Roy S. Ginsburg breaks down the state of PE investment in law firms, who benefits from the MSO model, and what it all means for small firm owners and retiring partners.
Over the past year, the internet lit up with articles and blog posts about private equity’s invasion of the legal profession. McDermott Will & Schulte, the large international law firm, confirmed it was exploring a restructuring that would let private equity hold a stake, and Quinn Emanuel’s founder said he was open to outside investment. Then this past June, the personal injury behemoth Morgan & Morgan acknowledged it was weighing a private equity (PE) deal of its own.
For the uninitiated, private equity investors are now using a workaround to ABA Model Rule 5.4, which prohibits nonlawyer ownership of law firms. Using a structure common in the medical, dental and accounting professions, PE investors create a separate entity, the Management Services Organization (MSO), to handle all back-office functions (for example, HR, accounting and IT). The remaining lawyers retain ownership of the firm and control the legal work, while PE earns revenue from fees for services it provides to the law firm. (For more information, read my Attorney at Work article, “Private Equity Comes Knocking: The New Frontier of Law Firm Ownership.”
Do Law Firms Really Need Private Equity Money?
The first question is whether law firms truly need outside PE capital. Most of the conversations about PE investment in law firms point to AI. Biglaw giant Kirkland & Ellis recently announced plans to spend $500 million to build its own proprietary AI platform, but few firms have Kirkland’s needs or ambitions. For most, AI investment will mean software, integration, training and cybersecurity, rather than building an entire platform from scratch.
PE may have a stronger case for consumer-facing practices such as personal injury, immigration, estate planning and bankruptcy. Many could benefit from improved intake systems, digital marketing, case management, and back-office operations. Investors believe they can fund and scale those improvements faster than law firms can on their own.
There’s also a bigger driver than AI.
For consumer-facing firms, the real play is “roll-up economics”: buy up a fragmented field of high-volume personal injury or immigration shops, consolidate their intake, marketing, and back office into one platform, and sell the combined book years later at a multiple no single firm could command on its own. The PE capital doesn’t fund a software upgrade. It funds the acquisitions. AI is a line item in that thesis, not the engine.
But is outside capital necessary? Some firms are already making these upgrades using retained earnings, capital contributions or conventional loans. PE may be underestimating what well-run law firms can accomplish on their own, while overestimating its ability to do better. That matters because a roll-up thesis needs sellers willing to sell. And as I’ll explain, that’s exactly where the model runs into trouble.
The Biggest Opportunity for Private Equity
After almost two decades of helping small-firm owners nationwide plan their exits, I believe succession could be a great opportunity for private equity. On paper, there are thousands of small law firms owned by boomer lawyers that desperately need successors. This theoretically creates a tremendous opportunity for PE buyers. But as I’ve written in this space earlier this year, the pickings are slimmer than one might expect. The problem is what these firms actually are. Most are books of business built on the owner’s personal relationships and referral network, and that goodwill tends to walk out the door the day the founder does. What’s left for a buyer to own is thinner than the headcount suggests.
Small firm owners’ priorities are not the same.
Further, from my experience, many owners resist PE and MSO proposals for two key reasons.
1. Timeline. Many PE buyers want the owner to stay on longer than the one to two years needed to ensure a smooth handoff and want the seller to remain the owner of the separate legal entity that operates alongside the MSO. That does not appeal to most sellers, who want to be done with their careers and have no interest in staying on the hook for liability.
2. Priorities. Most offers include substantial upfront cash for the firm’s non-legal assets, plus a small ownership stake in the MSO, known as rollover equity. But most retiring small-firm owners aren’t seeking a new investment strategy. They want to enhance their nest egg, take care of their clients and employees, and protect their legacy. Rollover equity does little to advance those priorities. It’s hard to value, hard to sell, and tied to a business the seller no longer controls.
Regulatory and Operational Risks Every Firm Exploring PE Investment Must Weigh
There are, of course, regulatory risks, though they are narrower than the headlines suggest. Arizona and Utah have opened the door to nonlawyer ownership outright. Elsewhere, the recent legislation is better understood as line-drawing than as a door closing. Colorado enacted the Legal Practice Integrity and Fee-Sharing Prohibition Act in June, effective this August; Illinois passed its own measure the same month; and California signed AB 931 back in October 2025. What these statutes have in common is instructive. They bar the percentage-of-revenue fees that let investors share directly in a firm’s upside, while leaving flat-fee and hourly MSO arrangements intact.
In other words, these regulations police the structures that look like ownership and leave properly built ones alone. That is a meaningful signal for the market: the deals getting done are the ones designed correctly from the start, and a well-structured MSO has a clearer path now than it did a year ago.
Beware of Control Creep with MSO Deals
The subtler risk is operational, and it’s one that the best-run deals are already designing around. The lawyers, not the investors, are supposed to control every legal decision. On paper, that line is clean. In practice, when an MSO handles all staffing outside the lawyers and owns the operational infrastructure, keeping that line clean requires real intention. Healthcare offers a cautionary example: investors there sometimes drift into decisions meant for the doctors, a pattern the industry came to call “control creep.”
The lesson for law isn’t that the model is unworkable. It’s that governance is the whole game. It doesn’t happen by default; it happens by design.
Too Soon to Call
MSOs and PE investment in law firms are here to stay. They’ll likely benefit certain firms, especially larger consumer-facing practices that need improved systems and more sophisticated management. But that doesn’t mean the model will spread as quickly as investors hope. Many firms simply don’t need additional capital. Retiring firm owners may not want what PE has to offer, and regulators are watching closely.
We’re still in the first inning. For now, we’ll have to wait and see how the remaining innings play out.
More About PE Investment in Law Firms
- Private Equity Comes Knocking: The New Frontier of Law Firm Ownership by Roy Ginsburg
- The Seven Pillars of Legal MSO Deals by Frederick Shelton and Ayven Dodd
- Partner Psychology: Expert Strategies for Negotiating Legal MSO Deals
- Law Firm Marketplace Realities: Why Finding a Buyer Is Harder Than You Think by Roy Ginsburg
- Mea Culpa: What I Got Wrong About Private Equity in Law Firms by Brooke Lively
- What Is an IT MSP and Why Is It Essential for Small Law Firms? by Ted Glutz
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