What Is a Law Firm MSO? | Joe Prencipe, Prencipe International

Joshua Wilson: 0:00

So Joe, there's a hot trend right now in law firm MSOs. Describe what that is and, you know, what are you seeing in that trend right now?

Joe Prencipe: 0:07

Yeah, this is something that everybody who's in private equity, a strategic acquirer, a family office needs to be paying close attention to right now. It's a huge major opportunity. And a lot of people, and obviously I run a law firm, so a lot of people just don't really know where's the value in a law firm MSO. Why would that be something I want to look at? So first of all, really quickly, the 10-second version of what is that? It's your opportunity to buy all or part of a law firm. Previously, it's been so highly regulated that you've never, and most investors have never had access to that asset class. But now that is all changing. Now, why is that changing? This is where we get into the good stuff. And this is also the interesting thing here: the thing that's making it all change is also the thing that's creating all the value here. So, first of all, the cost of firms are being reduced 80, 90 percent plus right now as we speak due to AI workflow automation. So the cost basis of this asset class is drastically changing right before our eyes. That's point number one. Point number two is very interesting as well. If you've never looked before, and of course it depends on the niche of the firm, law firms are extremely profitable. What other company is paying its partners on average $4 million as their salary, and that's the structure of the business. Why are law firms so structured so uniquely? Huh, I wonder. It's because lawyers write the laws about lawyers, and they've protected themselves so well over the last decades, hundreds of years. But now AI is changing it, turning it all on its head. And you can get access to these very profitable businesses that you couldn't really get access to before. So the costs are going down, the profits are already tremendous. You can go look online about it. You can see a lot of personal injury niches or 35% profitability. And you might be thinking to yourself, how the hell is that possible? And then there's a little, so there's quirks to it. The more dependent on digital marketing, that affects the profitability. By the way, I'm not a spokesperson for the space. This is just me being a law firm owner understanding the space and wanting to share that knowledge. And the third reason is very, very interesting as well. So essentially what's happening is, when you get in and you can buy these businesses, you can scale because everything's automated. You know, before you might have had a personal injury firm in Los Angeles and, gosh, managing 20 attorneys and paralegals, that's a lot of work. This is very different. But now because of automation, you can scale. You can buy into that office at 5x EBITDA. You can now scale it to multiple cities around you at a very low cost, right? So essentially you can get a really high return if you're looking at these opportunities with a huge scaling plan, which is so common when we talk about roll-ups, et cetera, et cetera.