Quindell’s acquisition of Silverbeck Rymer shows adaptability of PI legal sector
Once the Legal Services Act had passed it was only a matter of time before a volume firm was eaten up by a listed financial beast.
A stock market announcement last week proclaiming that Liverpool firm Silverbeck Rymer is to be acquired by AIM-listed Quindell Portfolio had an edge of inevitability about it. After all, it comes just months after Paloman Capital announced it intended to invest in QualitySolicitors.
Silverbeck is a personal injury (PI) firm with a sizeable volume book that was about to see a chunk of its profit walk out the door when the Ministry of Justice enacts Lord Justice Jackson’s reforms. Recoverability of conditional fee uplifts are to be capped and set fees introduced for employer and public liability claims. The days of the referral fee are numbered.
Any firm operating in the PI market should be looking at what changes can be effected under the legislation and what efficiencies can be driven to the heart of the business.
Silverbeck added its name to the growing list of firms looking to convert last Tuesday (24 January). At this point the SRA said it had received 65 applications for alternative business structure (ABS) approval, hardly a ’big bang’ but there are some interesting firms in the mix. They include Irwin Mitchell, which is widely expected to float, Russell Jones & Walker, Kennedys, DAC Beachcroft and Keoghs – all firms with significant volume practices.
For Quindell chief executive Rob Perry the acquisition of Silverbeck will fill a gap in a portfolio of services built around the PI market. For Silverbeck the deal offers its two partners, brothers Charles and James Rymer, a way to exit the profession.
As one commentator puts it: “They [Silverbeck Rymer] are a family-run business with a whole new set of challenges because of the Jackson proposals. If you’re being pragmatic, this type of deal is fairly obvious to anyone in PI. They’ve built up a business over a lifetime. It was only a matter of time before they cashed in and moved out.”
In the short term, at least the Rymer brothers will stay locked in to the firm, although they are unlikely to keep the partner title. The firm, though, will keep its branding.
Speculation about how much the Rymers will make from the deal will remain just that. The firm has been secretive about its finances in the past, although at the 2009-10 year-end it posted profit before tax of £6m. As it operates on a corporate model the partners do not take profits as they would in a traditional structure.
Quindell is proposing to pay £10.25m in cash for the firm, and will also issue up to 120.8 million shares, valued at 7.5p per share, which will be subject to lock-in arrangements ranging from 12 to 36 months.
The relationship between Silverbeck and Quindell began when the Rymer brothers called in Quindell to help improve the conversion rate on the cases the firm handles for its insurance-based clients.
“We helped them improve their conversion ratio,” explains Quindell chief executive Rob Perry. “They wanted to cut the number of cases that were being exported and raise the number they were converting.”
Quindell calls itself a ’brand extension’ company, one that helps businesses extend their reach to market. In the PI insurance space this means improving conversions and broadening service offerings.
Quindell began with the acquisition of Mobile Doctors in December, a company that provides medical reports to support PI claims. The medico-legal agency already had a relationship with Silverbeck: in June last year the firm named Mobile Doctors chief operating officer Robert Fielding as managing director.
A number of firms intent on following the same path have also announced non-legal management appointments. Earlier this month Irwin Mitchell landed Pricewaterhouse-Coopers vice-chair Glyn Barker as executive chair-designate (The Lawyer, 16 January). The move is expected to boost the firm’s appeal to investors.
DAC Beachcroft legacy firm Beachcroft was among the first to move in this direction, bringing in Capita relationship director Janet Scott back in 2009 (The Lawyer, 30 November 2009). That gave managing partner Paul Murray the time to focus on finding a merger deal, leading to the firm’s tie-up with DAC and the decision to put technology at the heart of the firm – commoditising legal services as much as possible to allow lawyers to focus on lawyering.
At Quindell, Perry is not shy about the business’s ambitions, and neither should he be. A day after the firm announced its impending acquisition of Silverbeck it took a 30 per cent stake in accident management company Ai Claims Solutions. Then, on Thursday (26 January), it embarked on a fundraising, issuing 2.9 million shares valued at 1p each.
The next step is to streamline the business. Perry says Quindell has offshore operations in India and South Africa, a service not alien to the insurance industry. While core legal services will be kept onshore, other services could be shipped off.
That said, Perry insists the firm will keep its Liverpool offices and its 500 staff are secure. “As we bring in new volume business we’ll look to leverage that with our operations in India and South Africa for pseudo-legal work,” Perry says, adding: “If we double the amount of volume work there’ll be plenty of scope to grow.”
This is the shape of things to come in the volume PI market. That sector, already widely distinguished from commercial City practices, is setting out its stall as the cost-efficient end of the profession. Backed into a corner by Jackson LJ’s reforms, the market is fighting back.