Biglaw

Just How Much Does Wachtell Charge Clients Anyway?

A lawsuit filed against Wachtell by a former client offers a window into the elite firm's billing practices.

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Historically, Wachtell Lipton is a black box where business goes in and obscene profits come out.

We could put a man on the moon and still not know how Wachtell bills. For that matter, we could know that Gibson Dunn charges $1800/hour, but have no idea how Wachtell gets to its delectable PPP every year.

But a lawsuit filed against Wachtell by a former client offers a window.

In a January 16, 2012, letter to then-soon-to-be client CVR Energy Co., Wachtell partner Benjamin Roth explained that “Our final compensation will be agreed with you, mutually and reasonably, and will reflect the fair value of what we have accomplished for the company.” That sounds disturbingly like securing the services of Don Corelone and then hearing “someday, and that day may never come, I’ll call upon you to do a service for me.” Thankfully for Wachtell’s clients, it also provides a handout with some general guidance on billing, and here’s where we learn just how Wachtell makes its nut. According to Am Law Daily:

Roth attached to his letter a one-page document entitled “Billing and Retention Policies,” which appears to be a standard billing policy summary sent to clients. The document states that Wachtell provides a “distinctive service,” marked by extraordinary expertise and sophistication that doesn’t lend itself to hourly fees. “We must base our fees not on time but on the intensity of the firm’s efforts, the responsibility assumed, the complexity of the matter and the result achieved,” the firm states.

While the firm explains in the document that its fees are not based on deal size, it nonetheless provides a range contingent on a transaction’s value. The document states: “While our fees are not based on the amount involved in a matter, experience indicates that merger and acquisition and takeover fees have typically ranged [from] 1 percent or more on matters under $250 million and 0.1 of 1 percent or less on matters over $25 billion.”

Even though Wachtell is careful to assert that “fees are not based on deal size,” there’s no other way to coherently interpret the rest of that paragraph. And so Wachtell is the pioneer of what is, basically, the Fortune 500 equivalent of a contingency fee: we don’t get paid until you get paid… except we’re always kind of going to get paid.

The Am Law Daily talked with a seemingly peeved rival partner:

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M&A partners at rival New York firms say Wachtell stands alone among law firms in its ability to bill clients this way. “Wachtell has such a powerful brand,” says an M&A partner who declined to be named. “It gives them the ability to price with impunity.” He adds: “The rest of us are enduring increasing scrutiny and fly specking [from clients]. It’s not that the rest of us are suffering, but these guys are getting away with something that no one else gets away with. They operate in a different world altogether.”

Contrary to the above-quoted partner’s assertion, this billing structure doesn’t hinge on Wachtell’s brand as much as it exploits in-house thinking. We’ve reported on the increasingly persnickety clients refusing to keep blindly paying Biglaw rates. Those stories revolve around in-house lawyers harping over diaries and demanding to see value for every dollar sent out the door. Wachtell avoids the first conundrum by refusing to produce any information about how it staffs matters or descriptions of services or hours so there’s nothing for the client to nitpick — hey, the client isn’t billed on an hourly basis anyway. As for providing demonstrable value, Wachtell is (however they couch it) pegging their compensation to the value of the deal.

Perhaps not every firm could pull off this billing structure. Or maybe they just wouldn’t want to leave so much potential revenue up to chance. But it seems like the major Biglaw M&A players could easily find clients interested in a fee structure where the firm’s bill has a direct, quantifiable (and therefore justifiable) tie to value provided.

Maybe that’s why Wachtell’s kept it so secret.

A Glimpse Into Wachtell’s Mysterious Billing Structure [The Am Law Daily]

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Earlier: The Biglaw Firms With The Highest Partner Billing Rates (2015)
The 2014 Am Law 100: ‘The Super Rich Get Richer’
Another Day, Another Dose Of Bad News For Biglaw

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