Will Private Equity Really Effect Your Law Firm?

The law firm world is changing very fast. And I don’t just mean the new tools and technology that are coming at us on a daily basis. Contingency fee attorneys have enjoyed some invisible moot for decades that allowed us to reap fees based on 33% or 40% of our recoveries.

Well, Wall Street has taken notice, and it is coming hard for those fat margins. First medical practices and now law practices. Private equity wants in on that sort of profit margin, and they are doing it through what known as a Management Services Organization (MSO). Dudley DeBosier, a regional firm in my market recently inked a deal with a PE firm for this type of an arrangement.

So, what does that mean for your firm? I think it means at least two things.

First, these firms that have the backing of an MSO may get incredibly good at the back-office stuff. Think of the perfect pipeline where every client gets the attention they want. This can be done at scale with technology and automations. Yesterday’s law firms wait for the client to raise their hand for help. Tomorrow’s well-run MSO law firms will proactively engage with clients.

You don’t think a well-run Management Service Organization can run circles around the average law firm back office? Think again. While we are busy doing the knowledge work, these guys are fine tuning all things back office. And it’s pretty hard to compete with a deep specialist focused on doing one thing well.

The other area I think MSOs will change the law firm landscape is in lead generation and marketing. They will know their numbers very well. They will use tools and technology to create efficient and effective marketing for cases.

Do Management Services Organizations mean it’s the end of the traditional law firm structure as we know it? I don’t think so.

First, this is very new in the space. It may be that the MSOs realize running a law firm is harder than they thought. They may get tired of waiting for fees and cash flow. Getting paid for medical services at the time of treatment in a rolled up medical practice is very different that hoping your big case trial does not get continued and further delay cash flow.

Also, many case types require real deep knowledge. Setting aside small value car wrecks and other ‘wash rinse and repeat’ type cases, many areas of litigation require real work, by very smart lawyers. I’m not sure this work scales in an MSO relationship.

One thing I know for sure is that Wall Street and private equity is absolutely making a hard run at our profit margins. Our invisible moot is no more. We now need to build a real moot…just like every other business has always had to. Welcome to the business side of your law firm.