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MSOs and Private Equity in Law Firm Sales: Tom Lenfestey Answers Your Questions

Private equity has changed how law firms buy, sell, and grow. Tom Lenfestey, founder and CEO of The Law Practice Exchange (LPE), opened up his inbox for a live “Ask Tom Anything” webinar tied to his new book, The Exit Blueprint. Attendees asked pointed questions about managed service organizations (MSOs), management fees, and where private equity is headed next in legal M&A. Below is a practical rundown of what he said, organized for owners who are weighing an MSO deal or just trying to understand the buzz. Prefer to watch the full session? You can find the replay on YouTube. What an MSO Actually Is An MSO, or managed service organization, is a separate entity that holds every part of a law firm’s business that is not the practice of law. That includes marketing, HR, accounting, and technology. Anyone can own it, including a private equity firm, a family office, or a key non-attorney employee. The lawyers and the delivery of legal services stay inside the law firm, which in most states still has to be owned and controlled by licensed attorneys. Tom described two common uses for the structure. Lawyers set up their own MSO to centralize operations across multiple brands or locations, or to give a non-lawyer executive, like a chief operating officer, equity in something without giving them equity in the law firm itself. Private equity and other outside capital use the same structure to invest directly in a law firm’s growth, providing marketing and technology dollars in exchange for a services fee. How Management Fees Have to Be Structured One of the most detailed questions of the session came from an owner asking how to set a management fee that holds up as fair market value while still leaving room for margin and growth. Tom’s answer centered on one hard rule: the fee cannot simply track a percentage of law firm revenue. Under ABA Model Rule 5.4, lawyers generally cannot share legal fees with a non-lawyer, and a revenue-percentage fee can look exactly like that. Instead, the fee has to be tied to the actual fair market value of the services delivered, typically structured as a fixed monthly cost or a cost-plus arrangement based on defined variables. Tom was candid that there is no single published benchmark for this yet, and he recommended bringing in counsel who specializes in MSO agreements to make sure the structure will hold up to scrutiny. Key takeaways for setting a management fee Delineate exactly which services the MSO provides, then value each one at fair market rate. Use a fixed or cost-plus structure rather than a straight revenue percentage. Expect meaningful profit to remain inside the law firm; the MSO cannot pull out everything. Get specialized MSO counsel involved early, since these agreements are complex by design. Where Private Equity Is Actually Investing Personal injury has drawn the earliest and heaviest private equity interest. Tom pointed to the model’s scalability: heavy marketing investment, less dependence on any single attorney, and strong intake systems that keep revenue flowing even if an individual lawyer leaves. Interest has since spread to immigration, family law, trust and estates, insurance defense, and social security disability, though fewer firms in those areas currently hit the roughly $10 million EBITDA threshold that larger private equity groups tend to require. He expects smaller private capital players and boutique MSOs to acquire and roll up smaller platforms in these emerging practice areas, eventually banding together into larger institutional deals. Is Private Equity or an MSO Right for You? Tom’s central message: private equity is simply another type of buyer, not the only option. Strategic law firms, individual attorneys, and traditional buyers remain active in the market. The right fit depends on your goals, your growth plan, and whether a potential partner’s vision for the firm matches your own. He encouraged owners to treat the buyer search like a dating process rather than defaulting to whoever shows up with the most capital. How Far an MSO Can Go Regulators and bar associations are watching MSO structures closely. Tom’s rule of thumb, credited to attorney Josh Port at Holland & Knight: the MSO exists to support the lawyers, not direct them. An MSO can build marketing systems, train intake staff, and improve technology, but it cannot dictate which clients a lawyer takes or interfere with how legal services are delivered. Firms considering an MSO transaction, especially outside states with more permissive rules, should also track how state legislatures are treating the structure. LPE’s blog has covered how states like Illinois are responding to private equity in law with renewed restrictions rather than liberalization. Long-Term Incentives That Keep Everyone Aligned For sellers worried about being cashed out and then watching value evaporate, Tom outlined the structures LPE sees most often in MSO and private equity deals: Retained equity: the seller rolls a portion of purchase price into ongoing equity in the MSO, which can grow as it acquires other firm brands. Performance earnouts: a percentage of future revenue, adjusted up or down as the firm’s numbers change after closing. Variable seller notes: common in SBA-backed deals, where note payments adjust based on post-closing revenue performance. Escrow releases: a portion of proceeds held back and released as specific milestones, such as employee retention, are met. Considering an MSO or private equity transaction for your firm? LPE’s advisory team helps owners evaluate whether outside capital is the right fit, structure fair market value management fees, and negotiate long-term incentives that protect what you’ve built. Learn more about selling your law firm or explore how law firm valuation actually works. Book a Free 15-Minute Strategy Call Frequently Asked Questions What does MSO stand for in a law firm sale? MSO stands for managed service organization. It is a non-law entity that houses the business side of a law firm, such as marketing, HR, accounting, and technology, while licensed attorneys keep control of legal services inside the law firm itself. Can a non-lawyer own an

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The Law Firm Buyer’s Guide to Legaltech: What You Need to Run a Practice After Acquisition

