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Private equity dollars are finding their way into law firms across the country.

Why it matters: New laws and workarounds are giving PE a bite at one of the few industries it's yet to influence.

Catch up quick: Thanks to the American Bar Association's rule 5.4, legal practices must be owned by lawyers to help prevent ethical dilemmas.

But states like Arizona, Utah, and Puerto Rico have loosened this restriction in recent years, inviting nonlegal investment in what are called "alternative business structures (ABS)."

How it works: Some law firms have adopted so-called "management services organizations," or MSOs, where a business is split in two, with one providing professional services and the other handling everything else.

Private equity firms are investing in the latter business, while reaping the rewards of the first.

Private equity firms have used the MSO playbook in fields like health care and dental services. Deals often look like a multiple of cash flow, says attorney Brad Adatto of the Texas-based firm ByrdAdatto.

There's typically a firewall between the two businesses — an MSO can't make decisions about clients or billing practices.

There are also limitations on the economics, Adatto says. An MSO can't "pull so much money out" of a firm that it would impact its decision-making. For example, an MSO wouldn't charge a firm $5 million for a paperclip, at least not without hearing from a state's Bar Association.

"If they're upcharging ... eventually, that'll look poorly on the contract," he says.

What they're saying: "Our baby was ready for college," Michael Moradzadeh, a founding partner of the firm Rimon Law, says about the decision to invite private equity into his business.

More specifically, Alpine invested in 2021 in Novalaw, Rimon's back office.

Though Moradzadeh declined to detail the firm's structure with Alpine, a note from the investment bank Houlihan Lokey described a "liquidity event for founders with a path to reduce day-to-day responsibilities."

The big picture: The shift towards nontraditional ownership has coincided with a flood of investment into legal technology, rising from $900 million in 2023 to $2.6 billion in 2025 so far, according to PitchBook.

The largest of the bunch, Clio, valued at $3 billion, said in June it will spend $1 billion to buy vLex, from Oakley Capital. 

Eudia, a General Catalyst-backed legal tech company, announced plans Tuesday to acquire the legal services provider Johnson Hana.

Reality check: Lawyers aren't beholden to noncompetes, meaning new ownership can't stop talent from leaving a firm. Loss of key talent could complicate the investment.

"If it's a partnership vs. a complete buyout, the noncompete is less of a concern," says Tom Lenfestey, founder and CEO of The Law Practice Exchange, a platform matching buyers and sellers of law firms.

Human capital businesses are also harder to scale as opposed to categories like manufacturing or software, Michael Ewens, co-director of Columbia Business School's private equity program, tells Axios Pro.

Yes, but: That hasn't stopped private equity from calling. Lenfestey says he fields roughly 10 calls a month from private equity firms interested in law offices.

Adatto tells Axios he's taken five calls in the last year from private equity firms inquiring about his firm.

The other side: The ABA's rules exist for a reason, says David Engstrom, a professor at Stanford Law.

"Legal ethics rules — particularly Rule 5.4 — are meant to preserve a lawyer's independence in making legal decisions and ensure that the lawyer's duty of loyalty to the client is not compromised by outside financial or managerial interests," he says.

But, "our existing rules of professional conduct do not reflect the staggering amount of unmet civil legal need, innovation imperatives, or the fact that law today is undoubtedly both a profession and a business."

So far, there hasn't been too much disruption, at least according to research which Engstrom contributed to, which found that between Arizona and Utah, there was "little to no evidence of consumer harm" after the new regulations took effect.

Zoom out: "Law firms are stagnant; they haven't changed much in 50 years," Moradzadeh says, pointing out that both Australia and the U.K. allow private equity and public ownership of firms.

Bottom line: Like life, private equity finds a way.

Private equity courts law firm investments

New laws and workarounds are giving PE a bite at one of the few industries it's yet to influence.

Illustration of a gavel on a stack of cash

Private equity dollars are finding their way into law firms across the country.Why it matters: New laws and workarounds are giving PE a bite at one of the few industries it&#x27;s yet to influence.

Private equity courts law firm investments

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