Better take the offer
The Financial Times is reporting that:
The largest personal injury law firm in the US is considering selling a stake to an outside investor, in a deal that could seal private equity’s arrival in a sector previously off-limits to financial buyers.1
The American Bar Association has rule 5.4 in place that prevents non-lawyers from owning equity stakes in law practices. This concept is, in part, meant to prevent outside interests from meddling in cases.2 Morgan & Morgan is working to close a deal this year:
The deal would be the most significant use to date of an innovative financing technique designed to get round a ban on non-lawyers owning law firms in the US.
Aside from all the moral questions here, from a business perspective this is a Softbank-type moment for the personal injury industry. In 2018, Uber’s CEO summed up the then dynamic with Softbank by saying “I’d rather have their capital cannon behind me.”
If you are the largest player in an industry that relies on huge marketing and advertising budgets, you would like to make sure you have all the capital you need. According to industry analysts, Morgan & Morgan spends almost four times more on advertising than the next closest spender in the legal industry.3 At over $220M in annual ad spend, they are the ones with the cannon behind them now pointing it directly at local competitors who don’t have the same blanketing potential.
If smaller competitors are able to tap into their own capital cannons behind them via deals with private equity, the space might get less profitable in many markets. Morgan & Morgan is in a prisoner’s dilemma—take the money to keep the position in the market or watch others try to replicate the blanket the airwaves and sight lines strategy that Morgan & Morgan found success with.
The innovative structure is basically setting up a management services organization separate from the legal practice which stays lawyer-owned.4 Some states already permit this and there’s a patchwork of regulation across states. This seems well suited for some creative lawyers to be able to figure out how to do it, given that Morgan & Morgan operates in all fifty states.
Morgan & Morgan’s founder is open about some reluctance, telling the FT that:
He had doubts about doing a deal. “I don’t get along well with private equity, because I don’t like usury rates,” he said.
Headquartered in Florida, where usury rates are set at 25%, this seems like a bit of negotiating bluster from a founder who routinely shows up on billboards with a baseball bat or riding an eagle. Why not negotiate in public on the pages of the Financial Times? If you aren’t worried about regulatory scrutiny, you might draw in some other bidders.
The first read on this type of funding is “probably going to impact all those businesses and people that will be hit with more personal injury lawsuits” while in reality the bigger impact will be on all the other personal injury lawyers who don’t take on private equity to boost their marketing spend. Broadcasters and billboard owners are also well positioned here to make sure you are fully aware of your legal options should you have slipped and fallen yesterday.