If you’re buying a law firm from outside the legal industry, the learning curve isn’t just about practicing law. It’s also about understanding the technology that keeps a practice running. Law firms don’t operate on general business software. They run on a specific category of tools built around the unique compliance, billing, and client management requirements of legal practice. Get the legaltech stack right after an acquisition, and the transition is far smoother. Get it wrong, and you’ll find yourself managing operational chaos while trying to retain clients and staff. This guide covers the essential categories of legaltech that every law firm buyer needs to understand, what to look for during due diligence, and how to approach getting the right stack in place after you close. Why Legaltech Is Different from General Business Software A law firm is a regulated business. Attorneys have ethical obligations around client confidentiality, conflicts of interest, and the handling of client funds that don’t apply to most other industries. The technology that supports those obligations has to be purpose-built for the legal environment. A general CRM, a standard accounting package, and a shared file drive don’t cut it. The consequences of getting this wrong aren’t just operational. They’re ethical and legal. According to MyCase’s 2025 Legal Industry Report, 65 percent of lawyers name data privacy and confidentiality as their top compliance concern, and 61 percent flag cybersecurity as their primary remote-work worry. Those aren’t IT problems. They’re bar discipline problems if they’re not managed correctly. That context matters as you evaluate what technology comes with the firm you’re buying and what you’ll need to put in place post-close. The Core Legaltech Stack: Six Categories You Need to Understand 1. Practice Management Software Practice management is the operating system of a law firm. It’s where matters are tracked, deadlines are calendared, client records are stored, time is logged, and bills are generated. According to Gradion’s 2026 law firm tech stack analysis, the dominant platforms in this category are Clio, Smokeball, LEAP, and PracticePanther, with Clio remaining the most widely adopted cloud-based option. For most small to mid-sized acquired firms, the question isn’t whether practice management software exists. It’s whether the firm is actually using it well. A firm with a license but disorganized matter files, inconsistent time entries, and no standard intake process hasn’t really operationalized the tool. That’s a post-acquisition project, not a solved problem. If the acquired firm doesn’t have a practice management system in place, Clio is the standard starting point for most practices. Clio’s own platform data shows that 81 percent of small firms are now on cloud-based practice management software, integrating over 250 third-party tools and supporting everything from client intake to billing. Mid-sized firms lag behind at 57 percent, which means there’s often more work to do in that segment. 2. Trust Accounting and Legal Billing This is the category that catches outside buyers most off guard. In most states, attorneys are required to hold client funds in a separate Interest on Lawyers’ Trust Account, commonly called an IOLTA. IOLTA compliance requires separate client ledgers for every matter, three-way monthly reconciliations, and audit-ready records at all times. Commingling firm operating funds with client trust funds is a bar violation, regardless of intent. Standard accounting software like QuickBooks doesn’t enforce these rules natively. Legal billing platforms like Clio Manage, Smokeball, or LawPay are built to handle trust accounting correctly. When you’re evaluating a firm for purchase, verify that trust accounts are reconciled, that the three-way reconciliation is current, and that the software in use actually supports IOLTA compliance. An inherited trust accounting mess is one of the more time-consuming things to clean up post-close. 3. Document Management Law firms generate enormous volumes of documents. Client files, contracts, pleadings, correspondence, and internal memos need to be organized, version-controlled, and retrievable on demand. For smaller firms, document management is often handled inside the practice management platform. Clio and Smokeball both include document storage as part of their core offering. For firms handling complex transactional work or litigation, a standalone document management system may be in use. Gradion notes that standalone document management becomes more necessary once a firm grows past 10 to 15 people or takes on transactional matters requiring proper versioning and ethical walls. iManage and NetDocuments are the most common enterprise-level platforms in this space. What you’re looking for during diligence is whether client files are organized and searchable. Firms that have been running on shared folders with inconsistent naming conventions require a migration project before they’re really operational under new ownership. 4. Legal Research Tools Every practice that involves case law, statutory interpretation, or regulatory analysis needs a legal research subscription. The two dominant platforms remain Westlaw (Thomson Reuters) and LexisNexis. Both have added AI-assisted research layers in recent years. Westlaw Precision with CoCounsel and Lexis+ AI with Protégé are the current AI-enhanced versions of each platform. For litigation-focused firms, the distinction between them matters. For transactional or advisory practices where case law research is less central, the subscription tier and cost matter more than the platform choice itself. It’s worth noting that some attorneys use general AI tools like ChatGPT or Claude for initial research drafts. This is a practice that needs clear oversight policies in place before you inherit it. General AI tools aren’t trained on authoritative legal databases and can generate plausible-sounding but incorrect citations, which is a malpractice exposure if the work product isn’t verified against a proper legal research platform. 5. Client Intake and CRM Client intake is how potential clients become clients. In a well-run firm, intake is a documented process: an inquiry comes in, it’s screened for conflicts, it’s qualified by practice area fit, and it’s moved through a consistent onboarding workflow. In many smaller firms, it’s handled informally by whoever picks up the phone. An informal intake process is a revenue leak and a transition risk. When the selling attorney leaves, the informal relationships and tribal knowledge that drove intake often

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law firm deal financing

Law Firm Acquisition Financing: What Buyers Need to Know About SBA Loans

Most buyers who want to acquire a law firm run into the same wall. The firm’s value sits almost entirely in goodwill: client relationships, reputation, and referral networks. There are no machines, no inventory, and very little hard collateral. Traditional bank loans are built for tangible assets. They struggle with law firm deals. That is why SBA 7(a) loans have become the go-to financing tool for law firm acquisitions. Understanding how this program works gives buyers a real edge in getting deals done. Why Traditional Bank Loans Often Fall Short for Law Firm Acquisitions Conventional commercial lenders underwrite against hard assets. Real estate, equipment, and inventory serve as collateral. Law firms carry almost none of that. A personal injury firm with $2 million in revenue might have a few computers, a lease, and a case management system. The real value is in the caseload, the referral relationships, and the firm’s name in the market. That intangible value is real, but it makes conventional lenders uncomfortable. Many simply decline. Others offer terms so conservative that the deal stops making financial sense for the buyer. SBA loans solve this problem by allowing lenders to finance goodwill-heavy acquisitions with a federal guarantee backing the risk. How the SBA 7(a) Program Works for Law Firm Buyers The SBA does not lend money directly. It guarantees a portion of the loan, typically 75% to 85%, issued through an approved private lender. That guarantee reduces the lender’s risk and opens the door to financing that conventional underwriting rejects. The SBA 7(a) program caps loans at $5 million. For most small and mid-size law firm acquisitions, that ceiling is sufficient. A firm generating $1 million to $4 million in annual revenue and priced between $750,000 and $4.5 million fits cleanly within the program’s parameters. Loan terms run up to 10 years for goodwill and business acquisitions. Interest rates are variable, typically set at prime plus a lender spread, with SBA caps limiting how high they can go. Monthly payments are predictable and structured to fit within the cash flow of a healthy firm. What Lenders Actually Look at When Underwriting a Law Firm Deal Not every law firm qualifies. Lenders evaluate a specific set of factors before approving acquisition financing. Owner’s discretionary earnings: This is the most important number. Lenders need to see that the firm generates enough cash to cover debt service after accounting for a market-rate salary for the incoming owner. Most lenders require at least $500,000 in annual owner’s earnings to support a seven-figure acquisition loan. Get your target’s financials normalized before you apply. Three years of tax returns: Lenders want to see consistent, verifiable income. Cash businesses with inconsistent reporting are hard to finance. Sellers who run excessive personal expenses through the firm create documentation headaches that slow deals down or kill them entirely. Clean books move faster. Client concentration risk: If 40% of the firm’s revenue comes from one client, lenders take notice. High concentration means the cash flow backing the loan could disappear if that relationship ends. Diversified client bases are easier to finance. Buyer qualifications: Lenders evaluate the buyer too. Relevant industry experience, a strong personal credit profile, and sufficient liquidity for the equity injection all factor into the decision. First-time buyers benefit from positioning their background carefully in the lender narrative. Down Payments, Seller Carrybacks, and How Buyers Reduce Cash Outlay SBA 7(a) loans require a minimum 10% equity injection from the buyer. For goodwill-heavy professional service deals, most lenders prefer 15% to 20%. On a $2 million acquisition, that means bringing $300,000 to $400,000 to the table. Not all of that has to come from the buyer’s personal cash. Seller financing is the most common tool for reducing the out-of-pocket requirement. Here is how it works: the seller carries a subordinated note, typically 10% to 20% of the purchase price. That note sits in a junior position behind the SBA loan and goes on full standby for the first 24 months. The buyer uses the seller note to satisfy part of the equity injection, lowering their cash requirement at close. This structure benefits both sides. The buyer closes with less capital. The seller gets paid over time with interest and stays financially invested in a smooth client transition. Banks and SBA lenders accept this arrangement regularly. It is standard in law firm deals. What Buyers Often Get Wrong About SBA Law Firm Financing Several misunderstandings slow deals down or sink them entirely. Using the wrong lender. Not every SBA lender understands professional service acquisitions. Many community banks and regional lenders have never underwritten a law firm deal. They apply real estate or equipment logic to a goodwill transaction and decline. Work with an SBA-preferred lender who has closed law firm or professional service deals before. The difference in speed and approval rate is significant. Starting lender conversations too late. SBA pre-qualification should happen before you sign a letter of intent. Buyers who wait until they have a signed LOI often find themselves in a race against a clock with the wrong lender. Get pre-qualified early. It also strengthens your offer. Assuming the seller cannot retain any role. SBA rules prohibit the seller from retaining an ownership interest post-close without specific SBA approval. But sellers can stay on as employees or consultants under a documented transition arrangement. A well-structured employment agreement keeps the seller engaged, protects client retention, and satisfies SBA compliance. These are not in conflict. Underestimating the personal guarantee requirement. SBA loans require personal guarantees from owners with 20% or more equity in the acquiring entity. Lenders also evaluate all available personal collateral, including real estate and investment accounts. Law firms lack hard assets, so personal guarantees are standard and expected. Buyers should go in with eyes open. SBA Financing as Part of a Larger Deal Structure SBA loans rarely cover 100% of what a buyer needs to close. The most successful law firm acquisitions layer multiple sources of capital: an SBA 7(a) loan as the senior debt, seller financing

