Pannone - a firm of two halves
28 November 2013 | By Hannah Gannagé-Stewart
2 December 2013
28 November 2013
28 January 2014
27 November 2013
5 February 2014
Slater & Gordon announced its largest acquisition to date today, with the £33m takeover of Pannone’s consumer business. It has been a deal months in the making. Hannah Gannage-Stewart looks at the behind-the-scenes negotiations
Finally, after months of painful deliberation, due diligence is almost complete and Slater & Gordon has confirmed that a sale agreement has been reached with one of Manchester’s most talked about firms, Pannone.
As if the rumour mill wasn’t doing a good enough job of casting light onto the shadows of unrest amongst Pannone’s partnership, the silence at both firms when the merger plans became public knowledge spoke volumes.
Pannone managing partner Emma Holt issued warned partners not to talk publicly about the deal in the hope she could plug leaks before it threatened the deal (20 September 2013).
As a listed firm Slater & Gordon was under regulatory obligations to first notify the Australia Securities Exchange of any acquisition.
The overwhelming challenge for Pannone management was to keep the partnership united as leaders discussed the breakup of the firm.
The problem for Pannone was that it is a firm of two halves. It prided itself on its diversity, moving early to tap into new revenue streams, such as white labelling arm Affinity and network Connect2Law, but the brand was always stronger on the consumer side.
When the Slater & Gordon deal came up - offering not a straightforward merger but a partial acquisition - an existing rift between the consumer and commercial businesses fractured further and key partners moved to vocalise their concerns.
Pannone’s debt level is thought to have been a contributor to the unrest. The firm put debt levels at £13.9m for 2012/13, but some sources have placed the figure nearer £16m. Either way, partners would have had to decide what side of the firm was responsible for what.
By all accounts Holt never wavered in her commitment to the deal. Internal challenges delayed progress and created new problems to solve but there was never any sense that the deal would be knocked off the table.
In return for £25.5m cash and £7.5m of Slater & Gordon shares, the Australian-headquartered firm picks up Pannone’s consumer business in full, comprising of personal injury; serious injury; clinical negligence; court of protection; family; wills, trusts and probate; property; as well as parts of the employment and dispute resolution practices.
The firm is deferring payment of £7m in cash and £4m in shares subject to performance, but is expecting the acquired business to turnover an annualised income of £34.5m by the end of 2013/14.
What of the commercial business? There are few surprises there either. Pannone dispute resolution partner Paul Jonson and senior partner Steve Grant are to head up a 50-lawyer independent B2B spin-off, Pannone Corporate.
As to what will happen to Affinity and Connect2Law, Slater & Gordon has expressed an interest but insiders suggest that it could well be dismantled in the near future.
Affinity staff were shocked to hear that the operation’s head Charles Layfield had left the firm on Friday. They were called to a meeting this afternoon to be informed of their fate.
A statement from Slater & Gordon said: “Affinity will be restructured at completion.” Layfield is thought to have joined BGL Group, the company responsible for Comparethemarket.com, which acquired York-based personal injury firm Minster Law in May (31 May 2013). It is believed he will run an white labelling arm for the insurance focused company.
Meanwhile, Connect2Law chief executive David Jabbari has resigned from the firm having refused to transfer to Slater & Gordon. It is believed he is in talks over the future of the law firm network that he has been running since he took over from Layfield in December 2012.
Slater & Gordon UK chief executive Neil Kinsella seemed non-committal in a statement today. It said: “Connect2Law is a valuable part of the Pannone business and we will be working closely over the next few weeks and we’ve worked very hard with the Pannone leadership team to devise a strategy to build on the existing relationships.”
However having handed in his notice before the final vote, Jabbari is presumably working out his notice with no commitment to the sale agreement with Slater & Gordon – could he take Connect2Law with him and, if so, is there another law firm out there prepared to back it?