US insurance defence firm Wood Smith Henning & Berman (WSHB) has become the latest law firm to take external capital, as private equity investors target law firms with steady and reliable cash flows.
The Los Angeles-based firm has created a management services organisation (MSO), WSHB Support Services, to allow Boston-headquartered midmarket PE house Charlesbank Capital Partners to invest in the firm.
The investment, announced on Monday (19 October), will help fund expansion into new markets, deepen the firm’s strengths across practice areas, and develop its infrastructure, as well as helping the firm invest in AI and data science.
The deal, reportedly valued at $700m according to the Financial Times, saw Kirkland & Ellis, Weil, and US firm Frankfurt Kurnit Klein & Selz advise Charlesbank, while boutique firm Gipson Hoffman & Pancione and Troutman Pepper Locke advised WSHB.
Weil co-managing partner and US PE co-head Ramona Nee and PE partner and Boston co-managing partner Jakub Wronski acted for Charlesbank as lead deal counsel.
K&E partners Scott Rolnik and Emerson Almeida advised on debt financing.
Latham & Watkins represented the financing sources supporting the transaction, with a team led by global capital markets and hybrid capital chair Stelios Saffos, global banking and private credit vice chair Alfred Xue, and leveraged finance partners John Lister and Kelly Egers.
Across many US states, American Bar Association and state ethics rules prevent non-lawyers from taking ownership stakes in law firms. Investors are increasingly turning to MSOs as a corporate structure that can circumvent these rules.
The structure splits a firm into two separate entities: a lawyer-owned entity that provides legal advice, and an MSO that provides non-legal operational infrastructure, and which can can take external investment.
In September, investment firm New Mountain Capital acquired a minority stake in the MSO of offshore law firm Appleby.
Commenting on the Charlesbank investment, WSHB executive chairman and co-founder Daniel Berman said: ‘We set out to build a forward-thinking firm that endures well beyond its founders and offers a better model for lawyers who practice here today and in the future.’
‘My partners and I are energized to begin this next chapter with Charlesbank’s support. Their resources and experience will allow us to continue investing in our team and technology, better serving our clients as their trusted advisor in a complex and dynamic litigation environment,’ he continued.
Last year, LB reported that DAC Beachcroft was exploring a potential sale of its claims business to private equity, underscoring the attractiveness of volume-based insurance litigation to investors.
‘There are segments of the market for whom this could be transformational, where there are insurance panels over multiple years that provide a certainty of revenue that can be commoditised – that’s attractive for private equity,’ one senior partner at an international law firm said at the time.
Private equity firms have also recently targeted sports boutiques as potential partners. Last week, Manchester-based Centrefield partnered with Palantine, with the fund agreeing to invest £254m, while Northridge took a minority investment from San Francisco PE firm Cordillera Investment Partners in March.
Over the last year, a number of firms have explored selling equity stakes to external investors, including McDermott and Cohen & Gresser.
