Introduction

The recent merger of Ashurst and Perkins Coie has continued the trend of US-UK mergers in commercial law. What makes this case different is that the new firm has opted for an Alternative Business Structure model rather than a standard Limited Liability Partnership (LLP), making it the largest law firm in the UK to do so. 

This allows Ashurst Perkins Coie to invite non-lawyers to take ownership stakes to raise private investment and capital. However, the firm has insisted that the move was only for structural rather than financial purposes.

Yet, since the merger between the UK and US powerhouses, US giants such as Paul Weiss, Proskauer and Quinn Emmanuel have floated the idea of changing their own structures in the US to a Management Services Organisation (MSO) to bypass the ethics on non-legal entities owning stakes in firms. 

Why restructure?

Since the advent of commercial law as an industry, firms have opted for LLPs as the traditional structure, allowing for partners to share equity between themselves while also being shielded from the negligence of other partners.

The AI arms race and a drive to stay competitive in the talent market have left firms feeling the need to raise capital to compete more effectively. In the US, an MSO allows a law firm to split into an entity responsible for legal advice under lawyer control, and a larger entity responsible for other services such as technology and intellectual property that can be subject to external investment.

Cynics are more hesitant about introducing private interests into the ownership structure of firms. They believe it could deter talent from joining the firm due to reduced equity shares and leave lawyers with the risk of losing control over their business. The result of such fears creates an environment where everyone is waiting for someone else to move first.

How legal teams get involved

Law firms themselves tend not to use their own in-house teams when making major changes to their business models. Ashurst Perkins Coie’s recent merger saw Simpson Thacher and Davis Polk advise the deal, with representatives from the Tax, M&A and Corporate teams. 

Should the floodgates of legal MSOs open in the US, most teams will have their own slice of the work. Tax teams will work to ensure that the transfer of assets from the legal entity to the MSO does not trigger any unforeseen costs, while employment lawyers will manage the transition of staff and the implications of partner agreements. Restructuring teams will work on the legal separation and structure of these new entities. 

Ironically, it could be the M&A and private equity teams of the same firms restructuring that could benefit most, as they are called in to advise the acquisitions of stakes and investments in rival firms. 

What's next?

Ashurst Perkins Coie’s landmark deal seems to be isolated. The recent merger of Hogan Lovells and Cadwalader and their decision to maintain their LLP structure indicates that firms are not convinced about the necessity of Private Equity investments in at least the short term.

Despite this, the cost to compete for talent and AI development rises, building pressure on firms to find the funding. As this pressure rises, a restructuring revolution is seemingly a question of when rather than if.