Private Equity Found A Law Firm That Said Yes

Wood Smith Henning & Berman, a California insurance-defense firm with more than 500 lawyers spread across 43 offices in 35 states and London, has reportedly signed a letter of intent to sell a piece of itself to private equity, in a deal valuing the business at around $700 million. The buyer is Charlesbank Capital Partners, a Boston firm with some $22 billion under management that got its start managing Harvard’s endowment. If it closes, it would be the largest private equity investment in an American law firm to date, and the first concrete result of the flirtation the country’s richest firms have been carrying on with outside money.

Now, Wood Smith is not Wachtell, it is not a white-shoe name with a marquee M&A practice. By revenue — $244 million last year — Wood Smith sits just outside Biglaw proper, though with 500-plus lawyers it is nobody’s boutique. It is a high-volume insurance-defense shop, which is to say exactly the kind of commodity, repeat-business practice private equity has been circling, because the work is predictable and, crucially, sticky. As an M&A adviser predicted back in May, the early PE/law firms deals would come from a firm with a smaller cap table and founders still active and ready to cash out.

The mechanism of the deal is a management services organization, the structure that lets an investor own the billing, the software, and the back office while the lawyers keep control of the law part of the firm. The deal’s reported price tag, $700 million, works out to about 18 times the firm’s adjusted EBITDA of $38.2 million.

None of this means private equity has taken over Biglaw. It hasn’t, and the marquee partnerships are still not ready to hand over the keys. But the industry knows how to read a weathervane, and Wood Smith is a good one… anyone trying to read which way the wind is blowing just got the clearest data point so far.