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scaling through acquisition

Law Firm Roll-Up Strategy: A Buyer’s Guide to Scaling Through Acquisition

Law firm consolidation is accelerating fast. In 2025, law firm transactions surged 57% above the four-year average, with acquisitions driving 93% of all deals. If you are a buyer or investor looking to scale in the legal market, a law firm roll-up strategy is no longer a niche play. It is the dominant model. This guide explains how it works, what makes a target worth acquiring, and where most buyers get stuck. What Is a Law Firm Roll-Up Strategy? A law firm roll-up strategy means acquiring multiple firms, typically smaller regional practices, and consolidating them into a single larger platform. The buyer gains market share, operational efficiency, and a higher combined valuation than any individual firm commands on its own. The model works best in fragmented markets. The U.S. legal industry qualifies. Most American law firms have fewer than five attorneys. No single firm dominates most practice areas or geographies. That fragmentation creates a clear opening for a disciplined buyer to build something significant through serial acquisition. Why the Legal Market Is Primed for Roll-Ups Right Now Several forces are converging at once. First, a wave of baby boomer attorneys is hitting retirement age with no succession plan. Fairfax Associates tracked 59 completed law firm mergers in 2025, up 18% from 2024. Small firms with five to 20 lawyers made up 76% of that activity. These are solo practitioners and boutique owners who built real value and need a buyer. Second, operating costs are climbing. Technology, cybersecurity, marketing, and staffing get more expensive every year. Smaller firms struggle to fund those costs on their own. A roll-up platform centralizes expenses across multiple revenue streams. That is a real efficiency gain, not a theoretical one. Third, the buyer pool is professionalizing. Sophisticated operators now run serial acquisitions with defined criteria, standardized due diligence, and repeatable integration playbooks. The market has shifted away from opportunistic, first-time acquirers. Competition for well-run targets is real and rising. The window to enter at favorable prices will not stay open indefinitely. What Makes a Strong Roll-Up Target? Not every firm is worth acquiring. Strong targets share a few common traits. Clean financials: If a seller cannot produce three years of organized P&L statements, due diligence gets expensive and slow. Filter for this early. It saves time and protects your capital. Predictable revenue: Contingency-fee practices carry built-in volatility. Retainer-based work, high-volume consumer practices with consistent case flow, or subscription-model arrangements are easier to underwrite and model. A transferable client base: Client relationships tied entirely to one departing attorney are a liability, not an asset. Assess whether clients follow the firm or the individual. If it is purely the individual, price accordingly. A defined geography or practice niche: The cleanest roll-ups build around a theme: personal injury in the Southeast, immigration in gateway cities, or estate planning in high-wealth suburban markets. Thematic focus speeds up integration and sharpens marketing. A seller willing to stay through the transition: The best acquisitions include a 12-to-24-month earnout period where the original owner stays involved. That person is the firm’s best client retention tool. Aligning their incentives with yours is smart deal structure. The Ethics Layer You Cannot Ignore Law firm acquisitions do not work like acquiring a plumbing company. State bar rules govern ownership, fee-sharing, and governance. Buyers must understand this layer before they acquire anything. In most states, licensed attorneys must hold majority ownership of a law firm. A non-lawyer buyer cannot take direct ownership of the professional entity. Instead, buyers use a Management Services Organization (MSO) structure. The MSO acquires the non-legal assets and provides management services to the firm under a services agreement. The firm keeps attorney ownership. The MSO captures the economic upside. This structure has a strong and growing track record. Private equity sponsors and strategic investors use it regularly. Lenders now underwrite MSOs based on the durability of management agreements and the predictability of cash flows. The financing infrastructure is mature and continues to develop. Arizona and Puerto Rico go further. Both jurisdictions allow direct non-lawyer ownership through formal Alternative Business Structure programs. Arizona has approved 136 ABS entities as of early 2025. Buyers who build in those jurisdictions have more structural flexibility than anywhere else in the country. Whichever structure fits your situation, get qualified legal and M&A counsel before you close your first deal. Ethics rules vary by state and change frequently. How to Build a Law Firm Roll-Up Strategy That Works The first acquisition sets your template. Choose it carefully. Start with a platform firm, one that already operates well and can absorb add-ons. The platform gives you a management team, an existing client base, and a brand. Subsequent acquisitions fold into that foundation. Define your acquisition criteria before you start looking. Revenue range, geography, practice area, seller profile. Strict criteria filter out time-wasters and keep your pipeline disciplined. Know what you are not buying. Standardize your due diligence process. Small firm financials vary widely. Build a checklist and use it every time. Consistency lets you spot patterns across targets and move faster as you scale. Plan for integration from day one, not after you close. Most roll-up failures happen post-close. Technology systems, staff compensation, client communication protocols, and billing practices all need alignment. Build your integration playbook before deal one. Know your exit before you start. Roll-up platforms typically exit to a larger strategic buyer, a private equity firm, or a secondary-market acquirer. Predictable revenue and documented operational systems drive higher exit multiples. Build with the exit thesis in mind from the beginning. Work With an Advisor Who Knows Law Firm M&A The Law Practice Exchange has advised on more than $350 million in law firm transactions. We work with buyers, investors, and strategic acquirers at every stage: sourcing acquisition targets, structuring deals, and navigating the ethics and licensing requirements specific to legal M&A. No other advisory team in the country brings this combination of legal expertise and deal-making experience to law firm transactions. If you are building a law firm roll-up strategy or evaluating

