Private equity could soon own a piece of major US law firm
US law firm McDermott Will & Schulte is reportedly exploring a complex restructuring to allow private equity firms to buy a stake in what could be a major move in the legal market.
The proposed structure, as reported by the Financial Times, involves creating a managed service organisation (MSO), a separate entity in which outside investors, like PE firms, could own a stake.
The firm’s chair, Ira Coleman, confirmed to the FT that as a “fastest-growing, most successful modern law firm,” McDermott is “constantly approached and we always listen to new ideas,” and is “excited to learn from other leading organisations as we challenge the status quo.”
While his son, Zack Coleman, senior director of business opportunities at McDermott, has reportedly been leading the exploratory talks, sounding out bankers and PE executives about the structure since joining the firm in July from private equity group Odyssey Investment Partners.
This comes after the Chicago-based firm McDermott Will & Emery merged with New York-based Schulte Roth & Zabel in August to create a $2.8bn powerhouse.
It is difficult for private equity and other funding types to invest in law firms in the US due to stringent laws that restrict non-lawyers from owning law practices.
However, some States, such as Washington, Utah and Arizona, have allowed alternative business structures (ABS) to come into force, which permit non-lawyers to invest in legal service providers.
The news around McDermott comes after legal financial firm Burford Capital was reported in August to be in talks to buy stakes in a US law firm, but the identity was not disclosed.
PE interest gathering momentum
If McDermott successfully makes this move, it could trigger an explosion of interest and a wave of outside investment across the US legal sector.
At a time when private equity is circling professional services firms, particularly in the mid-level accountancy sector on both sides of the Atlantic, with notable investments such as Apax’s acquisition of Evelyn Partners’ accountancy arm in November.
The legal sector has been slow to attract PE interest, but in England, several bids have been made, mostly in the small-to-mid-level market. However, Inflexion hit the headlines in 2023 when it de-listed DWF from the London Stock Exchange.