Could Slater & Gordon achieve its stated aim of becoming a top consumer brand by acquiring Pannone?
Anyone looking for the inside track on the next Slater & Gordon merger should keep a close eye on Manchester-based personal injury (PI) specialists Pannone.
The Australian listed firm took its first step into the UK legal scene in January 2012, when it announced the planned takeover of Russell Jones & Walker (RJW) in January 2012 (30 January 2012). Things went quiet for a while, allowing time for RJW to rebrand and get to know its Australian counterparts. The objective of the combined firm has not changed since day one – become the leading legal brand in the consumer market.
Prophesying at the time of the buy-out by Slater & Gordon, RJW chief executive (and former Pannone Napier partner) Neil Kinsella laid down the gauntlet: “The task for independent law firms is to make sure we dominate the market and that means capital,” he said.
Realising the need to bulk up, the firm announced a series of acquisitions in May with the planned takeovers of Simpson Millar, Goodmans Law and the personal injury practice of Taylor Vinters announced (7 May 2013).
These bolt-ons will push the firm closer to its target but it still faces stiff competition from names already synonymous with consumer law in the UK.
Admittedly high street brands are thin on the ground but in the corner of the market that Slater & Gordon occupies Irwin Mitchell and Leigh Day dominate the market. Should a takeover of Panonne go ahead, it will propel Slater & Gordon into the premier league, allowing it to compete on a level playing field with its peers (20 September 2013).
Not only does it take another Slater & Gordon competitor out of the domestic market but it eliminates a notable duplication in the kind of work the two firms attract, such as acting for the victims of Jimmy Saville and others who have claims connected to Operation Yewtree.
Several sources close to Pannone suggest a due diligence process has been underway for much of the summer with high-level meetings diarised and then rescheduled in July.
It is also understood that an email has been circulated to staff implying that change is afoot and scheduling a further written announcement at the end of the September. Partners could be asked to vote on the combination as soon as Monday (23 September 2013).
So what might be the consequences of any vote? The smart money is on news of the demerger of private client side of the business, including the personal injury and clinical negligence practices, to Slater & Gordon in the next couple of weeks but how exactly the deal will pan out remains unclear.
Pannone’s personal injury business is a profitable and defining feature of the business. That said, according to this year’s UK200 survey Pannone’s borrowings rose from £13m to £13.9m last year. Some sources have put the current debt level at nearer £18m, but this is unconfirmed by the firm’s management.
Any sell-off to Slater & Gordon would provide a healthy warchest with which to take the rest of the business forward but how might Pannone refashion itself without its PI practice?
The firm’s referral service Connect2Law – a club that includes Harper McLeod and Hugh James – and white-label arm Affinity, which operates consumer and financial legal services on behalf of corporate entities, have been headed up by former Clyde & Co chief operating officer David Jabbari since December, with Charles Layfield running Affinity on a day-to-day basis. In the event of any Slater & Gordon deal, these two services could feasibly go their own way.
The general consensus is that these businesses harbour unrealised potential. Connect2Law was launched in 2001 and Affinity in 2011, but Pannone appears to have been sluggish in realising any tangible competitive advantage, with firms like Eversheds and Addleshaw Goddard sweeping in on work that previously Pannone would have been the go-to firm for.
Turning attention to the potential purchaser for a moment, Claims Direct generates work for Slater & Gordon through a consumer-facing claims handling service. Slater & Gordon, and RJW before it, positioned Claims Direct to destigmatise claimants before and after the implementation of the Jackson reforms. Could the machinery behind Affinity and Connect2Law combine to do something similar?
Affinity is a volume business and Connect2Law could potentially grow its network to generate enough work to sustain itself, but there is no hard evidence that that is the plan. It’s hard to see Slater & Gordon, a firm on a mission to imprint its brand on the pysche of every consumer in the county, seeing much benefit in a white-label arm.
It is perhaps more likely that Connect2Law might come to market as a distinct product via a separate tie-up.
What of the Pannone’s corporate business then? The firm’s corporate services division is headed up by Sean Maccay, prior to which it was run by the current senior partner Steven Grant. Grant has been at Pannone since he qualified in 1984, becoming a partner in the corporate group in 1987.
He was head of the group for five years before becoming managing partner between 2008 and 2010 but chose not to stand for re-election when his term finished in December 2010, at which point the firm appointed clinical negligence head and current managing partner, Emma Holt.
It is said that there are rivalries between corporate and PI partners, with tension flaring up recently over which side is predominantly responsible for the burgeoning debt.
Any asset-based buy out, the likely option if we assume a demerger of the private client business is on the cards, would help to reduce the debt burden on remaining partners and mean that decisions had to be made as to where that debt responsibility lies. Could that be a possible cause for the delay in reaching a vote?
Pannone was not prepared to elucidate and the Aussie PI giant is destined to remain tightlipped about any plans until it’s ready to make an announcement to Australian Securities Exchange. In the meantime, keep an eye out for Pannone lawyers scouting out new business opportunities.