The UK is arguably the most mature market for capital investment into the legal sector, supported by the Legal Services Act 2007, which enabled alternative business structures (ABS), facilitating external investment and public listings. The UK has since seen several law firm IPOs, including DWF, Keystone Law, and Gateley. These firms used capital raised from listing to invest in technology, talent acquisition, and international expansion.

In the United States, private equity has been making notable inroads, albeit within a regulatory framework that traditionally prohibits non-lawyer ownership of law firms. Workarounds, such as investing in legal tech companies, alternative legal service providers (ALSPs), and legal process outsourcing (LPO) firms, have enabled PE funds to tap into the legal market without breaching the rules.

However, recent regulatory reforms in some US states now allow non-lawyer ownership of law firms under controlled “sandbox” models. This has opened the door for private equity to invest directly in firms and is already reshaping how legal services are delivered. Some firms have adopted corporate-style structures that make them attractive to investors, and several PE-backed consolidators are acquiring niche firms to create scale and profitability.

Back on home soil, Australia has a history of regulatory openness, having been among the first jurisdictions to allow incorporated legal practices (ILPs) and non-lawyer ownership. The 2007 listing of Slater & Gordon on the ASX remains a historic milestone – it was the first law firm globally to go public. Despite its turbulent journey, including a troubled UK acquisition and eventual delisting in 2023, Slater & Gordon is still in operation and owned by private equity firm Allegro Funds.

Since then, the pace of public listings has been measured, but not inconsiderable. The likes of Australian Family Lawyers, Xenith IP, IPH Limited and Prime Financial Group have all taken the leap to list on the ASX.

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Outside of listing, and if international trends are to be believed, there is renewed interest in alternative funding models. The rise of litigation funders, many of whom are backed by private equity, has also enabled law firms to de-risk high-value cases, further intertwining financial and legal sectors. While no wave of PE investments into Australian law firms has yet occurred on the scale seen in the UK or parts of the US, the strategic interest is real. Domestic firms, particularly in high-growth sectors like class actions, employment, and insurance law, are increasingly being courted by PE firms seeking scalable, profitable, and process-driven operations.

For private equity, law firms are appealing targets. Unlike cyclical sectors such as retail or construction, legal services often deliver stable, predictable cash flows. PE firms also see potential for operational optimisation: law firms with strong brands, loyal client bases, and room for efficiency gains (through technology or better processes) are particularly attractive.

Additionally, as clients increasingly demand value and accountability, PE investors see an opportunity to apply business discipline to law firm operations, naive as that may sound. This includes centralising functions, automating processes, and incentivising performance, moves that can increase profitability and ultimately lead to higher exit valuations.

From the law firm’s perspective, external investment also offers several potential benefits:

1. Access to capital: Traditional law firm growth relies on partners reinvesting profits. PE funding allows faster expansion, investment in technology, and the ability to attract top talent with competitive remuneration.

2. Strategic flexibility: PE firms often bring experienced operators and consultants who can help professionalise operations, identify acquisition targets, and develop new service lines. This can help law firms diversify into adjacent services (e.g. consulting, risk, tech-enabled delivery).

3. Succession planning: For partnerships facing ageing leadership and unclear succession, a PE investment or sale can provide an exit pathway for retiring partners and secure the firm’s longevity.

4. Talent incentivisation: Unlike the traditional lockstep model, which many firms still maintain, PE-backed firms can offer equity-like incentives to attract high-performing lawyers, aligning individual and firm success more closely.

However, the shift from partnership to corporate structure is not without a myriad of challenges that cynics who have operated within the legal industry will be familiar with, and may assert will be the obstacles that inhibit this trend from taking hold:

• Lawyers are trained to prioritise ethical duties, client interests, and long-term reputation. These values may conflict with PE’s focus on short-term returns and exit strategies. Aligning commercial priorities with legal obligations requires a delicate balance.

• PE firms typically aim for high returns within a five- to seven-year investment horizon. This can lead to pressure to increase billing rates, reduce overheads, or focus only on the most profitable matters, potentially at the cost of client relationships and firm culture.

• Despite Australia’s helpful ILP regime, compliance with legal profession conduct rules remains a vital ingredient to success. Investors must navigate these intricacies carefully, and firms must ensure external capital does not compromise independence.

• When a law firm takes on PE funding, it often concedes significant control. Strategic decisions may be driven by investors, and partners may find themselves operating more like business managers than trusted advisers, not their usual style or comfort zone.

So, the fundamental question remains: Is PE investment compatible with the partnership model and cultural nuances of this model?

The traditional law firm model is predicated on shared ownership, collective decision making, and long-term stewardship. PE investment, by contrast, introduces external accountability, often with a timeline and financial metrics that diverge from those of typical partnerships.

Some firms have attempted hybrid models, maintaining partnership control while carving out parts of the business (e.g. managed services or tech divisions) for investment. Others have fully transitioned to corporate structures. Ultimately, the success of these models depends on alignment of values, clarity of governance, and a shared understanding of what “success” looks like.

Some may say that the legal industry is at an inflection point. As globalisation, client demand, and technology reshape legal services, the pressure to innovate is mounting. External investment, whether through private equity or public markets, offers one route forward, but it is not without trade-offs.

For Australian law firms, the opportunity is clear: with the right business partner, external capital can unlock growth, efficiency, and competitive advantage. However, firms must tread carefully, protecting the core values that define the profession while embracing a new financial future. As this trend unfolds, firms that blend commercial sense with professional integrity may be best positioned to thrive.

Kim Wiegand is the founder of Julip Advisory.