2026 has seen private equity (PE) capital continue to pour into the legal sector. Wood Smith Henning & Berman, a California insurance-defence firm, last month signed a letter of intent to sell a piece of its business to private equity, in a deal valued at approximately US$700 million. If the deal closes it will be the largest PE investment in an American law firm to date. America’s largest personal injury law firm Morgan & Morgan is also seeking PE capital which could raise more than US$1 billion and set the stage for an eventual initial public offering (IPO). 

Private equity investment can be seen as providing law firms the potential and platform to grow and innovate, especially during challenging times with intense pricing pressure from clients and unforeseen CapEx requirements to fund technological developments. However, it also raises important questions about the profession’s core ethical obligations, partner autonomy and ownership structures.  

Why the Trend is Picking Up  

Consolidation continues in the legal sector and the scene for mergers remains active, however, as law firms face ongoing pressure to modernise and innovate, the focus has now shifted to the opportunities PE can open up. How a particular firm is structurally built for certain PE demands – having scalable systems, brand recognition and technology-enabled delivery – is the key question instead of ‘whether’ PE will invest. 

Smaller and midsize firms may view an agreement with a PE investor as more appealing than merging with a larger firm or asking a group of existing equity partners to contribute more capital. Larger firms, however, may prefer to create their own path and maintain control. 

PE’s Structural Workaround  

Many jurisdictions bar non-lawyer equity ownership of law firms so PE must find an indirect structure to get in. Most U.S. states follow ABA Model Rule 5.4, which prohibits non-lawyer ownership of law firms and fee-sharing with non-lawyers. Some states have started to explore reform though. For example, California and Virginia prohibit non-lawyer ownership and fee-sharing, while a growing number of jurisdictions, including Arizona, Utah and the District of Columbia, permit some forms of non-lawyer ownership. 

In the UK, non-lawyer ownership was allowed via Alternative Business Structures (ABS) under the Legal Services Act 2007 with fully operational licensing from 2012. Since then, transactions have picked up and research indicates that a staggering £1.2 billion entered the legal sector through PE transactions in the five years leading up to 2025.  

2 main indirect structures are commonly used for workarounds: 

• MSO (Management Services Organization) model – whereby a law firm’s legal practice is separated from its non-legal operations (eg: admin, marketing, HR) and the PE investment is made into the MSO thereby ensuring lawyers retain full formal ownership of the practice  

• ABS (Alternative Business Structure) regimes – this regulatory framework permits non-lawyers to hold ownership stakes and sit on boards, it allows PE investment and, in some cases, it permits a law firm to list on a stock exchange. An ABS is typically a licensed entity, and this model is available in some jurisdictions eg: Arizona has approved 136 ABS entities, including KPMG Law U.S.  

Sector-Specific Observations 

In jurisdictions where PE investment is permitted in the legal sector, external capital is increasingly being used to fuel innovation and growth, therefore allowing firms to stay competitive and technologically-savvy in a rapidly evolving market. According to research that came out in early 2026, seven in 10 mid-sized law firms were contacted in the last year by a PE investor or PE-backed law firm about acquisition. Many attribute this high figure to the current fragmentation in the legal sector, and an increased openness to the ‘buy and build’ approach which is boosting consolidation in the market. Some sectors are already clear favourites for PE, and personal injury is one of them.  The process-driven nature of its transactions, coupled with the potential for automated technologies and AI to boost efficiencies is particularly attractive to investors looking to maximise returns. Another new wave is emerging too in the form of mid-sized corporate-focused firms, insurance defence firms, family law practices as well as other practices with a high-volume of cases and therefore predictable revenue.    

Opportunity or Risk? 

The debate continues on both sides with those ‘for’ consolidation in the sector through PE acquisitions citing: 

• Better access to capital for technology/AI, marketing and lateral hiring; 

• Significant and speedy growth; and 

• Smooth succession planning when retiring partners may not be looking to reinvest. 

Those ‘against’ typically focus on: 

• Lawyers risking being subjected to investor demands and wishes; 

• Potential damage to the profession if not carefully monitored; and 

• Risks relating to building genuine governance. 

The Road Ahead 

Interact Law member firms span the globe and PE-in-law rules vary enormously across jurisdictions. It will be interesting to see how this trend develops over the years to come and: 

• If more jurisdictions around the world start to permit some form of non-lawyer ownership at law firms; 

• If it reaches mid-size and international firms; and 

• If more states in the US look to reconsider the restrictions imposed by ABA Model Rule 5.4 eg: like Arizona and Utah 

We will incorporate a session on this topic at our upcoming International Conference in Lisbon, so get in touch if you would like to share your insights.