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private equity investors talking

Private Equity Is No Longer Knocking on Law Firms’ Doors. It’s Walking Right In.

For years, the idea of private equity investing in law firms felt theoretical, a cocktail party “what if” that legal industry observers debated while actual deal activity remained limited. That era is over. In the first quarter of 2026 alone, private equity capital poured into the legal industry at a pace that would have been unimaginable even two years ago, and the managed service organization (MSO) model has emerged as the vehicle making it all possible. If you own a law firm, or if you’re an investor looking at the legal services market, this is a moment that demands your attention. The rules of the game are changing fast. The Deals That Are Rewriting the Playbook In January 2026, Louisiana-based personal injury firm Dudley DeBosier Injury Lawyers partnered with Uplift Investors to launch Orion Legal, an MSO that provides operational support services including marketing, finance, technology, and administration. The firm’s three founding partners retained 100% ownership and control of the legal practice, while Orion Legal, co-owned by Uplift and the partners, handles the business side. The deal signaled to the market that this wasn’t just an experiment anymore. It was a replicable model. Then, in March, the numbers got serious. Phoenix-based Rafi Law Group, a personal injury firm with 26 attorneys and roughly 250 support staff, closed a $125 million private equity investment to create Rafi Law Services, a standalone MSO. Reports valued the new entity at approximately $450 million. Founder Brandon Rafi retained majority control, and the firm’s attorneys continue to oversee all client representation independently. It was the largest publicly disclosed PE-backed law firm MSO deal in U.S. history. And behind the headlines, the pipeline is even deeper. In March, Axios Pro reported that major PE players, including Warburg Pincus, LittleJohn, and MidOcean, are all actively exploring law firm investments. Legal ethics practitioners working on MSO transactions report that interest from both law firms and investors is intensifying across firm sizes and practice areas. Why the MSO Model Is Winning To understand why this moment is happening now, you need to understand the regulatory landscape. ABA Model Rule 5.4 and its state-level equivalents prohibit non-lawyer ownership of law firms and fee-sharing with non-lawyers in most U.S. jurisdictions. These rules have kept outside capital out of the legal profession for decades. The MSO model threads this needle by splitting a law firm into two entities. One entity, the legal practice, remains entirely owned and controlled by licensed attorneys. It employs the lawyers, handles client representation, and receives all legal fees. The second entity, the MSO, owns and operates the nonlegal business infrastructure: technology, marketing, HR, office space, finance, and administration. Investors acquire an equity stake in the MSO, not the law firm, and earn their returns through a long-term management services agreement. Arizona’s alternative business structure (ABS) regime, which launched in 2021, offers a different path by allowing direct non-lawyer ownership of law firms. As of April 2025, the state had approved 136 ABS entities, with 59% of newly licensed firms in 2024 wholly owned by non-lawyers. Puerto Rico has adopted its own ABS rules, allowing non-lawyers to own up to 49% of a law firm. And in October 2025, California enacted legislation that, while restricting fee-sharing with out-of-state ABS attorneys, explicitly permits properly structured MSOs. But for the vast majority of U.S. law firms, the MSO remains the only viable pathway. And that pathway is now well-trodden, with institutional financing structures, governance models, and documented deal architectures that give both firms and investors a repeatable framework to follow. What This Means for Law Firm Owners If you’re the owner of a small or midsize law firm, the implications of this trend are significant, whether you’re five years from retirement or actively building. First, the obvious: your firm may be worth more than you think. PE-backed MSO deals create a new class of buyer for the operational value your firm has built. The technology systems, the marketing infrastructure, the administrative team, the brand. All of that now has a monetizable value separate from the legal practice itself. Firms that have invested in building transferable, scalable business operations are positioned to attract outside capital in ways that simply weren’t possible before. Second, the competitive landscape is shifting. Firms backed by MSO capital are investing aggressively in technology, marketing, talent acquisition, and geographic expansion. Rafi Law Group, for example, stated openly that its PE investment would support expansion into new markets and potential partnerships with personal injury firms nationwide. If you’re competing against firms with access to institutional capital and you’re still funding growth solely from partner draws, the gap will widen. Third, and this is the part many firm owners don’t want to hear, the window of maximum leverage for sellers may not stay open indefinitely. Right now, demand from PE investors is outpacing the supply of well-structured, properly governed, acquisition-ready law firms. That dynamic favors sellers. But as more firms enter the market, standards will rise, deal terms will normalize, and the early-mover advantage will diminish. What Investors Need to Know For investors eyeing the legal services market, the opportunity is real, but so are the risks. The legal industry is one of the last major professional services sectors to accept outside capital, and for good reason. Regulatory complexity is the defining feature of these transactions. The absence of comprehensive bar association standards for law firm MSOs means that compliance turns on jurisdiction-by-jurisdiction analysis. What works in Texas may not pass muster in New York. California’s recent legislation, while permitting MSOs, requires flat-fee structures that don’t scale based on recoveries or pay for referrals. Every deal needs to be structured with a detailed understanding of the applicable rules of professional conduct, ethics opinions, and enforcement landscape in each state where the law firm operates. Academic observers have also flagged what one William & Mary professor calls a “governance gap,” the challenge of maintaining durable separation between legal practice and business operations when the MSO controls essentially all of

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Succession deal closing

The Great Law Firm Succession Crisis Is Here, and Consolidation Is the Market’s Answer

