The Law Firm Disrupted: Private Equity and Litigation Funders Target Big Law Back Offices
By Legal Affairs Correspondent
Published August 15, 2025
New York, NY – The legal industry is undergoing a seismic shift as private equity (PE) firms and litigation funders increasingly set their sights on the operational back offices of Big Law firms, leveraging regulatory changes and innovative business models to tap into the lucrative $400 billion U.S. legal market. This trend, driven by the promise of stable revenue streams and operational efficiencies, is reshaping how law firms function, but it also raises ethical and cultural concerns, according to industry experts and recent developments.
The Rise of Alternative Business Structures
Historically, American Bar Association (ABA) Rule 5.4 has barred non-lawyer ownership of law firms to preserve professional independence and client confidentiality. However, states like Arizona and Utah have relaxed these restrictions, introducing Alternative Business Structures (ABS) that allow non-lawyers, including PE firms, to invest in or own legal practices. Arizona eliminated Rule 5.4 in 2021, granting over 100 ABS licenses, with 40% of new legal businesses backed by PE or hedge funds, per a 2024 Wall Street Journal estimate. Utah’s regulatory sandbox, extended through 2027, permits non-lawyer ownership under strict oversight, fostering innovation while maintaining ethical standards.
These reforms have opened the door for PE firms to invest in law firm back offices—management services organizations (MSOs) that handle non-legal operations like marketing, HR, and technology—while leaving legal services under attorney control. For example, Rimon Law’s 2021 partnership with Alpine Investors saw the PE firm acquire a stake in Novalaw, Rimon’s back-office entity, creating a liquidity event for founders and reducing their administrative burdens. Similarly, Burford Capital, the world’s largest litigation funder, announced plans in 2025 to allocate significant capital to law firm back offices, with Chief Development Officer Travis Lenkner calling it “the most natural thing” for their future growth strategy.
Why Big Law Back Offices?
PE and litigation funders are drawn to Big Law’s back offices for several reasons:
- Stable Cash Flows: Law firms, particularly those with strong regional or niche practices, offer reliable revenue streams and low capital expenditures, making them attractive investment targets. The legal sector’s non-cyclical nature, especially in areas like personal injury and mass torts, adds to its appeal.
- Operational Inefficiencies: Many firms operate with outdated systems, presenting opportunities for PE-driven modernization through technology upgrades and streamlined processes. For instance, Waterland Private Equity’s 2024 investment in UK-based Beyond Law Group enabled the firm to launch new practices and pursue acquisitions, boosting revenue from £10.5 million to £13.8 million in a year.
- Capital Needs: Firms require substantial capital for expansion, lateral hires, and technology investments, which traditional partnership models struggle to fund. PE provides access to this capital, as seen in Arizona, where ABS-backed firms have launched national marketing campaigns to attract clients.
- Consolidation Opportunities: The fragmented legal market is ripe for consolidation, particularly among mid-sized firms. PE firms see potential in merging practices to achieve economies of scale and expand service offerings, a strategy already successful in accounting and healthcare.
Litigation Funding’s Growing Role
Litigation funders like Burford Capital are also entering the fray, focusing on financing law firm operations and high-stakes cases. Hedge funds, including Davidson Kempner and BlackRock, are quietly investing in litigation finance, a $16.1 billion industry in 2025, per Bloomberg Law. These funds often back mass tort law firms or use insurance policies as loan collateral, as seen in Gramercy’s $552.5 million loan to UK firm Pogust Goodhead in 2023. Funders are drawn to back-office investments because they can enhance case management and client acquisition, critical for litigation-heavy practices like personal injury and mass torts, which account for one-third of Arizona’s ABS firms.
Benefits for Big Law
The influx of PE and litigation funding offers significant advantages:
- Access to Capital: Firms gain funds for technology upgrades, geographic expansion, and strategic hires. For example, Axiom Law and Elevate Services, with PE backing, have scaled globally and innovated service delivery.
- Operational Expertise: PE firms bring business acumen, optimizing workflows and boosting profitability. Boris Ziser of Schulte Roth & Zabel noted on Bloomberg’s Wall Street Week that non-lawyer professionals can enhance efficiency through AI and other technologies, benefiting clients.
- Market Expansion: PE-backed firms can pursue mergers and acquisitions, as seen with Beyond Law’s inorganic growth strategy, increasing market share and service diversity.
Challenges and Ethical Concerns
Despite the benefits, the trend raises significant concerns:
- Ethical Risks: Critics, including Stanford Law’s David Engstrom, warn that non-lawyer ownership could compromise client confidentiality or prioritize profits over professional ethics. While Arizona and Utah’s regulatory frameworks include strict safeguards like licensing and malpractice insurance, no standardized national guidelines exist.
- Cultural Shifts: PE’s focus on billable hours and revenue targets may clash with traditional law firm values, potentially alienating attorneys who prioritize long-term client relationships. The 2023 healthcare study showing a 25% increase in complications at PE-owned hospitals serves as a cautionary tale.
- Regulatory Uncertainty: Most U.S. jurisdictions still enforce Rule 5.4, limiting PE investment to states like Arizona and Utah. The ABA is studying the issue, but nationwide reform remains uncertain, creating risks for early investors.
- Exit Challenges: PE firms face hurdles in exiting investments if competitive firms lack the scale to acquire them, as noted by Transacted. Regulatory shifts could further complicate deal structures.
Looking Ahead
The trend is gaining momentum, with industry insiders like Tom Lenfestey of The Law Practice Exchange reporting 10 monthly inquiries from PE firms interested in law offices. Firms like KPMG are exploring ABS models, with KPMG seeking approval to establish a law firm in Arizona, potentially the first major accounting firm to do so in the U.S. Meanwhile, litigation funders are expanding their portfolios, with Burford Capital eyeing deeper investments in Big Law operations.
For Big Law firms, the challenge is balancing PE-driven growth with ethical integrity. Successful partnerships, as seen in Utah’s sandbox, require robust firewalls to protect client interests and transparent communication to manage cultural shifts. The 2025 Legal Industry Report from the ABA notes that while PE-backed firms are driving innovation, only 21% of firms have fully integrated these models, reflecting cautious adoption.
As PE and litigation funders continue to court Big Law’s back offices, the industry stands at a crossroads. Strategic investments could modernize legal services and improve access, particularly for underserved communities, where the U.S. ranks 109th globally in affordable civil legal services. However, without careful regulation, the influx of capital risks prioritizing profits over the profession’s core values. The next few years will determine whether this disruption strengthens or undermines Big Law’s foundation.
Sources: Law.com, Bloomberg Law, The Law Practice Exchange, Forbes, Transacted, Axios, Schulte Roth & Zabel, Burford Capital, The Deal