Analysis of PE Trends in Law Firms

Summary

• Private equity (PE) has been circling the legal sector for years.
• But in the last 24 months the pace has quickened.
• This article looks at the trend lines, how PE is getting access, and the legality in key jurisdictions.

Sam Edwards via Getty Images

Jump to:

Private equity (PE) has been circling the legal sector for years—but in the last 24 months, the pace has quickened, powered by regulatory openings in the United States (notably Arizona and Utah), a decade-plus of experience in the U.K. and Australia, and mounting investor interest in professional services cash flows. Yet, the U.S. landscape remains a patchwork. Let’s look at the trend lines, how PE is getting access, and the legality in key jurisdictions.

The Trend: Why PE Wants In—and Where It’s Happening

PE’s interest in law firms mirrors its push into other professional services (accounting, physician practice management, engineering): predictable cash flows, high margins, low capex, and a highly fragmented market ripe for rollups and platform plays. After years of structural barriers, dealmaking efforts accelerated over the last 12 months, aided by creative structures and a slowly improving regulatory environment.

Model Rule 5.4, widely adopted by states, restricts fee-sharing and nonlawyer ownership. The American Bar Association reaffirmed that the ban reflects the profession’s core values in Resolution 402 (Aug. 2022), even while it encourages evidence-based regulatory innovation in separate policy statements. That said, the door has opened in a few places: Arizona abolished its version of Rule 5.4 in 2021 and created a licensing regime for alternative business structures (ABS) entities, and Utah launched a supreme-court–supervised “regulatory sandbox” in 2020, extended through 2027.

Arizona’s ABS pipeline now includes nonlawyer-owned firms and notable entrants like KPMG Law US (via an ABS-licensed affiliate), signaling Big Four convergence. Utah tightened sandbox criteria in 2025 to better focus on Utah consumers; Reuters reporting—summarized by the ABA Journal —indicates many entities withdrew or were terminated under the new “serve Utah residents at scale” requirement, highlighting the political and consumer-protection sensitivities. Meanwhile, policy entrepreneurs (i.e., the Association of Professional Responsibility Lawyers) are urging the ABA to modernize Rule 5.4 to allow fee-sharing and nonlawyer coownership under guardrails, showing ongoing debate at the national level.

Access Routes for PE Capital: Direct and Indirect Models

• Direct equity via ABS regimes. Where allowed, PE can take direct stakes in law firms structured as an ABS, subject to licensure and ongoing oversight. In Arizona, an ABS must appoint a compliance lawyer and disclose owners with ≥10 percent interests or decision authority—requirements that make the investment look more like a regulated utility than a typical buyout.
• Regulatory sandboxes. Utah’s sandbox grants limited authorization—effectively waivers from both nonlawyer ownership and unauthorized practice of law (UPL) rules—tested against risk metrics and consumer outcomes. Interim evaluations by the Institute for the Advancement of the American Legal System (IAALS) document the program design and monitoring approach; Utah’s recent “Phase 2” adjustments have narrowed participation to entities with substantial in-state impact.
• Managed services organizations (MSOs) and contractual workarounds. In non-ABS states, PE gravitates to MSO structures: Investors own the business services affiliate—marketing, HR, tech, intake—while the professional entity remains lawyer-owned. Properly constructed, MSOs avoid impermissible fee-sharing and preserve lawyers’ independent judgment, but they must be engineered carefully to withstand scrutiny under Rule 5.4 and UPL statutes.
• Adjacent bets—litigation finance and alternative legal service providers (ALSPs). Some PE funds back litigation financiers or ALSPs that contract with firms, creating capital adjacency without owning the law firm itself. As a policy matter, critics argue this still raises independence and conflict concerns if investors push for early settlement or aggressive portfolio economics; proponents counter that funding increases access to justice. The ethics literature has long flagged investments that intertwine with client matters as conflict-prone.

