BigLaw Could Tap PE Money for Advantage in Talent Wars
Legal Services Transactions attorneys Joshua Porte and Trisha Rich were quoted in a Law360 article exploring the possibility of management service organizations (MSOs) entering the realm of BigLaw. Under the MSO model, a law firm spins off backend functions such as information technology (IT) and billing services – those that do not involve practicing law – into a separate entity – the MSO – in which private equity and other investors can purchase shares. Structured properly, this setup complies with the American Bar Association Model Rule of Professional Conduct 5.4, which prohibits fee-sharing between lawyers and nonlawyers, and gives attorneys more room to focus on their practice. Increasingly popular in the legal industry and at private equity firms, MSO deals have mostly been concentrated in the personal injury space. However, as Ms. Rich said, "it's a matter of when, not if," a large law firm takes the plunge, given the competition for talent and desire for capital.
"For AmLaw 200 firms, the investment thesis is access to capital, and the first, second and third top uses of that capital is going to be competing for talent on the lateral market," Mr. Porte added. He and Ms. Rich have advised or are currently advising on numerous MSO deals throughout the country.
Commenting on what restructuring as an MSO would look like for a BigLaw firm, Mr. Porte described how traditional corporate incentives could replicate current benefit plans and help retain partners. He also emphasized that pursuing an MSO transaction entails hiring experienced legal counsel to create a workable framework that is ethics-compliant but "flexible enough to accommodate the hopes and dreams of the young lawyers who are the future of the firm."
"Right now, when I retire, I get my capital contribution back with a 0 percent return, and that's it," he explained. "That's a very different proposition to being able to sell your shares in an MSO at a multiple. Potentially life-changingly different."
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