How Private Equity Is Reshaping Legal Services: Tech-Enabled Growth and “People-First” Value

Daniel, Eric, thanks for having me.

Yeah. Thanks, Daniel. So I'm Lee Minkoff, managing director at Renovus Capital Partners, lower middle market private equity firm headquartered outside of Philadelphia, Wayne, Pennsylvania, not too far from from Eric.

And we invest in the knowledge and talent industries. Four verticals, education, health care, IT services, and professional services. I lead our professional services vertical, which includes all of our activity in legal services, and it's really been the majority of our activity.

We are buying founder owned companies. We're not investing directly in legal tech, but we are investing in legal technology services, and we are investing in tech enabled legal services. So we're a services investor, but really around the legal services ecosystem.

My job is to originate deals, execute those transactions, manage the investments, and then as a private equity firm, sell and monetize those investments as well as, you know, providing, you know, leadership internally and putting content out into the market and raising the brand of Renovus. But my day job is really as an investor and supporting our management teams and growing the equity value of our our portfolio companies for our investors, our our limited partners. You know, done a lot of deals in legal. Think seventeen transactions.

Harbor, super relevant to today's discussion. They're the leading digital transformation provider to the world's largest law firms and corporate law departments. We did ten acquisitions in a three year period, built Harbor, recapitalized it with a great private equity firm called Baypine. We reinvested as a minority investor, and I'm still on the board of that business.

We have a company called Angeion, which is a leading provider of free and post settlement services across various types of mass litigation. So class actions, mass torts, bankruptcies, and we're also getting into the single event space. We have a newer platform that's called K2 Services. It's an IT MSP and business process outsourcing business.

We acquired K2 and simultaneously acquired Forest Solutions and the global business transformation solutions business out of Epiq Global, a very large ALSP that I assume most of our listeners know. And that's more of a back office MSP play, but it's very relevant to the MSO thesis in law firms and potentially invest private equity investing directly in law firms. And then outside of Renovus, but relevant to my work with Renovus, I'm on the board of Top Dog Law, which if you're in Philly or many cities in the US, you've seen the billboards or the ads on the radio. They're one of the largest personal injury law firms and marketing MSOs in the US and then on the board of that in my independent capacity.

So that sort of spans my portfolio of legal companies. But looking at many others and looking to deploy capital and get deeper and deeper into the space both through our existing investments and new platforms.

So we have not done any discovery deal, but many of our counterparts in the industry have, to your point, rolled up eDiscovery companies. And the kind of big macro thesis behind eDiscovery investing is investing behind growing litigation volumes in the US. And if you're a believer that the world is going to continue to evolve and become more complex and litigious, then you're probably a believer in litigation support companies like eDiscovery. What else?

EDiscovery sells into a massive end market of legal services. Right? Four hundred billion dollar global TAM, right, that has been growing year over year for a very long time. It's very resilient.

You know, the legal industry has grown through recessions. There's always pockets in practice areas and geographies and verticals that are having pockets of high activity, and it's a great end market to invest in. And so I think the play on eDiscovery and ALSPs, if we just bucket that, is really investing behind an end market with a lot of secular tailwinds. Right?

And that is at the highest kind of thirty thousand foot level. We love investing in legal. It's a great end market, great ability. Like, you've seen Amlaw has been able to increase bill rates every single year, and they've only got so many hours that they can bill.

But there's great price elasticity in the market, and there's dollars to spend, and there's money to be made. And we'll talk about it, I know, today on the podcast, but historically, private equity has really only invested in eDiscovery firms, alternative legal service providers like ALSPs. They haven't invested in law firms, firm companies directly providing legal services. And that's something that's gonna be changing in this market, and it could shake things up even more.

But it also can make it even more attractive to invest in the ALSPs.

First on eDiscovery in particular, I think eDiscovery businesses are great businesses. There are questions around, you know, the race to the bottom and hosting and then what AI will do for the EDRM, which is, you know, a structured model in a way that people seem to believe. And there's been some good AI adoption within eDiscovery.

I think more broadly, we're actually very bullish on how AI can impact the legal profession. Remember, AI cannot provide legal services. That would be UPL or unauthorized practice of law. So what AI is going to do at least in the foreseeable future, it's our opinion that we're in the golden age of legal services when lawyers can basically produce more units of product or service in less time using AI, getting more done with less hours, but serving more clients, still filling up a two thousand fifty two hour plus year while being able to expand bill rates.

I'm not gonna go out and say and I listened to there's been some great guests on the podcast around legal billing. I love that as a topic, and we could always get into that. But I'm not a believer that all of a sudden, the world's largest law firms are gonna upend the billable hour. I know it's been talked about for years.

