McDermott eyes restructure that could enable private equity ownership

Newly-merged McDermott is weighing a restructuring that could allow private equity groups to take a financial stake in the business.

The Financial Times first reported that the firm is considering a two-part model: a lawyer-owned advisory practice and a separate managed services organisation (MSO) that would handle administrative, IT and back-office functions. Investors could take stakes in the MSO, generating returns from the revenues paid by the lawyer-owned firm for those services.

The model aims to navigate US ethics rules that prevent non-lawyers from owning or profiting directly from law firms, a barrier that has long kept private equity capital out of the legal profession.

Testing the boundaries

The idea remains at an exploratory stage, with no deals agreed and no capital committed, the FT reported.

In a statement shared with Non-Billable, McDermott chair Ira Coleman said the firm "always listens to new ideas" and was "excited to learn from other leading organisations as we challenge the status quo." He added: "this is all very preliminary and we are fielding inbound interest".

The structure bears similarities to models used in healthcare and accounting, where MSOs have enabled outside investors to profit from service entities linked to regulated practices.

If successful, McDermott’s move could provide a legal template for other large US or international firms seeking alternative funding structures, though it would likely face close scrutiny from state bar associations and the American Bar Association.

Why it matters for UK firms

While the rules in England and Wales have already evolved to permit Alternative Business Structures (ABS), enabling non-lawyer ownership, the US has been far slower to follow.

Only a few states have embraced the model - most notably Arizona, which became the first state to roll-out an ABS route in 2021 and which KPMG took advantage of earlier this year, becoming the first of the Big Four to get a licence to practise law in the US.

If McDermott moves ahead, it could reignite debate in the US over whether capital restrictions are holding firms back. For UK firms, it may signal a long-term shift in the competitive landscape.

US firms adopting private equity models could gain new flexibility to invest in technology, talent and international expansion, increasing pressure on London rivals already competing with well-funded American practices.

Bigger picture

Firms in adjacent industries, from consulting to accountancy, have embraced private investment to fund growth, while law has remained one of the last holdouts.

Whatever the outcome, the discussions at McDermott highlight a growing willingness among major firms to question the old assumptions about who can own and fund a law firm. The next phase of competition may be shaped as much by structure as by strategy.