Nearly half of UK corporations are predicting an increase for their legal spend as the demand for legal advice on merger and acquisitions (M&A) transactions has clawed back.
About 40 per cent of UK corporations have said they plan to increase their legal spend this financial year, according to a new report by Thomson Reuters.
The most significant growth is in M&A advice, with a net 21 per cent of corporate expecting to increase spending, up from a net 2 per cent planning cuts three months earlier.
While banking and finance legal advice also saw improvement, with a net 10 per cent planning increased spend versus a net 6 per cent planning cuts previously.
It was highlighted that overseas demand for UK legal services remains strong, with 48 per cent of global clients planning to increase their UK legal spend. However, satisfaction with law firm services has slightly dipped to 44 per cent of UK clients delighted in 2023, down from 50 per cent in 2022.
The economy is creating challenges for some of the law firms, as some corporate clients are intensifying scrutiny over expenses, prompting general counsels (GCs) to prioritise cost control.
As stated, 68 per cent of in-house legal teams still say they are trying to in-source more risk and compliance work. One respondent was quoted to have said “”[My priority is] to reduce our overall legal spend by doing
more of the legal work in-house.”
John Shatwell, head of legal professionals, Europe at Thomson Reuters, noted “while the UK economy still growing slowly, many corporates are evaluating their legal work and the potential to take more of it in house – over two thirds of general counsels we surveyed emphasised the need to cut costs.”
“Where corporates aren’t moving work in house, they’re often looking at whether they should take some of their work to lower-cost firms,” he added
This shift offers law firm opportunities to enhance efficiency and attract business, yet also poses challenges as clients increasingly consider in-house work or lower-cost alternatives. The report noted, the integration of AI-driven automation is pivotal for improving efficiency in legal operations.
Shatwell noted that higher-cost, larger firms are also emphasising the additional benefits and value that come with greater scale, such as greater speed, access to better global reach or better access to tech.”
“The knowledge that their law firms are using the best in legal technology is something that corporates have become much more interested in,” he explained.
It was also emphasised in the report the importance of law firm purpose, values, carbon footprint, and diversity in hiring decisions.
ESG issues are now a strategic priority for 76 per cent of UK legal departments, significantly higher than previous years, which as stated, highlights the need for law firms to adapt rapidly to client demands and invest in new technologies for greater efficiency and strategic support.
Shatwell added: “Consistent feedback from clients over the years suggests that law firms have historically been slow to respond to clients’ shifting demands.”
“Firms must now be proactive in evolving their services and investing in new technologies and processes to achieve greater efficiency and delivering the best strategic support to clients,” he concluded.