Observed and Expected Impacts

The ABA House’s 2022 Resolution 402 distilled a long-standing concern: Outside owners may pressure firms to prioritize returns over professional duties, risking client confidentiality, conflicts, and independence. That resolution reaffirmed feesharing limits as core to the profession, even while keeping the door open to measured experimentation.

ABS regimes commonly require designated compliance officers, suitability checks on nonlawyer owners, and firmwide undertakings to abide by professional rules. Arizona’s ABS framework mandates a compliance lawyer and disclosures for “authorized persons,” while D.C.’s long-standing Rule 5.4 variant allows limited nonlawyer partners who provide professional services and agree to be bound by ethics rules—a narrow exception that has functioned without headlines for years.

Whether PE invests directly or via MSOs, firms must enhance conflicts-checking to capture investor-level affiliations, portfolio company ties, and data-sharing risks. Ethics authorities have long warned that lawyers’ financial entanglements with clients or third parties heighten malpractice and fiduciary risks—lessons that carry over to investor relationships.

The Legality in 2026

• Model Rule 5.4 baseline (most states). No nonlawyer ownership, no fee-sharing with nonlawyers (with narrow exceptions such as employee profit-sharing and payments to a deceased lawyer’s estate). Outside investors cannot own law firms or control legal practice.
• District of Columbia. Permits nonlawyer partners if they provide professional services that assist the firm’s legal services, agree to abide by the ethics rules, and the firm’s sole purpose is providing legal services; passive investment remains prohibited.
• Arizona (statewide ABS). Since January 1, 2021, nonlawyers may own economic interests and exercise decision-making authority in licensed ABS law firms; the Arizona Supreme Court licenses and supervises ABS entities, requires compliance lawyers, and eliminated the categorical ban on fee-sharing/referrals. KPMG Law US’s ABS licensure is the headline example.
• Utah (regulatory sandbox). Since 2020, the Utah Supreme Court’s Office of Legal Services Innovation authorizes entities—some with nonlawyer ownership—to offer legal services under risk-based oversight. In 2025, Utah tightened participation to entities serving Utah residents at meaningful scale, prompting exits/terminations; the pilot runs through 2027, with ongoing IAALS evaluation.
• Elsewhere. Several states have studied reforms, but large markets (CA, NY, IL, FL, TX) have not adopted nonlawyer-ownership regimes; in Texas, proposals were rejected in 2022. Reform advocates (i.e., the Association of Professional Responsibility Lawyers (APRL)) continue to urge the ABA and states to consider guard-railed fee-sharing/ownership to spur innovation and access.

The Debate Ahead: Independence, Innovation, and Competition

Critics argue that opening equity to nonlawyers risks subordinating the lawyer’s role as officer of the court to investor imperatives. The ABA’s 2022 resolution reanchors this value proposition, warning that incremental erosion of Rule 5.4 could “destroy our profession” to the detriment of clients if not carefully checked.

Advocates of targeted reform, including academics and APRL, contend that ethical independence can be preserved through governance, while capital is essential to scale consumer-facing innovation and improve access to justice—especially given the U.S.’s poor rankings on affordability of civil legal services. Their proposals seek informed consent-based fee-sharing and regulated ownership with enforceable independence safeguards.

Expect continued state-by-state experimentation, with data collection determining the political viability of reforms. Utah’s 2025 recalibration demonstrates regulators’ willingness to prune experiments that don’t measurably serve local consumers; Arizona’s ABS docket shows how licensing can admit sophisticated players under robust oversight.

Private equity is no longer a hypothetical in legal services—it is active, especially abroad and now surgically in the U.S. The decisive question isn’t whether capital will participate, but how and where. Jurisdictions that open controlled channels (ABS, sandboxes) can attract investment and demand accountability. Those that don’t will still see PE influence through MSOs, funders, and ALSPs.

Resource

Debra Cassens Weiss, “ Nearly 30 legal entities may leave Utah’s regulatory sandbox program after state tightens rules,” ABA J. (Mar. 4, 2025).

Endnotes

Author

View Bio →

Author

Snell & Wilmer LLP

Related Content