The world’s first listed legal practice, Australia’s Slater & Gordon (S&G), announced its agreement to buy national UK firm Russell Jones & Walker (RJW) for £53.8 million on the 30 January 2012. My UK-based Edge International Partner Chris Bull joins me in this post as we consider some of the implications of this transaction and how the respective markets are viewing the development.
The S&G and RJ&W joinder is significant:
- an acquisition as such, not a merger, by an Australian law firm of a significant UK firm.
- the fact that the parties operate largely in the personal legal services space rather than the corporate market.
- it will establish, when ratified, a foreign and publicly owned ABS (alternative business structure) in terms of the new UK Legal Services Act.
- the amount involved.
- the exclusion of outside parties such as insurers and investment companies.
This is a positive and exciting development for the legal profession generally but particularly the UK and Australia:
- Merger and acquisition as an outflow of carefully thought-through strategy: as recently stated we see this as affirmation that many law firms see acquisition and merger as simply one possible strategy in achieving their vision and carefully thought through strategic key objectives. It is not a knee-jerk reaction to client or market pressure.
- Move to corporate model: the creation of Slater & Gordon UK Ltd. will mark the latest and certainly one of the biggest, examples of the steady incorporation of the UK legal market. Alongside the many smaller UK law firms now incorporating, some of the largest, led by intense RJW rival, Irwin Mitchell, are shifting their structures ever closer to a corporate model.
- Assertion by Australian law firms: Despite being the target of foreign investment and in some cases, takeovers, in recent years, Aussie firms have long been viewed as innovative, profitable, well-led and well-managed. This move will add ever more confidence to the Australian market and could herald many similar incursions into other markets. Another recent example of course was the King & Wood Mallesons tie-up in China.
- Law firms implementing strategy & owning their future: although the new company will be an Alternative Business Structure (ABS) the two firms are already publicly championing a spirit of assertive and independent lawyer entrepreneurship, stating that “..we had the same vision, we didn’t want insurers to own our firm, no third-party investment companies.”
- Advantage taken of S&G experience as a public listed entity and of its business and corporate structures: although 2012 will see the creation of a host (quite possibly hundreds) of ABSs, it will be a while longer before we see full listed legal services companies emerge in the UK. S&G’s arrival in the UK is a landmark and they may well have a five-year head start in operating as a listed business.
- Case study in law firm valuation: the S&G acquisition is going to be case study in the emerging science of law firm valuation. S&G are paying £36.4m in cash and £17.4m in shares, based on target company projected revenues of £53m and earnings before interest, tax depreciation and amortisation (EBITDA) of £10.9m.
- Assertive, innovative move to achieve competitive positioning: this deal marks the latest in what appears to be an almost daily sequence of big news in the UK Personal Injury (PI) market, where RJW make about 60% of its revenue. S&G acquire RJW’s well known Claims Direct brand, a powerful direct route to the consumer market. The two firms are making a decisive play for a big share of this fast consolidating market but we doubt they will have the PI headlines to themselves for long.
- A move by non-corporate firms: we are used to reading about the large international corporate firms undertaking these transactions. This move by two largely personal injury, personal legal services firms is significant in both markets. Furthermore, looking beyond the personal injury market to the wider consumer legal services space, we have already seen the starting pistol fired in the race to be the UK’s first and biggest household name-brand. RJW UK is already being touted by the two firms as the new market leader in the race. What is certain is that this is a big field and there is a long way to the finish line.
- Basis for the transaction – cross-border law firm mergers and acquisitions are hardly new, of course, despite all the ‘angles’ to this one that we have touched on above. But this remains a particularly clear and frank statement of what the participants are trying to achieve through extending their business model and brand and sharing knowledge, critical technology and resources.
- Acceptance of ‘being acquired’: in the past target merger or acquisition law firms, even when small compared to the other firm, have often baulked at the notion that they have actually or effectively been acquired or taken over by another firm. In some cases it has led to a breakdown in negotiations. This transaction reflects a refreshing change to that tradition and attitude.
The announcement yesterday of the take-over by Slater & Gordon of UK’s Russell Jones & Walker confirms that law firms are joining the (real) business world; implementing strategy by carefully thought through merger or acquisition strategies and flexing entrepreneurial muscle. It also re-affirms, again, that there is real value in law firms, and it is possible to put a dollar or pound figure to that value, something which vendors and potential acquirers had some difficulty with in the past.
Chris Bull & Sean Larkan, Partners, Edge International