Elite U.S. law firms, particularly those in the Am Law 100, are increasingly considering private equity investments as a means to fuel expansion, adopt advanced technology like AI, and attract or retain top talent. While direct non-lawyer ownership of law firms is generally prohibited by ethics rules in most U.S. jurisdictions, firms are exploring a workaround involving the creation of a Management Services Organization (MSO). This MSO would handle non-legal, back-office functions such as HR and marketing, and could accept outside investment, with the law firm then paying the MSO for these services without sharing legal fees.
Several Am Law 100 firms have engaged in pitches from private equity firms, with some sources estimating that up to three-quarters of these top firms have heard investment proposals. Although no major deals with the largest firms have been finalized yet, firms like McDermott Will & Schulte, an Am Law 50 firm with $2.8 billion in revenue, have publicly acknowledged exploring MSO arrangements. Cohen & Gresser, a New York-based white-collar defense firm, has also indicated it is in discussions with bankers about bringing in private equity.
The proposed investment structure often involves the private equity firm taking a significant, often majority, stake in the MSO. This model offers an initial payment to partners, potentially 20% to 50% larger than their typical annual draw, with a larger payout expected in a few years, although partners would take a reduced draw in the interim. While the MSO model has been observed in smaller, regional personal injury firms, there's growing interest among full-service and elite firms, indicating a potential shift in the legal sector, which has historically been resistant to outside capital.
