Mea Culpa: What I Got Wrong About Private Equity in Law Firms

I didn’t see this coming: Meet the law firm MSO model, private equity’s favorite loophole wearing a business casual smile.

I’ll admit it: in “Exit on Top,” I made a prediction that is now aging about as gracefully as a grocery-store avocado. I said private equity would wait for bar associations to loosen up on non-attorney ownership before swooping into the legal sector.

TL;DR: The MSO Loophole and Private Equity

• The Shift: Private Equity (PE) isn’t waiting for regulatory changes; they are using Management Services Organizations (MSOs) to acquire law firm operations today.
• The Model: In a legal MSO, the firm remains attorney-owned to satisfy Bar rules, while the PE-backed MSO manages operations — billing, IT, HR, marketing —to drive predictable revenue streams.
• The Bottom Line: To stay competitive or prepare for an exit, law firm owners and partners must transition from “owning a job” to building a scalable business infrastructure with a clear law firm valuation.

Technically, I wasn’t hallucinating.

Arizona and Utah opened the doors, Washington State slid in after, and Puerto Rico will allow up to 49% non-attorney ownership starting in 2026. But here’s the part I didn’t see coming: PE firms are not waiting for the Bar’s permission slip. They’ve found another door, and, surprise, it’s already wide open.

Private equity loves efficiency almost as much as attorneys love a good loophole. So rather than twiddling their thumbs through regulatory debates, PE borrowed a page straight from healthcare: the Management Services Organization, or MSO.

What is a Management Services Organization (MSO) in the Legal Industry?

In medicine, the MSO owns everything except the doctor’s license. Buildings? Yes. Billing? Yes. HR, tech, marketing, branding? All yes. The doctor keeps the clinical work; the MSO runs the business.

Now replace “doctor” with “lawyer,” and voilà, the MSO is the legal industry’s new acquisition model. The law firm remains 100% attorney-owned. But operations, admin and other business functions? Those get scooped into the MSO, a separate entity owned by private equity investors.

And PE loves MSOs because they’re tidy, scalable, and (let’s be honest) easier to standardize than the average solo attorney’s filing cabinet.

Related reading: “Private Equity Comes Knocking: The New Frontier of Law Firm Ownership” by Roy Ginsburg.)

Why the Law Firm MSO Model Works, and Why It’s Moving at the Speed of a Bar Exam Panic Attack

Here’s the playbook:

• No rule changes required. Bar rules restrict law-firm ownership, not management companies. In brief, the law firm MSO model complies with Model Rule 5.4 because of the clear division between legal and business operations.
• Copy-and-paste scalability. Once PE builds one MSO, it can roll the model into firm after firm.
• Predictable revenue streams. Operations = cash flow = PE catnip.

This isn’t theory. This is happening.

Just a few weeks ago, I spoke with an attorney who has acquired 27 firms in 12 years. He’s now launching a PE fund, building an MSO in Puerto Rico, and moving faster than most firms update their websites.

Translation: the market is maturing, and if you think your five-attorney practice in Topeka is safely off the radar, well … let’s call that optimism “aspirational.”

Time for Some Hard Questions (the Fun Kind … Sort of)

Before you decide whether this trend is exciting, terrifying or both, take a minute to ask yourself:

• Do you know what your firm is worth?
  If your answer is, “Uh, depends who’s asking,” that’s not a valuation, that’s a guess.
• Could your firm run without you for 30 days?
  If the idea gives you full-body hives, congratulations: you own a job, not a business.
• Are you building a brand or just practicing law under your name?
  PE-backed MSOs don’t buy identities; they buy infrastructure.
• Would you ever consider buying another firm?
  Consolidation isn’t just something that happens to firms. It’s something firms do when they want to grow. (Read: “Acquisition

These aren’t theoretical questions. These are the questions PE buyers, MSOs and serious competitors are already asking — quietly, systematically and with actual spreadsheets.

And here’s the uncomfortable truth: If you can’t answer these questions confidently, you’re already a step behind the firms that can.

So, What Now?

I am not saying every attorney should run out and sell their firm tomorrow. (Honestly, if that were the plan, half of you would need at least three more years to get your books ready.)

What I am saying is this:

The legal industry is consolidating.
Private equity is here.
The law firm MSO model is the new Trojan horse, minus the Greeks, plus a lot of spreadsheets.

Some law firms will sell. Some will scale. Some will just try to stay relevant while the landscape shifts under their feet. But every firm will be affected.

And that’s where, yes, people like me come in. (You know I run a fractional CFO company, Cathcap, but I am not going to thump you over the head with a sales pitch. You’re welcome.) But here’s the reality: Whether you want to buy, sell, or simply survive, you need to understand your numbers, your value, and your business model.

The Bottom Line: Treat Your Law Firm Like a Business

The firms that prepare now will have options later. And the firms that don’t? Well, they won’t have to worry about selling; someone will eventually buy them for parts.

I was wrong about how private equity would enter the legal space. Mea culpa. But I am not wrong about what is coming next. Legal industry consolidation isn’t looming on the horizon; it’s already pulling into the parking lot.

And the lawyers who treat their firms like real businesses? They’re not just ready. They’re already playing a different game.

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Attorneys work tirelessly to build their practices and are beginning to realize that these businesses have value. 

In Exit On Top, financial advisor Brooke Lively addresses the practical aspects of creating an easy-to-sell law firm, providing the roadmap and tools that will allow you to… exit on top. Learn more at www.ExitOnTopBook.com.

BUY THE BOOK

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Preparing to Sell Your Law Firm

For more tips on building a more profitable law firm in the new legal marketplace, read:

• Selling a Law Practice: Why You Should Prep Your Law Firm — Even If You Don’t Want to Sell
• How To Value a Law Firm: Understanding What Your Firm is Worth
• What Do Law Firm Buyers Want? The 3 Things That Matter Most
• What Makes a Law Firm Attractive to Buyers?
• Mentally Preparing to Sell Your Law Practice
• Law Firm Metrics: Why Law Firms Struggle with Data Chaos (and What to Do About It)
• Are Your Law Firm’s Financial Systems Ready to Scale?
• The Path to Partnership: Embracing the ‘P’ Word Is the Key to Law Firm Growth
• Law Firm Profits and Year-End Taxes: Avoiding a Surprise Tax Bill
• 5 Ways You May Be Sabotaging Your Firm’s Growth
• The Best Compensation Plans Use the Law of Thirds
• Law Firm Overhead: What It Is — and What It Isn’t
• Building a Law Firm That Pays You First
• Understanding Law Firm Profits — And What to Do With Them
• How Are Law Firm Owners Paid? Total Compensation vs. Salary
• Funding Growth: Are You Starving Your Law Firm?

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