Navigating Law Firm MSO Transactions
and The Role of Representations & Warranties Insurance
Introduction
The legal management services organization (MSO) market is evolving as outside investment and technological innovation drive increased transactional activity. In this discussion, attorneys Trisha Rich and Joshua Porte from Holland & Knight, and Dan Hoppe of Lockton, examine the regulatory framework governing law firm MSOs, emerging M&A trends, and the ethical considerations surrounding lawyer independence and fee sharing. They also explore how representations and warranties insurance can help allocate post-closing risk, reduce sellers’ financial exposure, and support productive relationships between buyers and law firm owners.
Dan
Today I am joined by Josh Porte and Trish Rich, distinguished partners at Holland & Knight.
Together, we'll explore the rapidly evolving world of legal management services organizations and their transactions, and discuss how representation and warranty insurance can play a critical role in mitigating the financial risks that these transactions present.
Josh and Trisha, thank you both for joining us today.
Thank you for having us, Dan.
Trisha & Joshua
Dan
I think it would be helpful just as a baseline if you could give us a breakdown of your work in the legal MSO space, as well as how the both of you support these M&A transactions in different ways.
We run what we call the Holland & Knight Legal Services Transactions Team, which currently comprises around 60 lawyers who spend either a substantial amount or all of their time working on these kinds of transactions.
The team includes corporate and M&A lawyers like me, legal ethics and professional responsibility lawyers like Trish, as well as the other wraparound services necessary to structure and execute these deals, including tax, debt financing and employee benefits lawyers.
At the end of the day, these are M&A transactions, so they require the full range of M&A skill sets to successfully structure and execute the deal. They just have an additional legal ethics and regulatory overlay. That means making sure Trish and her team are intimately involved at every step of the transaction—from the letter of intent forward—to ensure the deal terms are consistent with applicable law. That involvement continues through drafting and negotiating the definitive agreements and the give and take of the M&A process.
Following closing, the team also handles audit and compliance work to make sure the structures are operated in practice in a way that honors the letter and spirit of the rules.
Joshua
I think the simplest way to think about it is that, at every step, my team is asking: “Is any specific provision violative of the rules of professional conduct, either in substance or in form?” And taken together, “Are the provisions violative of those rules, either in substance or in form?” That’s the ethics guidepost that moderates all of the work we do in the field.
Trisha
Dan
Trish, you mentioned that you’ve seen MSOs dating back to ’97. From our perspective, we’ve seen a more recent increase in transactional activity in the space. What’s happening in legal MSO M&A today that we weren’t seeing in the past?
“For the first time, we’re seeing third-party investors own some or all of the MSO structure.”
The real shift happening right now centers around two main things, in my opinion.
First, for the first time, we’re seeing third-party investors own some or all of the MSO structure. Historically, MSOs were typically owned by parties friendly to the law firm, whether the lawyers’ own family members or business partners. Now, firms are seeking outside capital from private equity or family offices to help own and support those MSOs. Because the MSO is a separate entity from the law firm, it can be owned by non-lawyers. That has certainly picked up and is a relatively new development in the space, although it’s still a few years old.
The other shift is happening at the same time: AI in the legal field has really accelerated over the last couple of years. So you’re seeing outside capital and AI enter the legal space at the same time, often through the same vehicle. I think that has driven a lot of interest in our little corner of the world.
Trisha
Dan
Got it. As a baseline, can you give us some background on the regulatory framework for legal MSO structures? Why do certain functions need to be separated into an MSO rather than remain within the law firm, and how do you structure that within the regulatory framework?
The baseline is our Rules of Professional Conduct, which regulate the legal profession on a state-by-state basis. We also look to ethics opinions, which are non-binding but provide guidance on how those rules apply to situations like law firm-MSO partnerships.
When we’re talking about MSOs, two of the biggest considerations are Rules 2.1 and 5.4: lawyers must remain independent, and they cannot split fees with non-lawyers. We also have to consider rules around non-competes, confidentiality, conflicts and client communications.
But the two fundamental questions are: Are the lawyers going to remain independent? And is there any hint of prohibited fee splitting?
Trisha
Dan
And Josh, given your experience in the healthcare MSO space, how do legal MSO transactions differ from the more established healthcare MSO model and the corporate practice of medicine?
“There are also nuances around conflicts of interest and client confidentiality, but to me, the lack of non-compete protection is the single biggest and most important difference."
The corporate practice of medicine doctrine prohibits non-physician ownership and control of healthcare practices, much like Rule 5.4 prohibits non-lawyer ownership or control of law firms. Likewise, many jurisdictions prohibit physicians from splitting fees with non-physicians, similar to the prohibition on fee splitting in the legal profession. So there are a number of foundational principles that are consistent across the two regulatory environments.
But there are distinctions. One of the biggest is that lawyers generally cannot be bound by non-competes under Rule 5.6, even in the context of a sale of their non-legal assets, as we see in an MSO transaction. So, absent narrow circumstances, buyers are not going to get the benefit of non-compete protection—a fundamental risk factor that generally does not exist in healthcare.
There are also nuances around conflicts of interest and client confidentiality, but to me, the lack of non-compete protection is the single biggest and most important difference.
Joshua
Dan
Given that many current acquisition targets may be less familiar with traditional M&A processes and market terms, what has your experience been getting sellers comfortable with customary provisions around indemnity, risk allocation, conditionality, and representations and warranties?
“Because lawyers generally can’t be bound by non-competes, preserving harmony between buyers and sellers post-closing is particularly important in these transactions”
It is an exercise in educating founders, many of whom have built incredibly successful law firms but have never sold a business that represents their life’s work. We spend time walking them through how a purchase agreement works, how risk is allocated, the representations and warranties they’ll be asked to make, and what happens if one of those representations turns out not to be true.
