Freshfields discusses spinning off its AI unit Freshfields Lab

In short: Leaked emails show senior partners at law firm Freshfields discussed separating its AI team into a standalone company to attract investors.

What happened

Freshfields partners discussed a possible carve-out of Freshfields Lab, the firm’s in-house legal technology unit, according to an internal email exchange seen by the Financial Times. A carve-out means taking one part of a business and putting it into a separate company, like moving a busy department into its own storefront.

In the emails, Freshfields global managing partner Alan Mason said he was doing “a lot of work” to turn the firm’s “AI business” into a separate legal entity that could take outside investment or eventually do an IPO, which is when a company sells shares to the public for the first time. Mason said two Wall Street banks had reached out about the idea.

Freshfields Lab builds AI-based tools for lawyers and clients, including document analysis, litigation management, and due diligence checks (a close review of contracts and risks before a deal). Mason wrote that similar legal tech firms can be valued at 25 to 40 times their yearly revenue, and argued that the firm should separate its AI revenue so investors can value it more like a tech company. Ethan Klingsberg, co-head of US corporate and M&A, said a standalone entity could be “worth billions” and suggested moving quickly before valuations fall.

Mason accidentally forwarded the exchange to a large internal email list. The message was recalled, but some staff reportedly took screenshots. Freshfields declined to comment, and Klingsberg told the FT the talks were very early and might not happen.

Why it matters

If big law firms start spinning out their AI tools as separate businesses, those tools could be sold to other companies and even rival law firms. That could speed up the spread of AI in everyday legal work, especially routine tasks like reviewing contracts.

Source: Financial Times