Law firms chase the 'capital solutions' gold rush

Law firms are racing to build out "capital solutions" practices - a fast-growing, highly profitable slice of work born from private equity's struggle to sell portfolio companies.

This work was decidedly niche a decade ago. Now it’s a lucrative growth area in big law, as sponsors look for creative ways to extract cash in a difficult market.

Mayer Brown and DLA Piper both launched capital solutions practices in London this year, following Akin’s announcement in 2024. That mirrors a move that Wall Street banks first made, with JPMorgan and Goldman Sachs launching capital solutions desks last year.

State of play

Capital solutions has its roots in the distressed company market. Blackstone and Apollo pioneered similar structures after the 2008 financial crisis, mostly for companies in genuine trouble. But it’s not just struggling companies using it these days, healthy companies are also in the mix.

"Five years ago these sorts of products were most often found in stressed or distressed environments, where there just wasn't other capital or financing commercially available," says Peter Banks, global co-head of private equity at A&O Shearman. “What has really fuelled the rise of this market is the expansion of these products far beyond distressed environments.”

Lawyers say that specialist capital solutions teams within investment banks have accelerated the shift by pitching these products more broadly, including to companies with no financial issues and those with no private equity ownership.

The bigger picture

But the biggest driver for this market is private equity firms who are struggling to sell businesses they bought in frothier markets. Some buyout firms are using these tools as a way to return money to their investors without having to exit their portfolio companies at a heavy discount or a loss.

“People can’t exit and they can’t get liquidity in the way they used to through IPOs or sales because there is a valuation gap,” says Banks. “So the whole industry needs to find solutions to return money to investors.”

Others are using it to provide money for their portfolio companies to do further acquisitions, potentially boosting the company’s valuation further down the line.

The whole industry needs to find solutions to return money to investors.

Max Oppenheimer, a partner at Weil in London, says: “Sponsors have a significant number of portfolio companies on their books, some good and some not so good. People are sometimes using it almost as a bridge to hope for better times down the line.”

But not all deals get across the line. Oppenheimer points out that he spends a lot of time working on the early stages of these types of deals that often morph into more customary minority equity or refinancing deals.

“The execution hit rate on [these types of deals] is not that high. But we are certainly spending more time on them,” he says.

And while there is demand from private equity firms for these sorts of products, there is also a willing supply of money chasing the same opportunity. As the direct lending market has become more crowded, particularly at the vanilla and less risky end, some asset managers have seen a gap in the market to earn slightly higher returns by investing in capital solutions deals.

Apollo raised $6.5 billion for its "hybrid value" fund in 2026; Warburg Pincus raised $4 billion for its first capital solutions fund in 2024; and CVC’s credit arm raised €1.6 billion for capital solutions deals in 2024.

Between the lines

This work is particularly valuable to law firms because it is not yet standardised.

Yen Sum, the London-based global chair of Latham & Watkins’ private capital practice, says: “It’s work that sits at the intersection of equity, financing, tax, governance, FDI, antitrust and regulatory frameworks - so it can be intellectual and creative.”

Unlike buyouts, where much of the documentation is fairly consistent with terms pulled from internal law firm databases, capital solutions deals are often bespoke. Lawyers must figure out market terms, unique structure and understand the sector, all of which makes for more complicated and higher margin work for law firms.

Sum says that while capital solutions practices typically draw on partners from restructuring, equity and financing departments, Latham is trying to train up juniors to have the skills to cover all the product areas.

“Ultimately, we are agnostic and equally comfortable whether the tool is equity, debt, something in between or a series of products. Clients are looking for one, or a combination, of tools that work,” says Sum.