The U.S. legal services market is undergoing a period of accelerated structural change. In 2025, investor interest – particularly from private equity sponsors – has intensified as law firms face mounting pressure to modernize operations, invest in technology, and respond to client demands for efficiency and transparency. At the same time, long-standing restrictions on nonlawyer ownership and fee-sharing continue to constrain traditional law firm capital formation. Against this backdrop, managed services organizations (MSOs) and, in more limited cases, alternative business structures (ABSs) have emerged as increasingly prominent and potentially compliant pathways for outside investment in the legal sector.
Recent commentary from industry observers has characterized law firm MSOs as a significant investment opportunity, noting parallels to earlier private equity investment waves in health care, accounting firms, and other professional services. While the legal industry presents unique regulatory considerations, the underlying economic drivers – fragmentation, underinvestment, and rising operational complexity – are familiar to experienced sponsors.
Market forces driving the MSO trend
Several converging trends are driving the rapid adoption of MSO partnerships. Clients increasingly expect law firms to deliver predictable pricing, technology-enabled workflows, and integrated solutions that extend beyond traditional legal advice. Internally, law firms face rising costs related to cybersecurity, data management, marketing automation, and artificial intelligence tools. Many small and midsize firms lack the scale or capital flexibility to fund these investments independently.
When utilized effectively, MSOs have the ability to address these pressures by centralizing nonlegal operations within a separate entity outside the law firm. Under this model, the MSO acquires and manages technology platforms, real estate, professional staff, and other infrastructure, while the law firm retains exclusive ownership and control over legal services. Long-term management services agreements provide revenue visibility and enable institutional financing.
Regulatory landscape and ethics considerations
The regulatory environment governing law firm ownership remains fragmented. Only a small number of jurisdictions permit direct nonlawyer ownership through ABS regimes, and even those structures face practical limits on geographic expansion. As a result, MSOs are receiving more attention as the dominant investment vehicle because they operate within – rather than as exceptions to – existing rules of professional conduct.
Recent ethics guidance has helped clarify the boundaries of permissible MSO arrangements. Authorities have emphasized that compliance depends on preserving lawyers’ independent professional judgment, maintaining client confidentiality, and avoiding any form of fee-sharing with nonlawyers.
Financing and transaction structuring trends
As MSO models have matured, financing structures have become more institutional. Lenders increasingly underwrite MSOs based on the durability of management services agreements and the predictability of cash flows. Transaction structures commonly include platform MSO acquisitions, nonlegal asset carve-outs, and minority growth investments at the MSO level, often supported by holding company structures designed to facilitate multi-firm expansion.
Investors and lenders alike are focusing on governance separation, termination rights, and assignment provisions in management agreements, as well as succession planning and continuity of key personnel. These considerations are increasingly viewed as essential diligence items rather than bespoke concerns.
Looking ahead
While the legal industry remains heavily regulated, current trends suggest continued experimentation and incremental reform at the state level. For private equity sponsors and strategic investors, MSOs offer a potentially compliant and scalable entry point into a large, fragmented market that has historically resisted institutional capital. Early platform builders may be well positioned to establish durable infrastructure, embed long-term contractual relationships, and capture value as the market continues to evolve.
Client Alert 2025-307