Law firms chart back-office deals as investors seek bigger legal market foothold
18/12/2025 21:44
MSO model allows investment in law firms' non-legal operations
Interest growing among big law firms, private equity, litigation funders
Financing lawsuits, state deregulation have upped investor stakes in legal services
By Sara Merken
NEW YORK, Dec 18 (Reuters) - (Billable Hours is Reuters' weekly report on lawyers and money. Please send tips or suggestions to D.Thomas@thomsonreuters.com)
Law firms courting capital and investors looking to cash in on firms have a new buzzword: the MSO, or management services organization, a model that could reshape a segment of the U.S. legal market.
The approach, long used in healthcare and other industries, lets investors take a stake in a separate entity handling law firms' non-legal, back-office operations. The MSO is paid by the firm for its services but does not share in its profits, steering clear of ethics rules that bar non-lawyers from owning law firms in most U.S. jurisdictions.
At least two U.S.-based international law firms, McDermott, Will & Schulte and Cohen & Gresser, in recent weeks acknowledged exploring potential MSO deals. Litigation funding giant Burford Capital said it's talking with law firms as potential MSO partners, and its chief development officer Travis Lenkner told Reuters that Burford has had discussions with other investors to help broker MSO deals.
There are “a lot of large institutional investors” that are interested in law firms, Lenkner said.
If the model gains steam, it would be the latest chink in barriers dividing outside capital and law in the United States, where the litigation finance industry and state-level regulatory changes have already given investors a larger foothold in the legal profession.
Law firms, said Brad Blickstein of legal consultancy Blickstein Group, are coming to be viewed as "an investable asset class.”
FIRMS AND INVESTORS TAKE NOTE
McDermott would be the largest U.S. firm to adopt an MSO structure if it moves forward. The firm is exploring using the model to sell a stake to private equity investors, the Financial Times reported last month, citing people with knowledge of the matter. McDermott chairman Ira Coleman in a statement acknowledged there was "inbound interest" but said any talks were preliminary.
New York-founded firm Cohen & Gresser, which has around 70 lawyers, is also in discussions to sell a stake to private equity and has weighed options including the sale of a $40 million convertible note that would later switch to equity in a future MSO, a spokesperson confirmed.
“We are exploring innovative structures with a number of prominent investment firms that can support our strategic objectives," said co-founder and managing partner Lawrence Gresser.
Lee Minkoff, who oversees private equity firm Renovus Capital’s professional services investments, said the promise of law firm MSOs was “part of the thesis” for an investment Renovus announced in vendor K2 Services last month. K2 already provides IT managed services and other support to law firms and could someday acquire a firm’s entire back office through an MSO, he said.
Legal advisors said some law firms began forming smaller-scale MSOs as early as the 2000s. What’s new is that increasingly “private equity is coming in to take an ownership stake in those MSOs,” said Trisha Rich, an ethics lawyer at Holland & Knight who advises law firms and investors on such deals.
Personal injury firms and other consumer-focused firms focused on areas like trusts and family law are of particular interest to investors, advisors say.
Many large firms, meanwhile, face a cash crunch fueled by the cost of technologies like artificial intelligence and by surging compensation for top lawyers, said David Wilkins, faculty director of the Center on the Legal Profession at Harvard Law School.
"The need for capital investment is skyrocketing," Wilkins said.
INVESTING IN THE LAW
The interest in MSOs is just part of a broader U.S. trend toward investing in legal work.
Litigation funders like publicly-traded Burford invest in specific lawsuits or other legal claims in exchange for a cut of recoveries, growing into a $16.1 billion industry in the United States in past decade. More recently, a handful of states have loosened rules that prohibit non-lawyers from owning U.S. law firms or receiving a percentage of their fees, allowing some investors to take a direct stake in firms.
Arizona has gone the furthest, allowing more than 100 law firms and legal services organizations to operate as "alternative business structures" in partnership with non-lawyers. KPMG earlier this year launched a law firm subsidiary under the program.
The ABS model is also attracting interest from Burford and other litigation funders. Litigation funder Certum Group earlier this month said it launched an MSO to provide pre-litigation and other services to firms that handle mass tort and other litigation. William Farrell, co-founder and managing director of Longford Capital, said his firm is "absolutely interested" in participating in both ABS and MSO deals.
“We anticipate that direct investment in law firms will become a bigger part of our portfolio construction," Farrell said.
The American Bar Association has not explicitly weighed in on the ethics of law firms using MSOs, but an ABA representative said its Center for Professional Responsibility “is aware of and following developments," including a February ethics opinion from the state bar of Texas.
The Texas opinion said that under state rules, lawyers who engage a non-lawyer owned company to provide a support platform cannot pay for its services based on a percentage of the legal firm's revenues. It also said lawyers and non-lawyers can share ownership of such a company if it does not engage in the practice of law.
The opinion "implicitly acknowledges the permissibility" of MSOs, Rich and other Holland & Knight lawyers said in an August client newsletter.
Lucian Pera, a partner at Adams & Reese who has advised investors and law firms, said he expected both MSO deals and public discussion about the trend will reach a new pitch in 2026.
"Some of the investors, frankly, are out shopping vigorously for firms,” he said.
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(Reporting by Sara Merken in New York)