Law Firms Have 185 Billion Reasons to Chase Secondaries Market

Welcome back to the Big Law Business column. I’m Roy Strom, and today we look at how a once-niche private equity market is helping some firms pull away from the pack. Sign up for Business & Practice, a free morning newsletter from Bloomberg Law.

If you want to know why some of the country’s largest, most profitable law firms are outperforming their peers, look no further than the buzzing private equity secondaries market projected to hit $185 billion this year.

It’s where private equity sponsors strike deals with other private capital players to offload individual portfolio companies, sell slices of investment funds, and buy equity stakes from private equity sponsors themselves.

I wrote earlier this month about the law firms competing in this growing space. They include a relatively small list of elite firms. They told me the market is red hot, knowledgeable lawyers are scarce, and the long-term trajectory is growth.

Plenty of law firms are scrambling to enter the practice. New data highlight just how attractive the opportunity appears. The total volume of secondaries transactions increased to $162 billion in 2024, up 45% from $112 billion the previous year, investment bank Jefferies said this week.

The bank predicts volume will rise this year to more than $185 billion—a 15% increase. It’s worth noting that Jefferies began 2024 by predicting there would be $130 billion in deals last year. If the market similarly outperforms its projection for 2025, it would hit $230 billion.

The exploding market helped a group of elite firms grow revenue and profits at a faster clip than the rest of the law firm industry last year, Owen Burman, a senior consultant with Wells Fargo’s Legal Specialty Group, told me.

A subset of the top 50 firms by revenue that traditionally have the strongest private equity and capital markets practices experienced demand growth, measured by the number of hours logged, of more than 7% last year, Burman said. That’s roughly double the industry pace of 3.5%, Wells Fargo reported this week.

The secondaries phenomenon didn’t happen overnight. Firms with strong practices got there because they were already working with private equity sponsors when they began to offer these creative, complex transactions years ago, Burman said.

“They realized we don’t have to just form the funds, we can do the deal work as well,” Burman said. “It started out as an accommodation and then it became a major business.”

Secondaries Growth

At Proskauer, Mike Suppappola, co-head of the firm’s secondary transactions and liquidity solutions group, began practicing in the secondaries market almost 20 years ago. He’s now part of a team of about 70 lawyers.

In its early days, law firms were interested in the secondaries market to help clients raise pools of capital. But the deals those funds could afford were so small they weren’t seen as a lucrative practice for lawyers, Suppappola said.

That’s changed dramatically. Last year, there were 51 secondaries deals valued at more than $1 billion, Jefferies said, up from 34 the previous year.

“The deal sizes have grown and that has been of considerable advantage to those law firms who established those relationships years ago,” Suppappola said. “That’s not how the industry looked at it 25 years ago. You wanted the funds work, and the deals work was on the side.”

A steep decline in private equity exits and a tepid market for newly public shares listings over the past two years at least partly drove the boom in secondaries. Private equity exits fell by 66% in value in 2023, according to a report from Bain & Co., and deal value only rebounded somewhat last year.

Still, lawyers anticipate secondaries will remain a popular option even when traditional exits and the IPO market fully recover.

Key Strategy

A strong secondaries offering is quickly becoming vital to a strategy most highly profitable firms pursue: offering a full-service solution to private equity clients.

In a two-part deal earlier this year for a large private equity sponsor, Latham & Watkins partner Alex Kelly helped close investments from other private equity funds in a portfolio company and then referred the client to a secondaries-focused colleague, John Kelley. He helped advise on a continuation vehicle, which can allow private equity owners to roll their investment in a portfolio company into a new fund.

“We added a ton of value for that client not just because we did the deal for them, but because we were able to tack on the additional part of the deal,” said Kelly, who is global vice chair of the private equity and investments funds practice at Latham.

Still relatively young, the secondaries practice has a limited number of highly experienced partners. That hasn’t stopped firms from trying to crack it.

“Firms see the numbers and are looking to break into the space,” Kelley said. “Because of the talent gap there is just a limited universe of people that have experience. And that makes it somewhat challenging to do at the present time.”

Law firms are a follow-the-money business. If secondaries continue to attract capital, driving law firm outperformance in the process, there’s every reason to expect the demand for this limited pool of lawyers will remain.

“I never would have predicted 20 years ago that secondaries would be at the forefront of what law firms want to jump into and build teams around,” Proskauer’s Suppappola said. “It’s become a driver of business for not just us but a lot of our competitors as well.”

Worth Your Time

On KPMG: The Arizona Supreme Court requested more information on KPMG’s application to practice law in the state, declining for now to approve the company’s request to become the first Big Four accountancy with a license to practice law in the US.

On Big Law Finances: Cadwalader, Wickersham & Taft collected a record $638 million in revenue last year, a 15% increase. Regulatory and litigation-focused Steptoe reported revenue up 7.5% to $530 million.

On Jackson Walker: The administrator for JCPenney’s 2020 bankruptcy sued the company’s former law firm, Jackson Walker LLP, for failing to disclose a romance between one of the firm’s ex-partners and the bankruptcy judge that oversaw its Chapter 11 case, James Nani reports. The suit is the first direct action brought by a Jackson Walker client seeking damages and to disgorge fees it paid related to the romance.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.