Private Equity Woos Personal Injury Law Firms With Profits, Tech

Private equity is aggressively investing in personal injury firms, offering their lawyers a cut of the wealth generated by the deals.

At a first-of-its-kind, invite-only conference in Holland & Knight’s New York office last month, advisers made it clear that such arrangements are no longer theoretical. One of the firm’s private equity-backed clients has closed two deals this year, and a lawyer there expects to wrap up a dozen in 2026.

Personal injury lawyers who attended the conference came away with a keen sense of private equity’s encroachment on their turf, both the reward and the risk. The investment can bring in needed cash, fast. But with the promise of investor-backed call centers and lead generation companies, some of the lawyers see the need to adopt the private equity model or find themselves being out-competed in the legal marketplace.

“With private equity coming into the market, if you sit on the sidelines and do nothing about it, you put your business at risk,” said Houston-based personal injury firm leader James Amaro. “They’ve already done their homework and they’re moving fast.”

Major players including Apollo Global Management, Fortress Investment Group and Stifel Financial Corp. are all showing interest, attending the Holland & Knight confab.

Personal injury firms are a first-line test for private equity’s foray into the legal profession. Private equity’s capital infusion brings technological enhancement in the age of AI, but skeptics worry investor influence will cross over into client services from these deals.

“They were designed to get lawyers drooling for money,” said Bruce Pfaff, a former personal injury attorney working in Illinois to slow PE investments in law firms.

“By having people that lawyers rely on to get their work done employed by somebody else makes zero sense,” he said. “What they’re really doing is taking those who own the law firm and enriching them with the upfront payment.”

Apollo and Fortress declined to comment. Stifel did not respond to a request for comment.

The MSO Strategy

Amaro Law Firm is a client of Holland & Knight’s that is trying to arrange initial terms for a capital infusion by the end of the year through an investment vehicle that would place all of his firm’s non-legal functions into a separate entity called a management services organization (MSO).

Most US states prevent non-lawyers from owning or profiting from a law firm, constraining the legal industry’s access to growth capital. Taking a cue from the medical and accounting fields, law firms are separating their non-legal functions, such as IT, human resources, marketing, and client intake, into private equity-backed MSOs.

MSOs solve the legal profession’s growth limits by separating the business from the practice of law. Investors view the vehicles as their entree into a new industry, with some private equity firms aiming to provide the administrative support for multiple law firms before cashing out their stakes in the firms.

“There’s tens of billions coming into the market,” said New York personal injury lawyer Michael Licatesi, who is actively entertaining investment offers. “If solo practitioners and midsize firms don’t adapt or come up with some defensive model, the cost-per-acquisition of cases will drastically go up, because there’s so much competition coming in that can handle cases for a lower cost.”

The earliest MSO adopters aren’t large corporate law firms but attorneys with their faces plastered on highway billboards.

“When you are driving on the interstate and you see billboard after billboard, almost all of them are ads for personal injury firms,” said Josh Porte, a partner at Holland & Knight who advises law firms and investors on MSO transactions. “Private equity looks at that and says, ‘It’s a marketing business. I know how to partner with a marketing business and increase market share.’”

Personal injury firms are most commonly owned and operated by a small number of founders who in their later age seek liquidity as they ready their exit from the profession. This structure of concentrated equity in a handful of owners makes an MSO deal easier for the small firms as opposed to Big Law operations that sometimes have hundreds of equity partners.

“Frankly, managing more than three or four equity partners is a nightmare” for creating an MSO, said Austin Maloney, a Hunton Andrews Kurth partner advising MSO investors.

Investors also view the MSO vehicle as their key to rolling-up another unconsolidated industry, aiming to use a single MSO as the back office for multiple law firms.

Some investors who attended the Holland & Knight conference were wary of general private equity firms using a templatized consolidation strategy.

“It just felt like they were using the same buzzwords, the same playbook that they used in other spaces, and they were just going to slap it on the legal space and go,” said Ryan Schultz, head of business development at litigation funder Pine Valley Capital Partners.

The MSO craze took off last year when litigation funder Burford Capital said it was interested in investing in US law firms through MSOs. Then Big Law firm McDermott Will & Schulte said it was in preliminary discussions about selling a stake in the firm to outside investors through an MSO.

