TL;DR
Senior Freshfields partners have discussed moving Freshfields Lab, the firm’s in-house legal AI unit, into a separate company that could take outside investment or float, after an internal email exchange was accidentally sent to a firm-wide list and seen by the FT. Alan Mason, the global managing partner, wrote that legal-tech companies trade at 25 to 40 times revenue, and his correspondent judged a standalone entity “probably worth billions”. The talks are “very early stage”, the firm says, but they show a magic circle firm thinking of its AI tools as a product to sell to rivals and corporate legal teams, not just a cost.
Freshfields Lab develops AI tools used by the firm’s own lawyers and by clients, from document review to due diligence. Earlier this year the firm agreed a deal with Anthropic to build specialist legal AI with an eye to selling it to other firms later.
What the emails say
Writing to Ethan Klingsberg, who co-leads US corporate and M&A work, Mason said he was putting “a lot of work” into turning “our AI business in[to] a separate legal entity we can get external investors in / IPO”, and said two Wall Street banks had already been in touch. He pointed to the multiples commanded by Harvey and Legora, with valuations of $15.5bn and $5.6bn, and concluded the firm “must put our AI revenue through a separate entity”.
Klingsberg urged speed, warning that “soon others will catch up and multiples will go down”. He sketched a route: a separate entity structured to share returns tax-efficiently with the partnership, large corporate legal departments as first customers, with a FTSE 100 giant given as an example, and “sophisticated investors” rather than Middle Eastern sovereign wealth.
Mason forwarded the thread to a distribution list named “$Freshfields All” over the weekend. It was recalled quickly, but not before recipients took screenshots. Mason later wrote that momentum was “building up across the firm” and that “I would like the Frontier Leadership Group to come up with a plan for this”.
The firm’s response
Speaking to the FT on Wednesday 14 October, Klingsberg said the idea had “just hit me last week” and might go nowhere. Rival firms and in-house legal teams are the intended buyers, he said, though none has bought yet, and a “big question” is whether the tools hold their value when fed other firms’ data instead of Freshfields’ own.
Looking forward
The exchange arrives in the same week as HSBC’s survey showing 60% of UK law firms worried about clients taking work in-house with AI. In our view the two stories are one: if clients can replace billable hours with software, the firms that built good software have a product, and the leaked valuation arithmetic is what that realisation looks like from inside a partnership. For UK general counsel the question is what it means to buy tools from a firm whose partners also want your instructions.