Private Equity Law Firm Sells Back-Office Stake to Investors (1)

A deals boutique based in Los Angeles sold a position in their back-office functions to a private equity firm, employing a corporate structure that is increasingly gaining a foothold in the legal profession.

Massumi + Consoli leaders want to use the cash infusion from Dallas-based Trive Capital to improve their firm’s technology with artificial intelligence capabilities, according to a person familiar with the transaction who requested anonymity because the deal hasn’t been announced.

The firm’s partnership with Trive is the latest instance of lawyers broadening their access to growth capital through the formation of a management services organization (MSO). State regulations prevent non-lawyers from directly investing in law practices, but MSOs provide a vehicle for investors to cash in on wealth generated by legal services.

In the Massumi + Consoli deal, a separate company will handle the firm’s administrative functions and leave the practice of law to attorneys at the firm, according to the person. Other details, such as the size of Trive’s investment, weren’t immediately available. The parties didn’t return multiple requests for comment.

Private equity has made a big push to invest in personal injury law firms, where high profit margins from contingency fees, consumer-facing marketing strategies, and concentrated ownership structures have attracted financiers from outside the legal profession.

Founders Peter Massumi and Anthony Consoli started the firm in 2015 as a soup-to-nuts legal counsel for mid-market private equity transactions. Both lawyers had worked at Kirkland & Ellis, the most profitable law firm in the world thanks to its dominance in alternative investments.

Massumi + Consoli’s lawyers have advised a Monogram Capital-owned company in the acquisition of a beef jerky manufacturer and mobile game platform Skillz in a deal with Beamable. Trive Capital has a portfolio of companies ranging from predictive analytics for the Defense Department to fast-casual dining and AI product development.

MSO Advantage

Massumi + Consoli’s deal highlights how lawyers are looking for expanded financing opportunities to upgrade their tech in an age when generative AI is giving lawyers a competitive edge. Kirkland & Ellis has also launched an AI initiative, pledging $500 million over the next three to four years to develop its own platform.

MSOs, a structure borrowed from the medical and accounting fields, gives tech specialists a profit-generating vehicle to share in the wealth they help produce, said Frederick Shelton, an adviser to law firms in MSO deals.

“The chief tech officer who designs and creates a transformational tech stack that completely transforms their firm can never get stock options like they could in every other industry,” Shelton said.

Law firms are commonly investing a portion of deal proceeds back into the MSO for a minority share. In a properly structured deal, Shelton said, this minority share accrues in value and more than makes up for the decrease in compensation equity partners at the law firm may face in the immediate aftermath of a sale.

“The deal needs to be structured so the attorneys, in addition to a reduced salary, get distributions from the MSO that get them to their previous salary or better,” Shelton said.