There's fixed fee models and performance based models. And I think we might see that over time, maybe five, maybe ten years. I think at least for the next five, we are in the golden age of legal services where attorneys can leverage a host of very attractive AI enabled tools and make themselves more productive at serving their clients and making money for the firms and themselves. So I'm very bullish on AI as an opportunity, as a positive disruptor.

Maybe it's a threat ten years out. Maybe robots are allowed to practice law. I don't wanna get into that right now. But I think near term, our kind of five year investment horizon, AI is one of the driving forces behind our interest in the legal market because it can be such a big opportunity and game changer for many of the firms and the ALSPs.

It's a great question. I think the best way to answer it is using what I'll call the four m's of private equity, at least private equity for me, and then maybe a mini case study on Harbor. So the four m's for me, market model, so business model, management, and M&A. Right? Those are, like, the four things that if you just really put my job into, a little box, it's those four corners, those four m's.

So the market. I want to invest in a growing market. Right? That is my beta.

If I can pick a good market and a good theme within that market that is growing, there is demand for services in that market, I've done a lot of my job. Right? Think about Harbor. Digital transformation, advisory, and managed services for the legal profession, both law firms and corporate law departments.

It's a great end market. That's an end market that's growing high single digits, low double digits per year based on the spend of the underlying client base law firms and law departments. Then it's the business model. How do I play that market?

Right? Maybe we start getting the alpha equation. Right? I've got my beta now. How get my alpha?

Digital transformation, assess, implement, manage, provide consulting and managed services, and some technology enabled services to those clients on a third party basis. So that's my business model. We're a services investor. We're not investing directly in tech, but we're investing in technology ecosystems and implementing and advising and managing that tech.

Right? And so maybe a hybrid between the market and the model is we had a good view on Elite and Aderant to practice, you know, financial management systems. We like the Intact ecosystem and risk and compliance solutions.

You know, on the corporate law department side and Mitratech and AgileOpt and Eversort, like, we've invested in those ecosystems, and we're a services provider that's implementing those technology solutions on a third party basis for our clients. So that's the model in which we're playing it. Then it's the management team. This is where Renovus really excels.

We're a knowledge and talent investor. We're Nuance in that we invest in solely people businesses. These are the classic the assets walk in and out of the door every day. It's just like BDO and consultancies.

We invest in consulting, accounting, legal, professional services companies, and we are believers that investing in talent is a great way to be successful in private equity. We are looking to recruit and top grade our talent base. Believe expanding the team, deepening the network across management, sales, delivery, technology.

That's where we can, again, create a lot of alpha. And then lastly, it's M&A.

We like to invest in professional services companies. A lot of the time, there's some alpha on the beta of the end market. So maybe if the end market's growing high single digits, maybe our company is growing low double digits, slower than the average SaaS company. We're able to double or triple that organic growth through acquisitions.

And so when we've done our work on the end market, we're also looking at the fragmentation of companies in the end market. And for us as investors and founder owned companies, we're looking at local, regional, global companies that might be smaller players in the ecosystem. But if you can bring these companies together and integrate them effectively, which is a core competency for us, we can create a lot of alpha in these companies and, again, double or triple the organic growth to have, you know, twenty, thirty, forty percent total growth in these companies via accretive M&A. And that's what we've done with Harbor.

We identified a thesis, digital transformation for legal, put together ten companies. We've now done eleven acquisitions with the first closing with Baypine, built an amazing management team, and integrated all of the acquisitions into a leading global platform. So hopefully that helps bring together my world, and I've done that, you know, five platforms at Renovus, Harbors one of them, and then two others in legal and I think it's a good way to think about private equity investing.

Great question, Eric.

I would say the style of Renovus and there are other private equity firms that there's different kind of spectrums of approaches in private equity. But I would say we are strategically hands on, operationally hands off. So we're not in the day to day. While I love to spend time with the clients of our portfolio companies, it's in select situations. I'm not doing delivery. I'm not getting involved in day to day operations. But I'm a partner to our executives, to our c suites.

I'm partnering really closely with our CEOs on all of the problems that come up in the business.

Things go wrong. We're investing in a lot of project based businesses. Right? They're not linear, like you're growing ARR, you know, every month.

A lot of these are consultancies and project based businesses. We're looking to convert a lot of that consulting to recurring managed services, but it's not linear. And projects end. Right?

And so things can go wrong. I would go back to the market.

I think we have done a good job at our investment committee and underwriting level of we are picking a good end market.