There’s a demographic wave about to hit the legal profession that most law firm owners know is coming but few have adequately planned for. Roughly 38% of AmLaw 200 partners are expected to retire within the next decade. For small and midsize firms, where a single founding partner often controls the lion’s share of client relationships, institutional knowledge, and revenue generation, the stakes are even higher. And while the profession has been talking about succession planning for years, the market is now offering a forceful response: consolidation. In 2025, the U.S. legal market saw 59 completed law firm mergers, an 18% increase over 2024 and the most active year for law firm M&A in recent memory. In Q1 2026, 25 additional combinations were announced, and the vast majority involved a midsize firm acquiring a smaller practice. The firms driving this activity aren’t just chasing scale for scale’s sake. They’re responding to a market that increasingly punishes firms without a credible plan for continuity. The Retirement Wave Nobody Planned For The numbers paint a stark picture. Research from Leopard Solutions indicates that 40% of managing partners at top 200 firms are between 61 and 70 years old, with an additional 8% between 71 and 79. At smaller firms, the picture is even more concentrated. Solo practitioners and founding partners who built their practices over 25 to 35 years often hold the majority of client relationships. In many cases, they are the brand. The challenge isn’t just logistical; it’s deeply personal. Many senior attorneys have invested so heavily in their careers that the practice has become their primary identity. Conversations about stepping back trigger not just financial concerns but existential ones. Six out of ten Baby Boom generation lawyers in active succession planning say they want to work as long as they possibly can. For some, retirement planning feels like an admission of mortality. For others, the economics simply don’t work; they need the income and can’t afford to stop. The result is widespread inaction. The majority of law firms, particularly solo and small practices, have no formal succession plan in place. And when a triggering event finally arrives, whether that’s a health crisis, a sudden disability, or simply the reality that the calendar has caught up, the options that were available five or ten years earlier have narrowed considerably. Clients leave. Revenue drops. The value of the practice declines with every month of uncertainty. Why Consolidation Has Become the Default Answer Into this vacuum, consolidation has stepped in as the market’s primary mechanism for addressing succession failures. And the data from 2025 and early 2026 tells the story clearly. Small firm mergers, transactions where at least one firm has between five and 20 lawyers, constituted 76% of all law firm mergers in 2025, up from 69% in each of the two prior years. The trend continued into 2026, with midsize firms leading the way as acquirers. Firms like Taft Stettinius & Hollister have made acquisition a core growth strategy, completing seven mergers in 17 years and explicitly pursuing a model of building what they describe as a national mid-market platform. Spencer Fane, Cozen O’Connor, Frost Brown Todd, and Bricker Graydon have all announced acquisitions that extend their geographic and practice area footprint. For the smaller firms being acquired, these transactions often represent the best available succession outcome. A well-structured merger or acquisition offers continuity for clients, employment stability for staff, a monetization event for the departing owner, and, critically, a transition partner with the infrastructure and capital to absorb and grow the practice. The alternative, simply closing the doors, is far more common than the profession likes to admit. When a solo practitioner or small firm owner retires without a plan, client matters must be transitioned under pressure, malpractice tail coverage must be secured, and decades of goodwill evaporate almost overnight. The economic loss is real, but so is the ethical one: clients who trusted their attorney to steward their legal affairs are left scrambling for new representation. The Valuation Reality for Sellers One of the biggest misconceptions among law firm owners contemplating a sale is that their practice’s value is simply a function of annual revenue. In reality, law firm valuations depend on a far more nuanced set of factors, and the single most important one is transferability. Valuations for small and midsize law firms typically range from 2.5x to 4x of Seller’s Discretionary Earnings (SDE), with revenue multiples spanning 0.5x to 1.5x depending on practice area, client retention, and the firm’s goodwill profile. But the critical distinction is between practice goodwill (the transferable value that inheres in the firm’s brand, systems, client base, and reputation) and personal goodwill, which is tied to a specific attorney’s relationships and expertise. Firms with high personal goodwill and low practice goodwill are inherently harder to sell, because much of the value walks out the door when the founding partner retires. This is why the most sophisticated buyers and advisors focus on metrics like client concentration, realization rates, collection rates, and the breadth of the firm’s relationship network. A practice where three clients account for 60% of revenue and one partner handles all key relationships will command a significantly lower multiple than a firm with diversified revenue, multiple client touchpoints, and documented processes. The good news is that transferable value can be built, but it takes time. Firms that start succession planning five to ten years before the target transition date have far more options and far better outcomes than those who start with 18 months on the clock. Building a team of “relationship attorneys” who share client contact, investing in systems and technology that reduce key-person dependence, and developing a compensation structure that incentivizes mentorship and client transition are all strategies that directly increase a firm’s market value. The Technology Factor Woven throughout the consolidation trend is a technology imperative that’s accelerating the pressure on smaller firms. In early 2026, legal technology acquisitions have entered their first meaningful consolidation phase, with AI

