National US firm Wood Smith Henning & Berman (WSHB) has become the latest law firm to accept private equity investment, in a deal that valued the insurance defence specialist at $700m, according to the Financial Times.
The firm of 550 lawyers has taken investment from mid-market investment firm Charlesbank Capital Partners to create a management services organisation (MSO), which it said would provide non-legal operational infrastructure and support to the law firm.
Charlesbank’s investment in the MSO – named WSHB Support Services – will enable the firm to expand geographically, deepen capabilities across practice areas and invest in new technologies, including AI and data science, WSHB added.
Terms of the deal were not disclosed. WSHB did not immediately respond to a request for comment on the valuation reported by the FT.
The MSO model has gained traction in the US, particularly among personal injury law firms, as it enables firms to receive outside investment without breaching professional rules in most states barring investors and non-lawyers from owning direct stakes in law firms or sharing in attorney fees.
The model splits a law firm into an attorney-owned entity that gives legal advice and the MSO, which is home to the bulk of the firm’s assets and offers services in return for fees.
WSHB said it will remain an independent law firm with its lawyers “retaining sole authority over the practice of law and client matters."
Founded in 1997, the firm represents insurers, self-insured corporations and institutional clients and has grown to a footprint of 43 offices in 23 states.
Daniel Berman, executive chairman and co-founder of WSHB, will lead WSHB Support Services as chief executive officer, and Stewart Reid will remain firmwide managing partner of the law firm. WSHB’s management committee – comprising Berman and Reid, as well as co-founders Stephen Henning and Kevin Smith – will continue to lead WSHB. All four members will also join the board of WSHB Support Services.
“We set out to build a forward-thinking firm that endures well beyond its founders and offers a better model for the lawyers who practice here" Berman said. “Charlesbank’s resources and experience will allow us to continue investing in our team and technology, better serving our clients in a complex and dynamic litigation environment.”
The deal continues a string of publicly disclosed law firm MSO transactions this year. Last month, mid-sized private equity and M&A firm Massumi + Consoli's formed an MSO backed by Dallas-based PE firm Trive Capital. Another PE firm, Connecticut-based Uplift Investors, has inked six deals so far this year to invest in law firms' back-office operations through its MSO.
David Morley, co-founder of consultancy Dejonghe & Morley, said: "The Charlesbank investment is another indication of the depth of investor appetite for legal services and increasing deal sizes. It also illustrates how ownership restrictions in the US and elsewhere increasingly shape the route capital takes into the sector, but don’t prevent its arrival.
"The distinction between the practice of law and the business supporting it becomes more consequential as technology, data and AI account for more of a firm’s competitive strength. What has traditionally been called the back office is becoming strategically central."
The FT reported at least two other insurance defence law firms are also exploring private equity deals using an MSO – Tyson & Mendes of San Diego and Atlanta-based Freeman Mathis & Gary (FMG).
Benton Mathis, co-founder of FMG, told GLP that his firm's advisors "believe that private equity investment is increasingly likely and could meaningfully disrupt the traditional capital structure of law firms".
He added: "At the same time, we're evaluating whether private equity could create significant opportunities for growth and superior representation of clients, including providing capital for greater investment in technology, facilities and talent retention."
Tyson & Mendes declined to comment.
Riverbrook Capital served as financial advisor to WSHB. Gipson Hoffman & Pancione and Troutman Pepper Locke served as legal advisors to WSHB. Weil Gotshal & Manges, Kirkland & Ellis and Frankfurt Kurnit Klein + Selz PC served as legal advisors to Charlesbank. Piper Sandler served as exclusive financial advisor to Charlesbank.
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