPO organizations provide an excellent alternative. They can take tedious, lower-value work off employees’ plates, resulting in a higher quality of life and a more focused work experience.
- Accessing data-driven insights. Contracts and legal documents can provide a treasure trove of metrics for private equity firms. With the right LPO solution powered by artificial intelligence, firms get the insights they need to grow. Data from contracts allows organizations to gain a negotiating edge, better allocate resources, reduce overall inefficiencies, and increase reporting accuracy.
- Improved transparency for investors and regulators. Regulators and investors will look deep into the details at any private equity firm. A technology solution provided by an LPO partner delivers a detailed audit trail outside parties can examine.
- Scalability and a global reach. As your firm expands, your legal options need to grow along with you. Whether that means growing the company or moving into new international markets, the right legal process outsourcing provider — one with global offices and rapidly expanding capabilities — makes for a perfect partner.
What tasks can be outsourced?
There are several non-core legal tasks private equity firms commonly outsource to other providers, including:
- Corporate documents and contracts
- Document review and e-discovery
- Legal research, writing, and drafting
- Data entry
- Due diligence
- Fund administration
Of all the non-core workflows ripe for outsourcing, private fund managers should consider transitioning their NDA (and other routine transactional contract) workflows to a legal process outsourcing firm. It will result in immediate cost savings, improved firm morale, a better allocation of internal resources and an increase in opportunity evaluation speed.
By some estimates, the cost of internally managing routine legal work can be 10x in-house counsel salaries.
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