Penningtons gets its Man(ches)

Penningtons completed the takeover of Manches yesterday, a move facilitated by a pre-pack administration deal.

At exactly 5.28pm yesterday (14 October), Penningtons bought Manches in a pre-pack administration deal. It was a blink and you’ll miss it event, reported on a dreary Monday afternoon. Here’s exactly what happened.

The merger talks began in early September, two weeks before The Lawyer reported that the tie-up talks were in the advanced stages (24 September 2013). Penningtons partners didn’t have time to twiddle their thumbs – according to sources Manches had to decide on a merger fast, and had been in talks with at least three other firms around the same time. What would have been Manches fate without a tie-up? (30 September 2013).

“They would have found a firm to merge with,” answers a Penningtons partner tactfully.

Unsurprisingly, the two firms have dusted the whole Manches going into administration thing under the carpet. Sources close to the deal insist that it was purely done so Manches could be bought by Penningtons, adding that the tie-up was not financially motivated. But Penningtons have since confirmed that this was a pre-pack administration.

It is interesting that administrators PricewaterhouseCoopers (PwC) turned to CMS Cameron McKenna’s head of banking and finance and restructuring expert Rita Lowe on the deal. Lowe had previously acted for the administrators of extinct law firm Halliwells in 2010 – shortly after the firm’s failed merger talks with Manches.

So what exactly led to yesterday’s events?

Insiders at Manches say the firm has found the coverage of its financial figures frustrating, arguing that this year’s drop in net profit – from £3.7m to £2.15m – was due to investments, such as the refurbishment of its office in Reading, and not losses (24 July 2013).

That said, the firm was involved in a fee settlement row with claimant Knox D’Arcy Operations earlier this year (see ruling), which ruled that the firm was liable to pay £246,152 to the claimant and 75 per cent of claimant costs. Did this have a knock-on effect on their professional indemnity insurance costs?

“This had no significant impact on the firm’s financials, they have invested much more than £250,000 into other areas this year,” insists another insider. “That’s like 1/100th of the firm’s total profits.”

The aim for both firms appears to be future growth and to climb up The Lawyer UK200 Top 50 rankings, something that it has narrowly missed out on for the 2012/13 year with combined revenues of £58m but may be achievable next year.

None of the former Manches offices will be closed, and clients on both side apparently took the news well when they were called by their relationship partners this morning.

So far, so good – but what about the more juicy details of the agreement? When asked how much Penningtons paid for Manches, we’re told that the former “adopted the liabilities” of the firm but there was no large lump sum on top of that. What about a lock-in agreement?

“We wouldn’t call it a ‘lock-in’ but conditions were agreed,” explains a Penningtons partner close to the deal. “These were agreed individually, there was no sweeping decision.”

The last few weeks have certainly been busy for both firms, with weeks made up of informal tea and coffee sessions, constant meetings and glasses of wine with potential new colleagues.

“The critical thing is that both sides needed and wanted to do this, we had a lot of Manches umbrellas going into Penningtons and visa versa – we’re surprised you didn’t pap us,” jokes a Penningtons partner. “You can make the figures work but the real success is the culture. It won’t be a Penningtons culture and it won’t be a Manches culture, it will be Penningtons Manches.”