Private Equity investment, the new normal for law firms?

Private Equity investment is rapidly emerging as a transformative force in the legal sector, offering law firms access to capital, operational expertise, and new growth opportunities. While regulatory barriers remain in most jurisdictions, innovative structures such as Managed Service Organizations are enabling firms to engage with outside investors without compromising legal independence. The evolving landscape — marked by increased partner mobility, generational shifts, and the rise of artificial intelligence — demands that law firm partners proactively assess the strategic implications of PE investment. Firms that embrace these changes may gain significant competitive advantages, but careful consideration of opportunities and risks remain essential to ensure long-term success.

The past months, not a week went by without at least 2 or 3 articles on Private Equity investments in law firms. The biggest news arguably was about McDermoth considering a PE funded MSO structure. Where previous Alternative Business Structures (ABS) were limited to smaller law firms in jurisdictions that allow, outside ownership, McDermoth is a 1800 lawyer, 20+ offices giant, with about 2.2 billion in revenue, operating in jurisdictions where ownership is strictly limited to registered lawyers only.

After the pandemic the legal sector has seen some unprecedented changes. The rapid emergence of Artificial Intelligence is one of them, but also the executive orders against some law firms by the Trump administration. The disruption of international trade and the global economic order are causing firms to reassess their international presence, causing expansion and reduction into and from certain jurisdictions.

Today it is still hard to predict the impact of AI on the legal industry. It seems unlikely that the traditional pyramid structure will survive, which will have direct implications for leverage and pricing. It is not unlikely that AI will fundamentally disrupt the delivery model of legal services. A small number of firms such as A&O-Shearman (Belfast) and Clifford Chance (Newcastle) seem well positioned with their advanced AI integration and low-cost legal support centers. Most firms, except for perhaps the absolute elite, will need to reinvent their business- and service delivery model.

Talent has become increasingly central to certain segments of the market. In New York today, profit shares of 25-30 million are no exceptions among the top-firms. Partner mobility has increased in the most legal markets, and has become a key element in growth in revenue and profitability. The ability to hire and retain talent is now central to a firm’s success. In the next five years or so the industry will see a great number of today’s rainmakers retire, putting a lot of emphasis on structured succession planning. At the other end, the Gen-Z young talent has a slightly different perspective on career and success in life.

The above are just a selection of challenges facing law firms today. It would be easy to dedicate a whole article on this topic, but this in this article I want to focus on the opportunities and risks of Private Equity investment in law firms.

Law firms offer an attractive investment potential to Private Equity because of the traditionally high client retention and the predictable cash flows. There is still a lot of market fragmentation, allowing for a buy-and-build approach. Law firms generally have a solid reputation and a great growth track-record: ever since the 1950ties profits have consistently gone up, not even Goldman Sachs can say that.

From the law firm’s perspective, engaging with outside investment would offer access to capital for expansion, talent, technology or acquisitions. Private Equity also adds operational expertise, bringing professionalized management and performance monitoring. It will help with succession planning, addressing partner retirements and ownership transitions. Private Equity will also create economies of scale, consolidation, talent retention, brand visibility and access to the investor’s ecosystem.

This sounds like a win-win situation, right? Reality is that outside ownership in law firm is currently prohibited everywhere except for a handful of areas, most notably England and Wales where Alternative Business Structures have been allowed since 2007 (Legal Services Act). Further, Arizona, Utah and Washington DC, spring to mind, as does Australia. The results so far have been lackluster: most investment has been in low profile smaller firms that did not grow to great fruition.

Because of this ban on non-lawyer (co)ownership, Private Equity and interested law firms are now looking at the Managed Service Organization (MSO), whereby all non-legal functions and activities get separated from the lawyer work. This would  include all staff services, office lease and also the brand. There will be a Service Level Agreement (SLA) and partners will also get a stake in the MSO. This structure allows for the legal arm to remain fully independent and in compliance with the current bar regulations, although some would argue that even this would not be allowed.

The discussion on the regulatory topic revolves very much around independence. The ideal theoretical lawyer is totally free from any commercial considerations and only acts in the best interest of the client. In my experience today indeed lawyers act in the interest of the client, but that does not mean that they are free from commercial considerations. In effect big-law already has been a business for many years. Law firms have a strong focus on profitability and partners are subject to predefined performance criteria. Partners that trail behind are kindly requested to leave the firm. Partners are mostly no longer partners in the true sense of the word, they are shareholders instead. Structures are optimized for tax purposes and limiting professional liability. Also in the day-to-day operation of the firm, much is left to management and not to the partner meeting. It has been reported that both for the merger between A&O and Sherman & Sterling and recently Ashurst and Perkins Coie, the partners were not consulted prior to the merger being announced. The theoretical ideal has long been overtaken by the reality of law firms operating very much like any other business. So the question is if PE ownership really represents a fundamental threat. I am not convinced that will be the case. From the point of perverse incentives, Litigation Funding seems more risky to me and this has by now been widely accepted.

“You can take change by the hand, or it will grab you by the throat”

(Churchill)

Today there seems to be a lot of momentum to make PE investment in law firms happen. On 28 November we organized a seminar on the topic which drew great attendance, I doubt if this would have been the same half a year ago.

In August 2025, six business law firms in Sweden left the Swedish Bar Association to become AGRD Partners, a new legal service group backed by Danish PE firm Axcel. It is most likely that this is only the start and over time more law firms probably from other jurisdictions will join AGRD partners. Today that would mean leaving their National Bar Association.

Leaving the Bar for most lawyers will be a price too high to pay. Membership provides a quality guarantee, legal privilege and the right to litigate in court. But once you peel away the emotions and look clinically at the facts, most work lawyers do, certainly in an advisory practice, could be done without membership. Bar Associations will need to navigate carefully, but proactively and with speed to avoid structurally losing members in the near future.

Once a number of law firms will adopt PE investment, this will disrupt the level playing field. Such firms will have a significant competitive advantage over their peers, leaving those peers trailing behind. Private Equity will certainly not be the best way forward for every law firm. As the legal sector stands on the brink of significant transformation, now is the time for law firm partners to proactively evaluate the strategic opportunities and risks of Private Equity investment. By being proactive your firm can position itself to capitalize on new growth avenues, maintain competitive advantage, and navigate the evolving landscape with confidence. We will be most happy to facilitate this process.