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earnouts over time

Earnouts Are Back, But Smarter: How 2026 Deal Structures Are Shifting Risk

For buyers and investors in the legal services market, the past several years have required a recalibration of how risk is priced and managed in transactions. The rapid expansion of private equity-backed platforms, coupled with evolving regulatory frameworks and the growing role of management services organizations (MSOs), has created both opportunity and uncertainty. As we enter 2026, one deal mechanism has re-emerged at the center of this balancing act: the earnout. Earnouts are not new. They have long been used to bridge valuation gaps between buyers and sellers by tying a portion of the purchase price to post-closing performance. However, their role in today’s market is different. Earnouts are no longer a blunt instrument used only when parties cannot agree on price. They are becoming increasingly sophisticated tools for allocating risk, aligning incentives, and underwriting growth in a sector that is still maturing. From the perspective of a buyer or investor evaluating law firm MSO transactions, understanding how earnouts are evolving is critical. The question is no longer whether to use an earnout, but how to structure one in a way that reflects the realities of legal services businesses in 2026. The Return of Earnouts in a Repriced Market The resurgence of earnouts is closely tied to broader shifts in the M&A environment. Following the elevated valuations of 2020 and 2021, many buyers found themselves holding assets acquired at aggressive multiples. As markets normalized, a gap emerged between seller expectations, often anchored in past peak valuations, and buyer underwriting, which became more conservative. Earnouts have become a primary mechanism for bridging this gap. According to S&P Global Market Intelligence, the value of private equity and venture capital exit deals with an earnout component reached over $51 billion in 2025, the highest level in years. At the same time, global earnout-linked transactions totaled more than $142 billion, reflecting a significant increase in their use across sectors. This trend is expected to continue into 2026 as deal activity accelerates. With private equity firms sitting on substantial dry powder and renewed confidence in deploying capital, buyers are returning to the market. However, they are doing so with a sharper focus on downside protection and performance-based pricing. Earnouts, in this context, are less about compromise and more about discipline. Why Earnouts Matter More in Legal Services The legal sector presents unique challenges that make earnouts particularly relevant. Unlike many traditional industries, law firms often rely heavily on human capital, client relationships, and localized reputation. Financial performance can be strong, but it is not always easily separable from the individuals who generate it. For buyers, this creates a fundamental underwriting challenge. Historical financials may not fully capture the sustainability of future earnings, particularly if key partners reduce their involvement post-transaction. Similarly, projected growth may depend on assumptions about marketing, hiring, or operational improvements that have not yet been realized. Earnouts provide a mechanism to address this uncertainty. By tying a portion of the purchase price to post-closing performance, buyers can align payment with realized outcomes rather than projected ones. As one legal analysis notes, earnouts are frequently used when parties cannot agree on future performance expectations, allowing sellers to “participate financially in the post-closing success” of the business. In the MSO context, where buyers are often implementing new operational models, centralized services, and technology-driven improvements, this alignment is particularly valuable. It allows investors to underwrite a base case while sharing upside with sellers who remain engaged in the business. From Blunt Instrument to Precision Tool What distinguishes 2026 from prior cycles is not simply the increased use of earnouts, but their growing sophistication. Historically, earnouts were often structured around relatively simple financial metrics, such as revenue or EBITDA targets over a multi-year period. While these structures were straightforward, they frequently led to disputes. Sellers argued that buyers failed to operate the business in a manner that allowed targets to be achieved, while buyers contended that performance fell short of expectations. Today, buyers are approaching earnouts with greater precision. Several trends are shaping this evolution. First, earnout periods are becoming shorter. The median duration for earnouts in recent transactions has declined to approximately 24 months, reflecting a preference for reducing long-term uncertainty and limiting exposure to changing market conditions. Second, performance metrics are becoming more nuanced. While financial benchmarks remain central, many earnouts now incorporate multiple metrics, including operational indicators such as client retention, case throughput, or intake conversion rates. This reflects a broader recognition that value creation in legal services is not driven by a single variable. Third, buyers are placing greater emphasis on defining post-closing governance and operational control. Detailed covenants regarding how the business will be run during the earnout period are increasingly common, reducing ambiguity and limiting the potential for disputes. Finally, there is a growing focus on structuring earnouts in a way that aligns with the buyer’s integration strategy. In MSO transactions, this may involve tying earnout payments to the successful adoption of centralized systems or the achievement of platform-level synergies. Taken together, these developments reflect a shift from earnouts as reactive compromises to proactive structuring tools. The Reality of Earnout Performance Despite their prevalence, earnouts carry inherent challenges. Data suggests that sellers often do not realize the full value of these arrangements. Some analyses of private equity-backed transactions suggest that earnouts often underperform their stated potential, with one study finding that only about 21 percent of maximum earnout value was ultimately realized. From a buyer’s perspective, this statistic underscores both the value and the risk of earnouts. On one hand, it confirms that earnouts can effectively protect against overpayment. On the other hand, it highlights the potential for misalignment and post-closing friction. In the legal sector, where relationships and culture play a significant role, these dynamics are particularly sensitive. An earnout that is perceived as unattainable or unfair can undermine integration efforts and erode the very value the buyer sought to acquire. As a result, sophisticated buyers are increasingly focused on designing earnouts that are both rigorous and achievable.

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Private Equity, MSOs, and the Future of Law Firm Ownership in Illinois

The conversation around private equity investment in law firms has shifted from theoretical to immediate. Across the United States, investors are exploring ways to enter the legal market, often through management services organizations (MSOs) and similar structures designed to comply with longstanding ethical rules. Illinois now sits at the center of this debate. Recent legislative proposals signal that Illinois is not moving toward liberalization, but rather toward reinforcing traditional restrictions. For law firm owners, buyers, and investors, understanding the legality of private equity and MSO structures in Illinois is critical. The stakes include not only compliance, but also valuation, deal structure, and long-term exit strategy. The Baseline: Illinois Prohibits Total Nonlawyer Ownership Like nearly every U.S. jurisdiction, Illinois adheres to the principle that law firms must be owned and controlled by licensed attorneys. This framework stems from professional conduct rules that prohibit fee sharing with nonlawyers and restrict outside influence over legal judgment, a principle reinforced in recent legislative proposals. These rules are designed to preserve attorney independence and protect client interests. The concern is straightforward: if nonlawyers have an ownership stake or financial control, they may influence legal strategy in ways that conflict with ethical obligations. Illinois has historically enforced this principle strictly, consistent with the policy reflected in ABA Model Rule 5.4. The Rise of MSOs as a Workaround Management services organizations have emerged as the primary vehicle for private equity involvement in the legal industry. Under an MSO model, a law firm separates its legal services from its business operations. The law firm remains owned by attorneys, while a separate entity handles administrative functions such as marketing, technology, billing, and human resources. This separation allows outside investors to own the MSO entity rather than the law firm itself. In theory, the MSO provides services for a fee without interfering in legal decision-making, although some interpretations of recent Illinois proposals suggest that certain structures may be viewed as impermissible if they effectively mirror ownership or profit-sharing arrangements. Proponents argue that MSOs can modernize law firms by injecting capital, improving infrastructure, and enabling scale. For firms facing succession challenges or growth limitations, this model can provide liquidity and operational support. Critics, however, question whether the distinction between “business” and “legal” functions can truly be maintained, particularly where financial incentives are tied to firm performance or revenue. Illinois’ Legislative Response in 2026 In February 2026, Illinois lawmakers introduced Senate Bill 3812 and House Bill 5487, marking the state’s first comprehensive attempt to regulate private equity involvement in law firms and MSO structures. These bills do not legalize private equity ownership. Instead, they aim to reinforce existing ethical rules and impose additional guardrails on investor participation. Key Provisions of the Proposed Bills The proposed legislation would prohibit private equity groups, hedge funds, and affiliated MSOs from interfering with an attorney’s professional judgment, controlling client records or legal strategy, influencing hiring and firing decisions tied to legal work, and structuring compensation based on law firm revenue or profits. One of the most consequential elements is the restriction on fees that are directly or indirectly based on firm revenue. This language could significantly disrupt common MSO compensation models, many of which rely on performance-based structures. The legislation also includes enforcement mechanisms such as damages and injunctive relief for violations, increasing the legal and financial risk associated with noncompliant arrangements. What the Bills Mean for MSOs Importantly, the proposed legislation does not outright ban MSOs. Instead, it attempts to codify the boundaries within which they can operate. Traditional MSOs that provide administrative services and charge fair-market-value fees may still be permissible, at least in concept. However, the breadth of the language introduces uncertainty. The prohibition on fees indirectly tied to revenue could be interpreted broadly enough to affect standard vendor or support-service relationships, raising questions about how far regulators may go in scrutinizing these arrangements. This ambiguity may deter investment. Even compliant structures could face scrutiny, increasing legal risk and transaction complexity. And as the regulatory environment continues to change state-by-state, similar legislation could affect jurisdictions beyond Illinois. The Policy Debate: Innovation vs. Independence Illinois’ approach reflects a broader national debate. Some jurisdictions, such as Arizona, have embraced alternative business structures and nonlawyer ownership, while others are reinforcing traditional restrictions to protect professional independence. Supporters of reform argue that outside investment can drive innovation, improve efficiency, and expand access to legal services. Critics counter that these benefits may come at the cost of ethical integrity, particularly where investor incentives may conflict with client interests. Potential Downsides of Allowing Private Equity in Law Firms The risks associated with private equity involvement are not limited to Illinois. They are central to the national debate and help explain the state’s cautious approach. Pressure on Professional Judgment Investor expectations for returns may influence case strategy, client selection, or billing practices, potentially conflicting with ethical duties owed to clients. Erosion of Client Trust Clients may question whether advice is driven solely by their best interests or by financial considerations tied to outside investors. Short-Term Profit Focus Private equity investment horizons can prioritize near-term profitability over long-term client relationships, professional development, and institutional stability. Regulatory Complexity MSO arrangements already require careful compliance with ethics rules. New legislation adds another layer of uncertainty and potential liability for firms and investors alike. Market Concentration Investor-backed firms may outcompete smaller practices, potentially reducing competition and diversity within the legal market and reshaping the buyer landscape. Implications for Law Firm Buyers and Investors For buyers evaluating opportunities in Illinois, the current environment requires a disciplined approach. Traditional law firm acquisitions remain the most straightforward path. Transactions between licensed attorneys continue to operate within well-established ethical frameworks. MSO structures may still be viable, but only if carefully designed. Buyers should prioritize clear separation of functions, conservative compensation models, and strong compliance safeguards. They should also pay close attention to how Illinois lawmakers and regulators define impermissible influence, compensation, and control if the proposed bills advance. Most importantly, investors must monitor legislative developments closely. The