That risk allocation is also an area where we can work with firms like Lockton to transfer risk to insurers. Because lawyers generally can’t be bound by non-competes, preserving harmony between buyers and sellers post-closing is particularly important in these transactions. The more a buyer can pursue a breach of representation through an insurance policy rather than directly against the seller, the more you can preserve that relationship.
Joshua
Dan
That’s a great transition into representation and warranty insurance. We’ve had the opportunity to work together on a number of RWI placements, which can take the place of a seller indemnity and transfer some post-closing liability to an insurance carrier. What has your experience been with RWI, and do you remember when you first encountered it?
I think my first insured deal was around 2017, and I remember being amazed that you could use an insurance policy to transfer M&A risk from the sellers to an insurer.
In a traditional indemnity deal without RWI, a portion of the purchase price—often around 10% of enterprise value—is held in escrow, potentially for 12 to 18 months or longer, to cover any indemnity claims. That means sellers don’t have certainty around their full proceeds until the escrow is released.
With RWI, that escrow can often be reduced significantly, sometimes to around half a percent of the purchase price, which is a material difference for sellers looking for cash certainty. I remember being blown away when I first encountered the product.
Joshua
I encountered RWI for the first time through my work in law firm-MSO relationships. It has emerged as a really useful tool, and we’ve been impressed by the way Lockton has approached these transactions and thought about where we can get assurances and provide coverage.
Trisha
Dan
One important aspect of maximizing the value of an RWI policy is making sure the representations and warranties fully reflect the risks of the business. Trish, are there specific law firm-related risks where buyers should be particularly focused on securing representations and coverage?
This is one reason it’s important to have legal ethics and regulatory counsel at the table. Whether we’re representing the investor or the law firm, we conduct a mini audit as part of due diligence—looking at bar complaints, engagement and disengagement letters, referral fee arrangements and other regulatory issues.
On the law firm side, we may identify practices that should be cleaned up as part of their risk management. On the investor side, we’re identifying potential regulatory risks they need to consider. These issues can be very specific to the practice of law, which makes RWI a particularly powerful tool in these transactions.
Trisha
Dan
Are there any specific forms of recourse or special indemnities that legal MSO buyers are seeking that differ from what you might see in a traditional M&A transaction?
I don’t think there’s anything too unique here. You’ll often see the same types of special indemnities, such as a tax indemnity or a limited-scope indemnity for a specific issue identified during diligence. Otherwise, the indemnities are generally consistent with traditional M&A transactions.
Joshua
Dan
One more general question on RWI: Have you been surprised by its availability or any of the terms in this space, or has it generally been what you expected?
"Insurers have generally been comfortable with that risk profile. We’ve also seen competitive processes, with multiple insurers interested in bidding on these transactions."
I did wonder whether there would be more pushback from insurers around the MSO structural aspects, but insurers have generally been comfortable with that risk profile. We’ve also seen competitive processes, with multiple insurers interested in bidding on these transactions.
Law firms tend to be fairly self-contained businesses without many of the risks you see in other industries, such as significant environmental regulation, large workforces or union activity. Once you get through the structural risk, these businesses can generally be diligenced comprehensively and with a high degree of conviction, which makes them attractive from an underwriting standpoint.
Joshua
Dan
I’d like to turn now to where we see this industry going and how law firms might utilize these structures. If a firm wants to explore whether an MSO structure is right for them, what’s the first step?
The first step is education, both on the investor and law firm side. There’s a steep learning curve, so it’s important to talk to experts—investment bankers, lawyers, insurers and operators—to understand what these relationships look like, the responsibilities involved and the potential benefits.
It’s also critical to maintain an ethics-first approach. If the MSO exercises real or constructive control over the law firm, the structure will not comply with the rules. The relationship needs to reflect the ethical guideposts governing how law firms interact with vendors and other third parties.
Josh and I have also developed a regulatory heat map on Holland & Knight’s website that tracks regulatory developments and ethics opinions in this space and is available to the public.
Trisha
Dan
That’s great advice for both law firms and investors considering the structure. Looking ahead, where do you see the legal MSO space going over the next 12 months and beyond, particularly from an M&A perspective?
The dominant trend in 2026 has been the expansion of transactions beyond consumer and mass-marketing law firms into other segments. We’re seeing insurance defense and creditors’ rights transactions, as well as Am Law firms beginning to evaluate these structures more seriously.
Joshua
Dan
Trish, from a regulatory perspective, what do you see happening in this space over the next 12 months and beyond?
I think we’re going to see more regulatory developments, including ethics opinions from bar committees. While those opinions aren’t binding, they provide useful guidance on how these structures should be set up.
We may also see investigations or other regulatory actions, which will be driven by the specific facts of individual cases, as well as additional legislation. We’ve already seen legislation in Illinois and Colorado, and there may be more to come. So far, much of that legislation has reinforced the independence requirements already reflected in the Rules of Professional Conduct.
Trisha
Dan
I think the key takeaway is that this space will continue to grow, making it important to stay current on the evolving regulatory landscape and involve teams like yours at Holland & Knight early. We’ve found it’s always better to get ahead of the education and potential issues rather than address them later.
Yeah, we agree. We think having competent, experienced counsel at the table as early as possible is really key to having a successful transaction.
Trisha
Dan
That’s all the time we have today. Thank you both for joining us. This has been incredibly informative and, hopefully, helpful to our listeners as they navigate these types of transactions. We look forward to continuing to work with you and the Holland & Knight team.
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