We are typically not investing in businesses that will go to zero or have even double digit contractions in terms of revenue decline. They might not be the fastest growers in the world, but we're investing in generally resilient end markets. Think legal. Think accounting. Think wealth management. Like, we're not making bets where things can go to zero. We're not taking that level of risk.

That said, you run into people issues. You run into client issues. What's nice about these businesses is that they're capital light. Right?

We're not taking large amounts of leverage, and a lot is in our control. Right? We're able to cut costs without cutting into talent. Right?

Where we can typically figure out ways to cut costs on the non talent side, and we're not taking huge amounts of leverage. And so we've got cash flow cushion in these businesses.

If I could say one thing around the problems that I'm usually dealing with, it's people. Right? Just like everything for us. Right?

Right.

All business is just people. And, you know, as long as you're radically transparent is what we call it, you're open, you're a good communicator, you overcommunicate, You're honest and upfront, and you treat people well with integrity. I think sometimes we have to make really hard decisions, but I think we're doing what's best for the company. And, usually, we're able to solve a lot of our problems by making changes with our talent base in these companies.

Right. I would say so. I would say, like, there's this convergence of, like private equity is almost like the convergence of Wall Street and Main Street. Right?

Like, you know, I'm a private equity investor. There's tons of big private equity firms on Fifth Avenue, New York, but I'm sitting in suburb of Philadelphia doing the same deals that, you know, those firms are doing. And I'm doing them across the US. Right?

And so I think private equity is just become more of a ubiquitous element of our economy is maybe the right way to say it.

We are regulated. Right? If you have a certain amount of assets, there is regulation, and we're generally investing in unregulated industries. Although, we invest in some regulated industries, and that gives us some specialization.

But I think to cut to it, I think, yes, your answer is right. There's been ton of capital raised in private equity. There's tons of reasons why institutional investors and, you know, people in pensions and retirement plans should love private equity, but it's become a massive asset class. There's trillions of dollars of capital on the sideline looking to be put to work in US private companies, and it's been harder to go public.

So I think everything you said is right. I would add that on to those two dynamics that you outlined.

Such a good question.

That intensity, I kinda call it, like, the PE oomph. Right? It's the impact a company gets from having a capital partner whose really sole job at the end of the day is to create equity value for that company that the management team of that company is not gonna participate in. Right? And a lot goes into that, and I'll try to succinctly articulate all of that.

But we are buying founder owned people businesses at the end of the day. Right? So the way that we grow people businesses is same store sales. Right?

Doing more with our talent base, growing more revenue with that talent base. But, typically, if we're growing the revenue with that existing talent base, compensation should improve for that team. Then we're gonna bring additional talent in to make the work life of the existing employees of the company that we bought better. There's commercial excellence.

Right? There's a different rigor around making sure that delivery is very strong for our clients, and so it's good for our clients.

But our philosophy is that we can only have happy clients if we have happy employees. And our motto is happy employees means happy clients means happy investors. And we start at the employee. Right?

And so that means strong compensation, strong benefits packages. We have a portfolio of thirty companies. We're able to pool the aggregate purchasing power of our portfolio to get some of the best health and retirement benefits for our portfolio companies. We're able to equip them and invest in technology, right, within these firms that make their day jobs better.

Right? Maybe they can get more done in less hours so they can spend more time with their family. If you're buying a founder owned business whose sole job you know, I don't say sole job, but the founder is most likely focused on the cash distributions out of that business that they're gonna take every year, and they're probably a bit averse to reinvestment. Right?

Extra investments, extra hiring, buying a new technology solution.

Our job is to make money, but we're making this navy and majority of our money when we sell the company three, five, seven years down the road. So up until that point, we're investing in the business. We're investing through the p and l. We're putting more capital in.

We're bringing more talent in. Our job is to create a better enterprise and a better experience for our employees that are delivering work to our clients, which is good for us as investors. And I could go on and on around why I think private equity is good for these businesses, But I think, really, that's it. We're buying a founder owned company.

It's probably closely held. Equity might not be distributed, you know, to other employees. We're gonna create an equity plan. We're gonna create more aggressive compensation plans that align to our goals where people can make more money if the company does better.

And then we're creating a fundamentally better company, investing in the company to do that so that we can have a liquidity event in the future that benefits us as well as our management teams. So I could go on and on because I'm very biased, of course, but I'm very pro PE. And I think PE does get a bad rap. It does depend on the type of firm.

We're a people investment firm, so we invest in people. We typically grow the headcount. There's other strategies where they're reducing headcount. That's just not us.

Right? I think within professional services, private equity is a great thing for the sector.

Yeah. I do. And I'm such a mama's boy, so I'm, like, so excited to talk about Debbie Minkoff.