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baby boomer sellers negotiating with younger attorneys

Bridging the Generational Divide: How Law Firm Buyers Can Effectively Negotiate with Baby Boomer Sellers

In today’s law firm transition market, many of the baby boomer sellers built their practices in the 1980s and 1990s. They weathered recessions, fax machines, the rise of email, and at least three “this will change everything” legal tech revolutions. Their firms are not startups. They are life’s work. If you are a buyer—whether an expanding firm, a platform, or an entrepreneurial successor—you are not simply negotiating a transaction. You are negotiating with someone whose identity, reputation, and community standing are tied to the practice on the table. Approach that reality carelessly, and negotiations stall. Approach it strategically, and you unlock opportunity that benefits both sides. Effective negotiation with baby boomer law firm sellers is not about generational stereotypes. It is about understanding incentives, psychology, and structure. Below are the core principles sophisticated buyers use to reach durable, mutually beneficial agreements. 1. Understand What Is Actually Being Sold On paper, you are buying revenue, client relationships, staff, systems, and goodwill. In reality, you are buying trust accumulated over decades. Many baby boomer sellers built their firms in an era when professional identity and personal reputation were inseparable. Their name may still be on the door. Clients may have worked with them for 25 or 30 years. Their referral sources are often based on longstanding personal relationships rather than marketing funnels. If your negotiation framework reduces the firm to a multiple of EBITDA without acknowledging this human capital, you risk alienating the seller before you reach term sheet stage. Sophisticated buyers recognize that: Client transition risk is the central valuation issue. Seller cooperation post-closing materially affects deal success. Cultural continuity matters as much as financial terms. Begin negotiations by demonstrating that you understand these realities. Ask about legacy, key relationships, and what the seller wants their clients to experience after the transition. These conversations build trust and surface non-financial priorities that can later unlock creative deal structures. 2. Respect the Emotional Component Without Letting It Drive the Deal For many boomer sellers, the firm represents decades of sacrifice. Late nights. Personal guarantees. Reinvested profits. Family tradeoffs. While you may view the firm through a financial lens, they often view it through a legacy lens. This does not mean abandoning financial discipline. It does mean avoiding dismissive language about “aging practices,” “outdated systems,” or “inefficient structures.” Even if operational improvements are necessary, framing matters. Instead of saying: “We’ll need to overhaul your compensation model,” consider “We see strong fundamentals here. With some modernization, we think we can expand what you’ve built and protect it long term.” The substance may be similar. The psychological effect is not. At the same time, disciplined buyers do not allow emotional attachment to inflate valuation beyond what transition risk supports. A respectful tone should accompany a rigorous financial model. Clarity, not confrontation, preserves momentum. 3. Structure Around Transition, Not Just Price In generational law firm deals, the headline number is rarely the most important term. Baby boomer sellers often care deeply about: How long they will remain involved. How their compensation will be determined during transition. Whether their staff will be retained. What happens to their name and brand. How clients will be informed. Buyers who focus exclusively on purchase price miss leverage. Earnouts tied to client retention, phased buyouts, revenue-sharing transition periods, and advisory roles can align incentives and reduce upfront risk. Many sellers prefer continued involvement for two to five years—both for financial reasons and because abrupt retirement is personally difficult. A well-designed transition plan can justify a stronger valuation because it reduces uncertainty. The most effective buyers present not just an offer—but a roadmap. 4. Address Technology and Operational Gaps Tactfully A generational divide often appears in infrastructure. Paper-heavy workflows, limited CRM systems, informal compensation processes, and minimal data analytics are common in practices built decades ago. You may see inefficiency. The seller may see stability. Direct criticism rarely produces cooperation. Instead: Frame modernization as risk mitigation and client service enhancement. Offer phased integration rather than immediate overhaul. Highlight how upgrades increase firm value and sustainability. View it as an opportunity to start fresh with new systems and legaltech. Remember: if the seller feels their life’s work is being labeled obsolete, negotiations will harden. If they see their practice as being strengthened and preserved, collaboration increases. 5. Be Clear About Valuation Methodology Many baby boomer sellers began practicing when law firms were rarely bought and sold in structured transactions. The concept of normalized earnings, risk-adjusted multiples, or client concentration discounts may be unfamiliar—or unwelcome. Transparency is critical. Explain: How recurring vs. one-time revenue affects valuation. Why personal goodwill differs from enterprise goodwill. How client retention assumptions influence pricing. What benchmarks you are using and why. When sellers understand the logic behind the numbers, negotiations shift from positional (“That’s too low”) to analytical (“Help me understand that assumption”). 6. Anticipate Risk Concerns from the Seller’s Perspective While buyers focus on acquisition risk, sellers focus on personal risk: Will I actually receive the earnout? Will my compensation decline post-closing? Will my clients feel abandoned? Will I lose control before I’m ready? Proactively addressing these concerns accelerates negotiations. Clear governance structures, transparent compensation formulas, defined decision-making authority during transition, and client communication plans create comfort. The more predictable the post-closing environment appears, the more flexible sellers tend to be on economic terms. 7. Recognize the Time Horizon Difference Buyers often think in five- to ten-year growth horizons. Sellers nearing retirement may think in two- to three-year transition windows. This mismatch affects negotiation strategy. A buyer may prioritize long-term scalability. A seller may prioritize near-term certainty. Structuring payments with a balance of upfront security and performance-based upside can bridge this divide. Creative structuring often accomplishes more than aggressive bargaining. 8. Maintain Professional Directness Baby boomer attorneys built their careers in a more formal professional culture. While they may appreciate collegiality, they also value directness. Avoid overly casual negotiation styles. Come prepared. Provide organized materials. Deliver thoughtful follow-up. Demonstrate that you operate with the same professionalism they expect