Many are doing more than just thinking about doing a deal.

Litigation funder Certum Group acquired an MSO created by law firm Sbaiti & Co. to partner with and provide services to mass tort and personal injury firms. Louisiana firm Dudley DeBosier announced a PE-sponsored MSO in January that has already acquired a second firm, and personal injury firm Rafi Law Group announced a $125 million investment from an outside investor into an MSO in April. The Financial Times said the investor was Fortress. Fortress declined to comment.

State legislators have already taken note of private equity’s entrance into law and have attempted to restrict it.

In Illinois, pending legislation bans attorneys from sharing fees with alternative business structures owned or operated by private equity firms and hedge funds. Legislation seeking to regulate non-lawyer influence on the practice of law has also been advanced in California and Colorado.

Pfaff, the former personal injury attorney who helped draft the Illinois legislation, said he doesn’t trust that the private equity firms won’t influence the practice of law.

“I can tell you that the practice of law can’t easily be divorced from what the MSO people would call the business of law and the back-office stuff,” he said.

Trisha Rich, a Holland & Knight ethics lawyer advising on MSO transactions, said the emerging regulatory landscape for MSOs won’t slow development of the structures.

“Legislators are trying to codify the lawyer independence principle,” she said. “A properly structured and managed MSO should fit properly within the legislation as currently drafted.”

Early Movers

Seth Deutsch, founder of Samson Partners Group, which helps businesses prepare for a sale to private investors, was the first in the US and Canada to create an MSO structure for a personal injury law firm with private equity, he said.

Deutsch’s group was involved in 10 law firm MSO deals last year. This year, he is working on 20 such deals. About 70% of them are in the personal injury space.

Samson is also working with Houston- and Chicago-based private equity fund Tierra Capital Partners fundraising for the first US law firm MSO co-investment fund. They’ve partnered with institutional private equity sponsors but declined to name the firms.

Christ Kamberos, co-founder of Tierra, said the firm is targeting $100 million to $125 million for the size of the fund.

“We are likely to exceed that,” he said. “So far we’ve seen that there’s a relentless amount of interest in the strategy.”

Investment Patience

Personal injury lawyers in talks to form an MSO expect a payment reduction in the near term. Turning over a chunk of their distributions to the newly formed entity makes it a more attractive asset for the investment partner, Holland & Knight’s Porte said.

They may have to wait years to get back to their previous level of income. Early stage MSO deals are providing for a minority equity position for the law firm’s partners, which could accrue in value and exceed their compensation prior to the partnership.

“You’ll either have a big piece of a small pie or a small piece of a big pie,” said Licatesi, the New York injury lawyer in talks to execute an MSO deal. “It’s a long play. You have to really believe in it.”

Porte said the fee agreements between a firm and a private equity-backed MSO can’t be based on a portion of the firm’s revenue—that would violate the industry’s ban on fee sharing with non-lawyers.

Instead, MSO parties hire a third-party valuation expert to declare the fair-market value of the services provided by the MSO to the lawyers, Porte said.

Investors then use transfer pricing to calculate the amount of value that’s transferred to the MSO, allowing them to decide the size of their investment, said Ken Epstein, founder of consulting firm Backlit Capital Solutions.

The optimists say the partnerships will make law firms more efficient, which will help cases resolve faster. “The whole point of our MSO is to deliver better outcomes for our clients,” said Asim Badaruzzaman, CEO of Certum Legal Solutions, the MSO of litigation funder Certum Group.

Licatesi, the New York lawyer exploring an MSO deal, hopes the right investment partner could help him take on riskier cases he now has to turn away.

Licatesi said he wants a private equity sponsor who shares his mission to help injured plaintiffs and isn’t just looking for a quick payout. Not every investor will have the stamina to see through his cases, like one that yielded a $4 million verdict after seven years of litigation.

“Private equity may say this is not a profitable case, but in the end, we were able to make it profitable because we used best-in-class trial tactics,” Licatesi said. “If they don’t want to change lives, then what’s the point?”

—Graphic by Ava Mandoli/Bloomberg Law