Private equity’s route into plaintiff-side practice runs through the management services organization. A sponsor buys into an MSO that runs the firm’s marketing, intake, technology and finance, and the firm pays the MSO a management fee for those services. The lawyers keep the practice and every professional judgment in it. What a firm owner should have in place before a sponsor looks at the books is the subject of this interview.
Elliott Portnoy was the founding Global CEO of Dentons, the world’s largest law firm, where he led more than 60 law firm combinations. He now advises private equity sponsors on investments in the legal sector, including MSO transactions involving plaintiff-side firms. I put one question to him in writing: what separates the deals that come together well from the ones that struggle. His answer puts most of the outcome in the firm’s own hands, a year before any sponsor meeting. The firms that close at higher multiples arrive with case data a sponsor can underwrite, an administrative services agreement already drafted, and partners who agreed to the direction months earlier. Compliance, he says, is the most critical element in every deal he works on, and he tells firm leaders to be wary of any sponsor who treats it lightly.
His answer runs below in full. The section headings are mine.
On what sixty combinations taught him
Meldofsky: From your seat advising private equity sponsors, what separates the plaintiff-side MSO deals that come together well from the ones that struggle, and how should law firm leaders prepare?
Portnoy: I advise private equity sponsors investing in the legal sector and other professional services. That work covers MSO and ABS transactions, AI-native law firms, alternative legal service providers, and legal technology companies. Before that, I spent many years at Dentons as its founding Global CEO. I led more than 60 law firm combinations that brought together about 12,000 lawyers and 10,000 non-lawyer professionals across 85 countries. The lesson I carry into my private equity work is that most of the value in a transaction depends on preparation and integration. That applies directly to MSO transactions and matters most for platforms that plan to grow through add-on acquisitions and will need to bring together talent, systems, technology, process, and compensation across firms.
On the firms that close at higher multiples
I often see the same pattern. The transactions that close most smoothly and at higher multiples are typically those where the law firm did much of the hard work well before speaking with bankers or sponsors. The financials hold up to a quality-of-earnings review. The firm has years of clean case data that a sponsor can use to build a cash forecast and underwrite with confidence. Case-cost advances are tracked apart from operating expense.
The firm can produce its KPIs on request, including churn, advertising and lead-generation costs, signed cases by source, cost per signed case, intake conversion, average fee by case type, time to resolution, and case realization. The MSO structure exists, not only on paper. Law firm leaders have decided which functions move to the MSO and have an administrative services agreement in place or at least drafted. The partners have been part of the conversation for months or longer and support the direction. That readiness shows up in the valuation.
On the firms that wait
Law firms that wait for a sale process to start this work end up paying for it. So do firms whose leaders decide not to discuss outside capital with their own partners. Sponsors see this quickly. Data arrives late. Answers change between meetings. Partners raise objections in diligence that should have been settled a year earlier. Leaders worry about how the partnership will receive the news and learn late in the process that the partnership agreement contains obstacles no one anticipated. The timeline stretches, the multiple comes down, and sometimes the process breaks.
On building the advisory team
Law firm leaders should build their advisory team early, and it should include more than a banker. A banker who knows legal services is invaluable for running a competitive process and setting value. Leaders also need deal counsel who have closed MSO transactions and ethics counsel who know the rules in every state where the firm practices. They need accountants who can prepare the firm for a quality-of-earnings review, a valuation firm to support the management fee, tax advisors to structure the proceeds, and a compensation expert to design a deferred compensation plan built for the MSO. The best advisors have done this many times, and firms that bring them in a year ahead of a process get better terms.
On compliance
Compliance is the most critical element in every deal I work on. The ethics rules and related guardrails are the starting point for the structure, and nothing should come anywhere near the line. Every professional judgment stays with the lawyers. The management fee is priced based on the services the MSO delivers and is supported by an independent valuation. The sponsors I work with insist on this. They plan for an eventual sale, and the next buyer will test the structure. A law firm leader who senses a sponsor is paying too little attention to ethics and compliance should be wary.
On what sponsors bring beyond capital
When law firm leaders arrive unprepared, they often underestimate what private equity brings beyond capital. Many sponsors have owned and scaled businesses in accounting, consulting, communications, physician and dental practices, insurance, and veterinary care, and a growing number have done so in the legal sector. They bring operating partners who have built marketing, intake, technology, recruiting, and finance functions many times, including within law firms. In a plaintiff practice, that experience goes straight to the largest cost lines. Sponsors bring deep knowledge of media buying, digital advertising, and SEO. They know how to build the data systems that connect each advertising dollar to signed cases and fees. Law firm leaders who miss this tend to choose a sponsor based on headline price alone and fail to consider the sponsor’s operational capabilities.
The law firm leaders who do best have their structure, numbers, advisors, and partners in place before the first meeting. Those conversations move quickly. Their preparation does much of the negotiating for them.
Elliott Portnoy was the founding Global CEO of Dentons, the world’s largest law firm, and now advises private equity sponsors on investments in the legal sector, including law firm MSO transactions.
Portnoy answered one question in writing. His answer appears in full and as written. The section headings are the editor’s, and one sentence was repunctuated. The figures on the Dentons combinations are Portnoy’s own. — DM
Disclosure: The author holds referral relationships with plaintiff-side firms in mass tort litigation, as described in the editorial standards. No firm, sponsor, or transaction is discussed in this interview. No payment was exchanged in either direction.