Transcript
A (0:01)
The legal landscape is changing. Private equity is entering the chat and managed service organizations, or MSOs are changing the way law firms scale, access capital and compete. You don't have to play the PE game, but if you want to stay competitive, you have to understand it. Today we're talking with Tim Mackey, CEO of Vista Consulting. Tim knows this world inside and out. He recently served as a key strategic advisor on a landmark private equity deal that that transition Dudley DeVos your injury lawyers into an MSO structure. We're breaking down exactly what an MSO is. How to protect your firm's core values if you bring in capital. And we even play a little game on how to deploy a marketing budget as a startup versus a scaling eight figure firm. This is Personal Injury Mastermind. I'm Chris Dreyer, founder and CEO of Rankings IO, the elite performance marketing agency for personal injury law firms. Let's get into it. First of all, just what is an MSO for our audience?
B (0:58)
Yeah, a managed service organization is simply an entity that has employees and know how and has licensed name, image, likeness from someone else and it then provides services to another organization. So it's a managed service organization. In this case. If you picture a law firm before a managed service organization, everything is within that one entity. All the paralegals, the copy machines, you know, the know how, the systems, the processes, all that are is within one entity that also practices law. And what an MSO is is simply the creation of a new entity and you take all of the support and you drop it into another entity and it provides services back to the law firm. So and going the step further, the private equity or anyone who wants to invest in this service industry can, because it is not a law firm. So the law firm has to be owned by lawyers, except in Arizona, Puerto Rico and D.C. where they have some non lawyer ownership provisions. But by and large in this country, lawyers have to own law firms. But with this creation, we've got a service business that provides just about 100% of the support services to the law firm. Lawyers are still in the law firm. They're not over here. Their practice of law is in the law firm 100%. All the decisions made on cases and all that within the law firm support services over here. So that's a very brief explanation of something that gets a little bit more complicated, but that's what it is.
A (2:45)
Yeah, thank you for that. So that makes sense from a, you know, you got a way, a means of getting capital in or out of the business. Let's talk about the pros what are some of the cons? And we need to talk about it versus the ABs. But like what are some of the pros and cons just come to mind?
B (3:00)
I'll compare ABS to MSO first. Abs, meaning alternative business structures, which is the type of entity that has been created in Arizona, Puerto Rico and in Washington D.C. they are law firms that can actually have owners that are not lawyers. There were some rules that were amended, changed or erased. Even in Arizona, where non lawyers can own law firms, that's an abs. The pros with that is what you would think. Then you can get capital. The people that come in non lawyers may have capital to inject into the business. The big con is that not all states recognize this alternative business service. In fact, there are some states that are now writing into their bar rules that hey, this particular state cannot share legal fees with a ABS law firm, a law firm that has non lawyers in it. So you've got these cross state lines problems, which is huge because, you know, I thought of it when it happened that it had to be a domino effect. You know, every state had to fall. Well, not many have fallen in the three or four years ABS came about. Really only one or two dominoes have fallen at all. And there's been a lot of resistance. However, I want to contrast that now with the MSO structure, which I already explained, which it's not ownership of the law firm by non lawyers, it's ownership of a support service by non lawyers, or at least part of it. In the transaction that I was involved with, you know, private equity bought a piece of the support entity and with the idea that they bought a platform firm, a Dudley de Bossier, and people know who that is. And that was the most public or really the only one that I know that's been totally publicized in the country right now. They went from the acquired to the acquirer right after closing. So they were acquired with the idea that they, along with private equity, were going to fund additional acquisitions to come under their mso, or at least maybe a sister MSO beside it. So the pros of that is an ability to grow in a way that, that is scalable, potentially provides capital. If you think about it, you know, the daily demos guys, they may have been doing really well, but they weren't ready to go out and buy five other law firms. So this is a methodology of doing that. You know, it's not right for everyone. I mean, you, you're relinquishing some, some of the management, or at least, you know, input to management. To someone who, whether they're a lawyer or not, to me makes no difference. You relinquish it to somebody else. You know, you have a partner now. You know, the three guys in Dudley Devozier have been together for 15, 16 years and now all of a sudden you're letting someone in that's going to own a piece of your management company. And look, whether or not it's private equity or Joe Blow or whoever, that's still a big decision, you know, to bring in a partner. So a lot of the discussions and frankly my involvement with these guys were much more before the letter of intent was signed with hey, is this what we want to do and why? What makes sense for us? And running all those traps, for lack of a better word and the why
