There’s a lot to digest in this week’s cover story. In short, the collapse of Parabis is a cautionary tale for management in any business, not just those in the admittedly tightly squeezed insurance sector.
But, naturally, there are also insurance sector-specific issues here. For one thing insurance companies, and the legal services suppliers they hire, are obsessed with data. Perhaps more than any other sector they use it to spot trends and scan the horizon for looming black clouds. This trend appears to have passed Parabis’ management by. Hindsight is 20:20, but it’s hard to see how the collapsed firm failed to spot the changes looming on its own horizon.
There are also some remarkable numbers, not least the Duke Street’s initial £50m private equity investment in Parabis and the plummeting post-LASPO and Jackson Reforms revenue per case at the firm, which fell from £2,300 to £850. There is also the profitability per case which, partly as a result of the ABS and joint venture structures that characterised Parabis, fell from £250 to less than £50.
And then there is the £16.9m that Parabis founding partners Tim Roberts and Tim Oliver each received for their stakes in the business. That’s £16.9m, times two.
Oliver, contacted last week, said a “considerable sum” was reinvested back into Parabis to fund acquisitions, but preferred not to shed more light on precisely what that sum might be.
What seems abundantly clear is that Parabis grew too quickly, diversified too fast and integrated too slowly. The firm’s administrator AlixPartners made that clear in its report.
As one insurance firm partner put it last week, Parabis was “formidably ambitious” in terms of its diversification and its efforts to use its core business to leverage into other areas, but the firm’s rapid growth appears to have paid little heed to external variables such as judicial and cost reforms.
Firms can’t have any control over these but, the lawyer adds, did Parabis’ management step back and ask the right questions? Such as did it have the depth of knowledge in each of the areas it was trying to diversify into to integrate the inorganic acquisition growth it was contemplating? Or the management structure capability? Or the appropriate systems to run the disparate and enlarged group as efficiently as required in what is arguably the most competitive segment of the UK market?
As this partner puts it, “when you look back, perhaps a slower growth into those areas might have been more prudent”.
