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.