Debbie was one of, if not the first female shareholders at Cozen O'Connor. She has retired. She's still of counsel, but she was the vice chair of GIG Global Insurance Group at Cozen, which is one of their largest and best performing practice areas globally.

My mother is a five foot four Jewish woman, and seeing her go into arbitrations and mediations around really tough situations with, like, medical malpractice and all of the insurance and reinsurance coverage claims around it was just really impressive for me to see and inspiring. I'm, like, getting emotional as I, like, talk about it. She kept working, but she went part time.

And that was amazing of her to stay part time. She was raising my brother and I. We're two years apart. And she was an amazing mother, but she's also remained an amazing attorney.

And I'm also very thankful to Cozen for letting one of their top performing attorneys go part time. That wasn't really a thing. And my mother's a great attorney. She's also a great mentor.

She's done amazing things for women in the practice of law, and she's very well respected. And she's a big reason why I've invested in legal services.

You know, I mentioned to you, Eric. I kinda found my way into needing a professional internship, and, you know, Cozen gave me my first job.

I was a commercial litigation intern at Cozen O'Connor. I'm still very friendly with the firm. Cozen's become a client of all of my portfolio companies, and they're a great growing firm. But I got to see the legal profession from inside of Cozen, and a lot of my mom's friends and our family network was attorneys.

And I got to see the great, smart, talented people they are, but I also got to see the opportunity that existed within the business operations of these law firms. And so it's been great getting into the legal space and basically being able to expand the relationship with my mother because, you know, an opportunity comes in, and I can call my mom or one of her friends and get a lawyer's, you know, firsthand views on that company and so or that law firm. And so it's been really enjoyable. I appreciate you asking, Eric.

That means a lot.

It totally has. I mean, working inside of Cozen and being a client of great law firms, you know, has totally shaped my interest in law firms because of my interactions with these amazing attorneys that are great business people in a way. Like, you made this comment around, like, paying twenty five hundred, thirty two hundred dollar rates. Like, I'm glad to pay those rates.

My attorneys are awesome. I love my transaction attorneys at Morgan Lewis and DLA. And, you know, it's funny. There's all this pressure on rates, and we always talk about an investment committee these legal bills, but I think they're darn good at their job.

And so that reaffirms me investing in service providers that sell into law firms because I think these companies, these law firms are great enterprises. That said, these businesses have been cash flow oriented. Right? It kinda comes back to that, like, founder dynamic.

A lot of the way these businesses have been run is to obviously deliver great value for their clients, but to also maximize the cash flow that's distributed every year to the partners. Now this is a bit of a segue, Daniel, into, like, private equity in law. There's an enterprise value orientation happening at law firms, and that enterprise value orientation is what's freeing up the spend to invest in companies spend money with companies like a Harbor, like a K2, or an Angeion. Right?

Our portfolio companies that sell into both the litigators at law firms and the business professionals that, you know, technology operational professionals that are running these law firms. So my experience working with attorneys has been so positive, but I also think that there's so much opportunity to help them grow the enterprise value of their own firms. And that's why private equity is so interested in now investing directly in off law firms through MSOs.

I love my mom. I give her a lot of credit. I don't think I can give her credit for influencing my investment strategies. I'll give her a lot of I'll give Renovus a lot of credit.

And by training at Level Minute and JPMorgan, I think what I've learned is life is short. I wanna spend it with really good people. I want that theme to, you know, be pervasive in multiple areas of my life, but especially including work. And I fundamentally believe that the best way to have strong investment returns, which at the end of the day is my job, is to deliver strong investment returns to our investors, is to invest in really good, talented, hardworking people that can get aligned on executing a growth strategy with Renovus Capital Partners. And if you are not on board with what we're doing, that is all good. Go do what is right for you.

I've talked to a couple executives this week as around, you know, year end comp, and people that are debating if they wanna stay being an executive of a private equity backed company because it's hard work.

I want people to do what's right for them. If we are what's right for them, get on the bus. Let's go. We're gonna run hard towards a great outcome for all of us that's gonna be professionally and economically fulfilling, but also personally fulfilling.

And if that's not what you're up for, it's all good. Right? Life is long. We'll find something else to work on together or maybe we won't, and that's okay.

So that is kind of my mindset, Eric, that goes into, yes, investing, but really like all areas of my life and who I spend time with.

What's the record for the longest BDO legal tech podcast? Because I can go on for hours about this.

So I think it's about time we start thinking about some rule changes.

So I mentioned this enterprise value orientation to the law firm, and it's actually something that we've invested behind that theme within these ALSPs or service providers and technology providers that sell into law firms.

