There was once a time when banks controlled not only their own legal spend but also much of the legal budget of the corporates they worked for. How times are a-changing.

Back in those days, it was not uncommon for banks advising a company on a transaction, such as an initial public offering, to say they would help select a law firm to advise the company. Firms with strong connections to the banks – such as the magic circle – benefited hugely as they were instructed on major deals despite sometimes having no previous connection to the client.

In time, the legal departments of corporates became more sophisticated and began taking more control over their own advisers. Few would have predicted, however, that the balance of power is beginning to tip the other way.

In recent years, banks have found themselves on the receiving end of a tactic they once employed. They were once the masters of the legal appointments on leveraged buyouts, but now private equity firms are increasingly dictating to the banks which law firms they are to use. That means on a buyout, a law firm acting for a major lending bank will have been selected by the buyout firm, not the advising, according to finance and private equity partners.

On one level this makes sense. Private equity firms buying a company typically pay the legal bills of the bank that finances the deal, so it is only fair that they have some control over who is appointed, say private equity lawyers.

Banks are increasingly losing in the power battle over the appointment their own legal advisers

And yet the modern phenomenon has gained such traction that top finance lawyers are now privately questioning whether UK regulator the Competition and Markets Authority should investigate. Banks are increasingly losing the power battle over the appointment of their own legal advisers. And that holds potential conflict implications: if the bank's legal advisers think of the buyout firm as the ultimate client, they could feel pressured into drafting less favourable terms for the bank.

It will come as no surprise to anyone that buyout firms are valuable clients, but this change means the influence they have in legal spending is even more significant than first thought. They are essentially controlling much more legal spend than ever before and are awarding mandates in finance as well as M&A. And this is in addition to all the other legal roles these clients offer access to. When a buyout firm starts to make changes to a portfolio company, its law firm has a good chance of winning refinancing, tax and employment work. If things don't go so well, the same law firm is in a good position to secure the restructuring mandate too. And when the company is finally sold, the law firm might also win it as a new client.

Despite their relatively small size, this constant stream of mandates means that buyout firms account for between a third and half of corporate revenues at the top private equity law firms, according to partner estimates.

Granted, the legal spend of banks is still far bigger than that of any buyout firm, even though that spend is spread across panels that can consist of dozens of law firms. In private equity, significantly fewer share the spoils.

This is partly because of the way that buyout firms instruct their legal advisers, especially in Europe. Partners say firms such as CVC Capital Partners and Apax Partners have decentralised ways of working that allow partners and principals within the fund manager's deal teams to instruct external counsel, sometimes with little involvement from the legal team, though the buyout firms are tight-lipped on how this works.

But the process may effectively rob other law firms of any readily identifiable individual to pitch to. The sector is pretty much a closed market, with only a relatively small number of partners having the key relationships with the range of financial dealmakers necessary.

For law firms keen to build links with such buyout firms, there are not many options available. They can go out of their way to attract well-connected partners with huge sums of money – an approach adopted by the likes of Kirkland & Ellis, Latham & Watkins and White & Case – but hefty financial packages are not easy to offer unless you have sufficient scale and profitability.

Those without this may find it easier to simply focus on hiring slightly more junior lawyers. Don't be surprised if junior partners and senior associates at the best buyout adviser practices are the next poaching ground.

But both strategies will take time to bear fruit. Those already advising buyout firms are likely to be assured of a lucrative income stream for some time to come. Top advisers to banks, beware.

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