Much has been made in the legal press and elsewhere following litigation funder Burford Capital’s announcement of its intention to purchase minority stakes in U.S. law firms. Since, except in a few specific U.S. jurisdictions, legal ethical rules prohibit actual ownership of law firms by non-lawyers, Burford was apparently referring to a structure known as “Management Service Organizations” or MSOs. The MSO structure for law firms entails a law firm essentially splitting into two parts: one part being the legal service providing, client-facing portion and the other part being the MSO, which will take over all other law firm functions: administration, accounting, technology, recruiting, HR, real estate, etc. – anything not directly related to the practice of law. As with any other vendor, the MSO is paid a fee for providing these services.
While MSOs are a relatively new phenomena in the law firm space, they have long been a staple in other industries, most notably in health care. Numerous health care providers, especially physicians’ practices, have taken advantage of outside capital and expertise in order to remove much of the administrative burden of running a practice and allow the doctors and nurses to focus on the practice of medicine. The adoption of MSOs in the health care field has been fairly widespread: other service industries like accounting and architecture have also adopted this model on a smaller scale. Many private equity investors (and litigation funders) are now looking to law firms as the next investment frontier.
