Australian-listed Slater & Gordon will want to see results from its new acquisition.
The pressure on Russell Jones & Walker (RJW) to ramp up its revenues now it has been acquired by Slater & Gordon – subject to SRA approval – is monumental. A domestic firm where growth was stalling has been taken over by an Australian firm that has seen revenue jump by 190 per cent since 2007. The challenge for RJW is to keep the ship intact as it sails through rocky waters.
Slater & Gordon announced to the Australian Securities Exchange its intention to acquire RJW last month (The Lawyer, 30 January). Lawyers turning up to work on that crisp Monday morning had no idea that these high-level talks had been ongoing for a year; most thought the planned conversion to an alternative business structure (ABS) was some months off.
“We knew there were plans to convert to an ABS but thought these had been put to bed because nothing seemed to be happening,” says one RJW insider. “They were very quiet about this, although we did have some ex-Slater lawyers in the office.”
Approach with care
As the old adage goes, the best place to hide is in plain sight, and that was how RJW and Slater & Gordon played it.
In June last year RJW laid the foundations for a group action on behalf of people in the UK born with disabilities as a result of their mothers taking the drug thalidomide. The Thalidomiders Legal Group was launched in conjunction with Leigh Day & Co and Slater & Gordon. This gave RJW and Slater & Gordon the perfect cover to meet up in Australia to discuss the merger.
Market orthodoxy held that Irwin Mitchell would be the most attractive UK prospect for the Australian firm; after all, it made no secret about its post-Legal Services Act ambition. As it turned out it was RJW chief executive Neil Kinsella – a former protégé of Irwin Mitchell’s departing chairman Michael Napier – who led the first English firm to be listed, albeit on the Australian exchange.
Slater & Gordon’s justification for the move to its Australia-based investors had to be convincing. It valued RJW at Aus$80m (£53.8m). This included a cash payment of £27.7m in addition to a deferred cash payment of £6m in 2013 and £2.8m in 2014. On top of that, shares will be issued to RJW-approved partners valued at £17.3m.
Slater & Gordon rationalised the venture by, among other things, name-dropping RJW’s high street claims brand Claims Direct, an attractive proposition for a firm that is all about the consumer markets. The business, it added, would generate a revenue of £53m in 2012-13, with earnings before tax depreciation and amortisation of £10.9m.
That was the cash injection, now the hard work begins.
The future means financial growth for RJW at a rate it has never experienced before. Just looking at the two firms’ comparable figures going back to 2007 gives an insight into the rate of growth. At Slater & Gordon revenue has risen three-fold since 2007 from £42.7m to £123.8m.
RJW has traditionally been taciturn about its revenue, but The Lawyer UK 200 report put it on a par with Slater & Gordon at the 2006-07 year-end, with turnover of £42.4m. Since then growth has stalled. At the latest year-end the firm posted turnover of £42.5m and seemed quite happy with its lot.
One former partner claims: “They were always happy to be drifting along with some decent work, but nothing that was going to bring in the big bucks. That seemed to be the strategy and everyone was quite content about it.”
In reality Kinsella was biding his time and looking for the right merger proposition. In Slater & Gordon, he says, the firm has found a partner that has experience of life on the listed markets.
On the list
“It’s crucial that Slater & Gordon has five years’ experience in a listed environment,” says Kinsella. “This not only gives us a competitive advantage, but also enables us to introduce a share scheme that will be more widely available than was possible under our partnership model.”
Kinsella is insistent that the two firms have collegiate partnership cultures, but another former partner is more doubtful.
“The Aussie firms are more fierce than the Americans,” the source says. “The search for profit is massive. Culturally and financially it could be divisive. I don’t think the ethos is the same for these firms – they will be cut-throat.”
Kinsella responds: “All businesses face financial pressures; ask any law firm and you’ll hear the same answer. Slater & Gordon grew because of their increased access to capital and yet they retained their law firm culture. We recognised we needed this access too if we were to grow.
“By joining a like-minded organisation – another firm – rather than obtaining capital elsewhere, we feel we’ve secured our culture, albeit a modern version of it. Being in a modern corporate environment that is listed encourages a longer term view and gives us the depth of resource needed to take on bigger challenges.”
To what extent the shareholding will be made available to the non-equity partnership remains to be seen. The understanding is that it will not only be equity partners who are able to apply for a stake, but also non-legal management. With growth on the agenda, it could also be an extra for lawyers arriving at the firm.
Brand expansion is at the top of the agenda. For firms operating in the claimant personal injury arena having a wide route to market is essential. This can be seen in Silverbeck Rymer’s bid to tie up with brand extension company Quindell Portfolio.
For RJW, expansion of Claims Direct is likely, although Kinsella is tight-lipped about whether there will be a television advertising campaign.
“Much as I’m happy to share many things, we can’t let our competitors know what we intend to do,” he says. “You’ll have to watch this space.”
Exactly how Slater & Gordon plans to extract value from RJW and propel its brand expansion remains unclear. What is apparent, however, is that growth must be achieved and the partnership unified. These are risky times for RJW – an era that only the most skilled management can steer the firm through.
Parabis has defendant PI sector in its sights
While RJW and Silverbeck Rymer prepare to fight a talent war in the claimant market, Parabis Group is about to spark mass-consolidation in the defendant personal injury (PI) sector.
The holding company, which is parent to both defendant firm Plexus and claimant firm Cogent, last week agreed a deal with private equity house Duke Street that will see it receive a £50m cash injection to fund acquisitions. The deal is expected to span at least three years and the aim is to buy firms with revenues of between £10m and £30m.
According to Duke Street partner Iain Kennedy there will be between two and five acquisitions per year. While law firms will be in the merger mix, it is believed the holding group could build a range of services for the defendant insurance market.
“We’re going to be more focused on the defendant market,” says chief executive Tim Oliver (pictured), a former Berrymans Lace Mawer partner who launched Parabis a decade ago.
Oliver is excited about the prospect of a new board and the addition of Duke Street partners Paul Lester and Bob Scott as non-executive board members.
Lester formerly headed defence and support services business VT Group, which was taken over by Babcock International last year.
“He knows about volume supply, business process outsourcing, offshoring and outsourcing,” says Oliver. “In terms of corporate governance he has several FTSE100 management skills.”
Oliver believes that, because of the way Parabis has evolved in the past decade, its model is well suited to an ABS conversion.
Doing that as a listed company in the public spotlight does not make the job easier, so a private equity tie-up was preferable.
“We’re much more in the right space [to do this] than our competitors,” he says. “We have a small equity partnership and a small operating board, which means that any change [in corporate ownership] is far less significant than in a partnership structure.”
The firm also has a strong record of growth. At the end of the 2010-11 financial year it posted a revenue of £100m and, according to Duke Street, this will rise by 60 per cent to £160m at the end of March.