Latest / The PE Podcast / What Is a Law Firm MSO? | Joe Prencipe, Prencipe International

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What Is a Law Firm MSO? | Joe Prencipe, Prencipe International · The PE Podcast

• 0:00
  Joshua Wilson: So Joe, there's a hot trend right now in law firm MSOs.
• 0:03
  Joshua Wilson: Describe what that is and, you know, what are you seeing in that trend right now?
• 0:07
  Joe Prencipe: 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.
• 0:13
  Joe Prencipe: It's a huge major opportunity.
• 0:14
  Joe Prencipe: 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.
• 0:22
  Joe Prencipe: Why would that be something I want to look at?
• 0:25
  Joe Prencipe: So first of all, really quickly, the 10-second version of what is that?
• 0:28
  Joe Prencipe: It's your opportunity to buy all or part of a law firm.
• 0:32
  Joe Prencipe: Previously, it's been so highly regulated that you've never, and most investors have never had access to that asset class.
• 0:38
  Joe Prencipe: But now that is all changing.
• 0:39
  Joe Prencipe: Now, why is that changing?
• 0:41
  Joe Prencipe: This is where we get into the good stuff.
• 0:44
  Joe Prencipe: 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.
• 0:51
  Joe Prencipe: 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.
• 0:59
  Joe Prencipe: So the cost basis of this asset class is drastically changing right before our eyes.
• 1:04
  Joe Prencipe: That's point number one.
• 1:06
  Joe Prencipe: Point number two is very interesting as well.
• 1:09
  Joe Prencipe: If you've never looked before, and of course it depends on the niche of the firm, law firms are extremely profitable.
• 1:16
  Joe Prencipe: What other company is paying its partners on average $4 million as their salary, and that's the structure of the business.
• 1:22
  Joe Prencipe: Why are law firms so structured so uniquely?
• 1:25
  Joe Prencipe: Huh, I wonder.
• 1:26
  Joe Prencipe: It's because lawyers write the laws about lawyers, and they've protected themselves so well over the last decades, hundreds of years.
• 1:32
  Joe Prencipe: But now AI is changing it, turning it all on its head.
• 1:35
  Joe Prencipe: And you can get access to these very profitable businesses that you couldn't really get access to before.
• 1:40
  Joe Prencipe: So the costs are going down, the profits are already tremendous.
• 1:44
  Joe Prencipe: You can go look online about it.
• 1:46
  Joe Prencipe: You can see a lot of personal injury niches or 35% profitability.
• 1:49
  Joe Prencipe: And you might be thinking to yourself, how the hell is that possible?
• 1:53
  Joe Prencipe: And then there's a little, so there's quirks to it.
• 1:56
  Joe Prencipe: The more dependent on digital marketing, that affects the profitability.
• 1:59
  Joe Prencipe: By the way, I'm not a spokesperson for the space.
• 2:02
  Joe Prencipe: This is just me being a law firm owner understanding the space and wanting to share that knowledge.
• 2:07
  Joe Prencipe: And the third reason is very, very interesting as well.
• 2:11
  Joe Prencipe: So essentially what's happening is, when you get in and you can buy these businesses, you can scale because everything's automated.
• 2:17
  Joe Prencipe: 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.
• 2:26
  Joe Prencipe: This is very different.
• 2:27
  Joe Prencipe: But now because of automation, you can scale.
• 2:30
  Joe Prencipe: You can buy into that office at 5x EBITDA.
• 2:33
  Joe Prencipe: You can now scale it to multiple cities around you at a very low cost, right?
• 2:38
  Joe Prencipe: 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.