Too much, too soon? Linder Myers’ acquisitive path to administration

Manchester-based Linder Myers has spent the last few years acquiring distressed assets. Now the firm is on the hunt for a rescue-merger to pull it back from the brink.

At the end of last week (6 February) Manchester headquartered Linder Myers filed its intention to appoint administrators at the Manchester District Registry Court.

In many quarters of the North-West the demise of Linder Myers came as no surprise, not least because the region has already seen its fair share of firm collapses.

In 2010 Halliwells was the first to topple (25 June 2010), sending shockwaves through the profession. It was followed last year by Cobbetts (30 January 2013), which was swallowed by fellow Manchester firm DWF (6 February 2013). By the time news broke of Linder Myers’ demise last week, the reaction that emanated from Manchester was one of knowing resignation rather than shock and awe.

The firm’s strategy of finding a foothold in Manchester’s surrounding market towns by buying up struggling firms via pre-pack deals has long roused the suspicions of local lawyers.

“They say it was a tough quarter,” says one Manchester lawyer, “but was there money for tax? What was in their capital accounts? There was a lot of focus on growth, but had they adequately considered the due diligence on those mergers?”

That acquisition trail was kickstarted in 2008, when the firm merged with Shropshire-based Scott Lister. It followed this in 2009 with a tie-up with Lancashire’s Rostrons, before heading back to Shropshire to hoover up Moss & Poulson and then returning to Lancashire for Apfel Carter.

At the end of 2011 the firm turned its attention to distressed assets, acquiring Rowlands Field Cunningham (RFC) out of administration, as it put in place plans to more than double turnover from a £10m to a £25m operation within three years (3 January 2012).

According to a statement at the time, RFC, which was a QualitySolicitors firm, had been suffering cashflow difficulties, but the acquisition would boost Linder Myers’ turnover by £5.4m and create a firm with around 270 members of staff, including 43 partners.

However, without a cash injection to ease the legacy firm’s cashflow problems or some hefty rationalisation in terms of people and property, it’s hard to see how inheriting a load of additional lock-up would ever have built a strong foundation to grow from.

Still, Linder Myers plodded on with the growth plan. It bought Manchester-based SNG Commercial Law out of administration in 2012, and went on to complete two further mergers with Chester-based Drummonds Solicitors and Lancashire-based Senior Calveley & Hardy Solicitors in October 2012 (1 October 2012).

The obvious appeal of these purchases is the opportunity to buy up work-in-progress (WIP) and debt at a reduced market rate, along with a strong existing infrastructure and brand. Chances are that with the right management inplace, a return can be made on that investment.

However, the extra property costs – which in this case appear to have been a pivotal issue – and the overheads associated with staff and integration mean it isn’t always an easy money-spinner.

In Linder Myers’ case there were mounting issues. The firm had been placed into a distress team at the bank, it was being crippled by property costs and when the January tax bill came round, it was simply too squeezed to find the funds.

It leaves a litany of failed businesses up for grabs but who’s going to want to take on the risks associated with that kind of history?

A few firms have been linked to Linder Myers in recent months, Manchester-based Stephensons is one and Midlands firm HCB Solicitors another.

Stephensons is a 36-partner firm with six offices in the north west and one in London. It’s believed the firm had been in merger talks with Linder Myers before Thursday’s announcement.

HCB is a group of full-service firms across nine offices, many of which were bought over the past three years in pre-pack deals similar to the one Linder Myers will be seeking to secure.

The firm incorporated a company called HCB Linder Myers the day after the firm announced its intention to appoint administrators (11 February 2014).

Because of the time constraints on pre-pack purchases, the likelihood is that any firm making a successful bid at this stage will have been in talks with Linder Myers previously.

For an acquisition of this type to be successful in the long term the acquirer will need to tackle the working capital and start calling in debt straight away, which is a lot easier if thorough due diligence has already been done and a strategy for integration prepared.

At this stage Linder Myers’ 51 partners and 260 staff will be hoping for a quick and relatively painless sale to a firm that can turn things around with the least amount of disruption.

As for partners, a complete sale of the firm to one purchaser is likely to be their best chance of being bought out of any debt.