Charlesbank closes major investment in US law firm

Charlesbank has made one of the biggest investments to date in a US law firm, backing Wood Smith Henning & Berman as the insurance defense sector attracts private equity interest for its steady cash flows and opportunities for consolidation.

The transaction values the Los Angeles-based firm at about $700mn and is set to be announced on Monday. It will give Charlesbank majority ownership of a new management services organization, rather than the entity providing legal advice.

Wood Smith Henning & Berman, known as WSHB, has close to 600 lawyers across 43 offices in the US. Co-founder Daniel Berman said the investment would support mergers and acquisitions, recruitment of larger teams from rival firms and spending on AI. It would also give current and future partners equity that could rise in value over time.

Neither WSHB nor Charlesbank would comment on the financial terms. The FT reported the $700mn valuation in August, when the two entered exclusive talks.

Capital for a changing market

Insurance defense firms represent clients facing claims involving matters such as personal injury, product liability and workers’ compensation. Insurance companies typically direct cases to lawyers and are increasingly seeking to work with fewer firms while demanding greater efficiency, including technology-driven savings.

"We’re in a very resilient industry and it doesn’t really follow the economy", said Daniel Berman, WSHB co-founder. "There’s claims when things are bad, there’s claims when things are good in the economy."

The Charlesbank deal uses a "management services organisation" (MSO) structure, an arrangement that first became popular among personal injury firms and has drawn interest from other types of law firms in the past year.

The structure separates a firm into an attorney-owned legal practice and an MSO holding most of its assets, including its brand. The MSO charges the legal practice service fees large enough to attract outside investors, allowing private equity to bypass US professional ethics rules barring non-lawyer ownership of law firms.

Berman will serve as chief executive of WSHB’s new MSO. The firm’s partners will own stakes in both entities.

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Other firms explore deals

At least two other insurance defense firms are considering private equity transactions using the same structure, according to people familiar with the matter.

Atlanta-based Freeman Mathis & Gary (FMG), a nationwide firm, and San Diego’s Tyson & Mendes have hired banks to seek bidders, those people said. Tyson & Mendes declined to comment.

Benton Mathis, co-founder of FMG, told the FT that his firm was "investigating and exploring what our options are", in the expectation that private equity would shake up the sector.

"We have to look at the implications", he said. "If other law firms have significantly more capital than we do, that raises the question of how fast they can grow relative to how fast you can grow."

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