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McDermott Will & Schulte and Private Capital: What It Means for Smaller Law Firms

Big shifts may be underway in how law firms are financed and structured, and that matters for buyers of smaller practices everywhere. The legal industry has long resisted private capital and non-lawyer ownership due to ethical restrictions that prevent outside parties from owning law firms directly. But recent developments at one of the largest U.S. firms could signal a change in the landscape. McDermott Will & Schulte, the new global powerhouse formed by the merger of McDermott Will & Emery and Schulte Roth & Zabel, is publicly exploring the possibility of selling a stake to outside investors under a managed services structure—a novel approach that separates lawyer ownership from back-office services so investors can participate without violating ownership rules. This exploratory discussion is preliminary, but even the possibility is significant for the future of law firm investment. Why This Matters: Breaking the Traditional Ownership Model In most U.S. jurisdictions, ethics rules require that law firms remain owned by licensed lawyers. Non-lawyer investment that touches legal fees is prohibited by ABA Rule 5.4, making direct private equity stakes in law firms difficult or impossible under standard structures. While some stats like Arizona have loosened their rules for non-lawyer ownership, it will take a while to see if this trend spreads to other jurisdictions. The managed services organization (MSO) approach under consideration for McDermott’s deal would create two businesses: a lawyer-owned entity that provides legal services and a separate MSO that handles back-office functions. Investors could take a financial stake in the MSO and share in revenues tied to administrative services paid for by the law firm. If it happens, such a transaction could be a watershed moment not just for Big Law, but for firms of all sizes that are navigating succession, acquisition, and growth amid evolving capital options. What the McDermott Talks Signal for Buyers Even though the discussions are early and no deal is finalized, the conversation itself signals a few broader trends that buyers should pay attention to: Increasing openness to alternative capital solutions. Firms may be more willing to explore models beyond partner capital to fund growth, tech investment, and succession liquidity. Potential model validation. If a large law firm can structure investment deals without ethical conflict, it could accelerate similar conversations across the industry. Pressure on smaller firms. Buyers and sellers at the mid-market level may find themselves competing with better-capitalized platforms or having to demonstrate why independent practice is still attractive. Private Capital, MSOs, and the Legal Market: A Primer Private capital refers to investments from non-public sources such as private equity firms, family offices, or strategic investors. In many industries, private capital fuels expansion, technology upgrades, acquisitions, and professionalization. In law, that standard model has been constrained by professional regulations. An MSO (Managed Services Organization) is a structure used in other professional fields (like healthcare and accounting) to separate non-legal functions—billing, HR, technology, facilities—from legal practice. Investors can own part of an MSO and share in the revenues generated by the services it provides to the law firm, without directly owning or controlling legal work. While this structure still presents challenges, it’s one of the few models that can comply with regulatory prohibitions on non-lawyer ownership while bringing outside capital into the ecosystem. What Smaller Firm Buyers Can Take Away Whether you are acquiring a solo or small firm, merging a platform, or scaling a multi-office practice, several themes emerge from the McDermott situation that are relevant to your strategy. Private Capital Isn’t Just for Big Firms If MSO deals or similar structures gain traction at the largest firms, smaller practices could eventually adopt similar models, accessing capital to support growth, succession, technology investments, or lateral recruiting. These options may be especially relevant for firms that: Need liquidity for retiring partners Want to invest in tech or operations to remain competitive Seek strategic scale through acquisitions or mergers Buyers Should Know Their Financing Options Traditional acquisition financing has typically meant seller financing, partner capital, or bank debt. But a future with private capital alternatives could give buyers extra leverage or flexibility, particularly when seller expectations around price or timing are misaligned with buyer resources. Operational Strength Matters More Than Ever Capital is more likely to flow toward law firms with: Clean financials Documented systems and processes Diversified revenue streams Clear client retention strategies Buyers who can clearly articulate and improve operational efficiency post-acquisition are more attractive to investors and more likely to realize long-term value. Deal Structures in a Changing Capital Environment Even without widespread private equity accessibility, firms are experimenting with structures that balance capital needs with regulatory restrictions. Buyers should familiarize themselves with ways deals can be structured, including: Seller financing: The seller carries part of the purchase price, tying payment to future performance. Earn-outs: A portion of price is paid based on revenue retention or client continuity post-close. Phased transitions: Sellers stay on in advisory roles during client and staff transition periods. MSO-linked capital: Back-office revenues are monetized through separate entities that accept outside investment. Each structure has advantages and risks, and each depends on the specific circumstances of the firms involved. Looking Ahead: What This Could Mean for the Market If McDermott or another large firm successfully structures outside investment, it could catalyze broader acceptance of alternative capital strategies across the legal industry, from large firms down through mid-market and boutique practices. Over time, that could lead to: More capital availability for acquisitions and growth Greater professionalization of operations Wider acceptance of hybrid ownership models A more dynamic market for law firm mergers and acquisitions For buyers willing to stay educated, strategic, and adaptable, this evolving landscape represents not just change, but opportunity. Contact  The Law Practice Exchange today to learn more about private equity and what a potential sale could mean for your law firm.

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