Law firms are the last frontier of the US economy that private equity has not really invested in any legitimate scale.

There's been litigation funding that supported case origination and plaintiff law for years, and, you know, you could argue the rates on that and the levels of debt put on some, like, mass tort firms. It's equity like investing, but they're structurally, they're loans. Right? Arizona changed everything with the liberalization of rule 5.4 where they created an ABS, an alternative business structure, which is a type of law firm that can have ownership from non attorney investors.

You could invest as an individual investor in a Washington DC law firm for years, but not as an institution.

Arizona and Utah through their pilot program, which is really a sandbox program that's actually getting rolled back. I think there's only, like, less than a dozen, might even be less than ten at this point Utah ABSs. But Arizona and the state Supreme Court of Arizona has launched this ABS program that has opened up a true law firm entity to nonlaw firm ownership and investment.

That program is running. There's probably a hundred plus ABSs out there. There's been private equity investment in ABSs, and we can talk about that. What I actually think is almost more interesting than the ABS is the MSO, the managed services organization.

What has happened in health care and in accounting where private equity investors can't own a physician practice because you're not a physician? Private equity investors can't own an audit practice. They're not an auditor. They don't know their attestation credentials.

These industries, in partnership with private equity, have created MSOs. It's the structure of setting up an entity that houses the employees that are not providing the credentialed service. It's an an entity that doesn't employ physicians or doesn't employ auditors, but provides services, back office, middle office services to the auditors and to the physicians.

That phenomenon, that structure is exactly what MSO investing is in law firms. So fundamentally, and I'm gonna try to not get too technical, but think of a law firm.

Lawco, now think of an opco.

All of the lawyers stay in the law co.

Everyone else, intake, HR, finance, paralegals goes into the op co.

That law firm is continued to be owned by just attorneys just like it is today. No change in ownership. That opco, that can be owned by attorneys. It can also be owned by non attorneys and private equity investors.

And that opco that has been spun out of the law firm and has all the employees, all the technology, the real estate, the infrastructure of the law firm, the business infrastructure can provide all of those services back to the law firm, and the law firm becomes a client of the MSO. And so you think that law firm just now needs to have revenue, provision of legal services, revenue from their clients, and the cost of the attorneys.

Everything else can flow to that MSO. And that MSO is just any regular company. The law firm happens to be a client of it. And then MSO can be investable by private equity.

It can hold equity from employees of the prior law firm that are now allowed to own equity in this nonlaw firm entity. And that MSO can work with firms like K2 Services and Harbor to optimize their operations, reduce costs in a professional and good manner. There's technology enablement. Dollars get freed up for investing in AI.

You can move operations offshore and cut costs if you need to. There's ways to optimize the cost structure in that MSO. And if you go back to the four m's, you can start doing other law firm acquisitions, acquiring MSAs with other law firms via that MSO. And what that does is it's created an equity opportunity, not just for the private equity firm, but for the lawyers and the nonlawyers that used to work at that law firm to monetize the equity value in their business that historically would never have been monetized.

So, hopefully, that makes sense. I probably need some sort of diagram, but that is the interest in MSO investing.

It has had a ton of success in the health care and accounting markets. My prediction is that we're going to see a flood of legal MSO deals happening in twenty twenty six.

Shout out to Zach. Shout out to TLTF. The only way you can understand why it's not just another conference is if you go. And I think it's in Arizona in twenty twenty six.

And I recommend that if you can get invited to TLTF, the Legal Tech Fund Summit, you should go and experience for yourself. It is by far the best collection of the greatest minds in legal. Right? Whether you're an attorney, you're an operator at a law firm or in a law department, you're a technology provider, you're a consultant, you're an investor, you're a banker, it is the best collection of people.

And I love the other legal tech conferences. I love ILTACON, CLOC and Legal Week. These are great fun events. There's nothing like TLTF.

It is the community that brings people together at these events. It's that everyone's looking to network.

It's just they vet all the individuals, and they just bring it kinda goes back to that that point of, like, trying to spend time with good people.

It is a great group of human beings that they've brought together that are all working to advance the legal profession, access to justice for consumers, technology adoption, flowing of capital throughout the ecosystem.

It's just one of those organizations that try to build community for a good cause in a arguably one of, if not the most important, professions and aspects of our economy. So I love TLTF. I can't say enough, and I'm actually very thankful to Zach for introducing us, right, because I don't think I'd be hanging out on this podcast with you guys if it wasn't for TLTF.

Thanks, Lee. Thanks for having me. I'm a huge fan of the podcast. As a legal tech nerd myself and honored to be on and spend the time with you guys. So thank you very much for having me.