Private equity investors have already made major inroads into the accounting, engineering and medical professions, pouring capital into businesses and structuring deals that have overcome the ethical and regulatory hurdles that had long blocked outside investment.
Now, they are setting their sights on the last bastion of insiders-only professional services ownership—law firms. According to news reports, global megafirm McDermott Will & Schulte has been exploring outside investment, as have other defense-oriented players.
But the real action may be among plaintiffs-side firms. “Personal injury attorneys are at the forefront of a movement to bring private equity investment into U.S. law firms,” The Financial Times reported.
Unlike large, corporate firms, which often have complex international partnerships and tend to be more traditional in their business approach, a plaintiffs-side personal injury firm is usually smaller, has a less complex ownership structure and is more willing to take risks.
Those firms are also less likely to have the resources to invest in the technology and marketing needed to expand their businesses. That’s an especially potent motivator for firms at a moment when artificial intelligence is promising new tools and methods for selling and delivering legal services. Consolidation through private equity ownership could give them the scale and cash needed to innovate and grow.
Exploratory Moves
Nonetheless, significant obstacles remain for investors and law firms alike. While certain jurisdictions like Arizona and Utah have allowed greater experimentation with ownership models in recent years, the overall U.S. legal market has been far less willing to open its doors to nonlawyer owners. Whether those barriers are collapsing—or merely cracking—is far from clear.
It’s important to remember, for instance, that McDermott is merely exploring outside investment. Nothing has been finalized, and no agreements have been made. The firm, according to the Financial Times, is “exploring a restructuring that would allow it to sell a stake to private equity groups.”
“The reorganization would involve creating a complex structure giving investors a slice of the law firm’s revenues without breaking traditional ownership rules, according to five people with knowledge of the matter,” the newspaper reported. The efforts are being led by the son of McDermott’s chairman, who recently joined the business from a private equity and venture capital investment firm.
While in the exploratory stages, the effort has created significant buzz in the legal industry. If McDermott—with annual revenues in the $3 billion range—does land on a formula that allows outside investment, the move “could set a precedent for other large players,” the Financial Times wrote.
Giving Away Control
So far, however, smaller firms have made more progress on the private equity front. Some see private equity investment as more likely to take off outside Big Law.
Private equity could be potentially attractive in a high-interest rate environment and for firms in need of an “immediate investment” for legal tech, upgrading offices, or cash flow, Law.com recently noted. But “when cash needs arise, it won’t be PE firms that Big Law turns to."
What is more likely, according to law firm partners, is that big firms will continue to raise funds through debt-based financing, capital calls from partners or by cutting costs. Allowing a third party to take an ownership stake when other tried-and-tested methods of securing cash are available “doesn’t make a whole lot of sense,” one Big Law M&A partner told Law.com.
Added another firm leader, “Even if you need cash, who’s going to give away control?”
For midsize and smaller firms, on the other hand, private equity stakes may be a far more attractive option than asking a limited roster of individual partners to pony up. One firm known to be in talks for private equity investment, New York-based Cohen & Gresser, has just 26 partners. It’s unlikely the firm would be as willing as a large law firm to lean on those lawyers for the $40 million or more it is reportedly seeking.
Alternative Structures
The Cohen & Gresser deal, according to the Financial Times, could be finalized in early 2026 and would allow investors to eventually swap a convertible note for equity in the firm. “We are exploring innovative structures with a number of prominent investment firms that can support our strategic objectives,” the firm’s managing partner told the newspaper.
If finalized, Cohen & Gresser’s deal is expected to leverage a managed service organization (MSO) structure to help the firm get around ethics rules preventing nonlawyer ownership of law firms.
In an MSO, a law firm is essentially divided. On one side are the attorneys practicing law. Administrative, back-office and other services that do not require a bar card are spun off into a separate entity. The firm then pays the new entity for its services. Private equity can own the MSO and reap profits from it.
The MSO workaround helps firms avoid violating the American Bar Association’s Model Rule 5.4, which has been adopted by most U.S. states. The rule holds that “a lawyer or law firm shall not share legal fees with a nonlawyer” and that lawyers “shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.”
Some states are tinkering with the rules, however. In 2021, for instance, Arizona allowed firms to adopt an “alternative business structure” (ABS), which gives nonlawyers the right to own shares in a law firm. The hope among state officials was that outside investment would expand the ability of law firms to deliver legal services to underserved Arizona citizens and expand access to justice.
But the changes had an unintended impact: Private equity jumped at the chance to pour money into legal services, an investment not tied to the vagaries of the stock market and with a history of providing steady, cash-rich returns. According to the Wall Street Journal, Arizona law firms with alternative business structures have been “a hot investment” for private equity.
Personal Injury Players
Utah, too, is experimenting with alternative business structures. In 2020, the Utah Supreme Court launched a so-called “regulatory sandbox” to allow for greater experimentation with law firm business models. The pilot program was initially set to end in 2022, but the court extended it to 2027.
While other states have not eliminated their requirements, the concept of an alternative structure is spreading—especially among personal injury firms. The Financial Times reported that Dudley DeBosier, a personal injury firm with eight offices in Louisiana, has hired the investment bank KBW Stifel to look for potential private equity investors. Those investors could help finance mergers and acquisitions by the firm.
Arizona-based Rafi Law Group has also hired KBW Stifel to help raise capital for expansion in the Southwest, the Dominguez Firm in Los Angeles hired Capstone Partners to solicit private equity firms and Michigan’s Mike Morse Law Firm is also exploring private equity financing, the Financial Times reported.
For investors, personal injury firms could be particularly attractive because of their predictable and large volume of fast-settling cases. PI firms also specialize in matters that are unlikely to disappear in a bad economy—such as auto accident or slip-and-fall cases. As one law firm consultant told the Financial Times, “I think private equity investment in plaintiffs’ personal injury firms is a near-term reality because they are marketing machines in pursuit of valuable cases that can scale successfully with investment.”
A PE-Backed Future?
If private equity is, indeed, a “near-term reality,” the legal industry should expect a wave of consolidation among personal injury and similar firms with predictable revenue streams.
Firms specializing in family law, trusts and estates, debt collection, and workers compensation are all generally immune from financial turmoil during an economic downturn. Some, like bankruptcy and restructuring practices, even thrive when the economy is shaky. Investors crave stable returns, especially amid stock market uncertainty.
Most of the nation’s 1.3 million lawyers also practice at small or solo law firms, providing plenty of opportunities for larger players to go on an acquisition spree. In turn, acquisition could give small-firm lawyers a chance to access technology that will help streamline their practices and improve profit margins.
The wild card remains state and local regulators and their acceptance of alternative structures like MSOs. As two Columbia University law professors recently wrote, “If an MSO‑controlled [large language model] comes to dominate legal service delivery, has the firm ceded de facto control of legal operations and professional judgment? If so, the claim that the MSO isn’t ‘practicing law’ becomes harder to defend.”
And who might lead the charge against MSOs and ABSs? Junior partners, non‑equity partners, and associates are unlikely to envision many career and financial benefits from these structures. As a result, the Columbia professors said, “younger lawyers who may roll their eyes at many professional guardrails could become their biggest defenders.”
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David L. Brown is a legal affairs writer and consultant, who has served as head of editorial at ALM Media, editor-in-chief of The National Law Journal and Legal Times and executive editor of The American Lawyer. He consults on thought leadership strategy and creates in-depth content for legal industry clients and works closely with Best Law Firms® as senior content consultant.
