As expansive West End firm Gordon Dadds talks up its ambition to become a £100m business after going public last year, the new owner of Simpson Millar – which recently axed 91 jobs and had £17.7m in debt written off after its publicly-listed owner went bust – is not ruling out an initial public offering (IPO) after putting more than £50m into law firms over the last two years.
Following the administration of listed finance company Fairpoint Group last year, its former legal subsidiary, Leeds-based Simpson Millar, this week made 91 roles redundant following a consultation launched in December. Managing partner Greg Cox said Monday (26 February): ‘This was necessary to stabilise the firm after significant under-investment by Fairpoint Group during the period it owned the firm, which had resulted in a fall in revenue in 2017.’
Simpson Millar was acquired by Fairpoint in mid-2014 in a deal worth up to £15m and funded by a loan from Allied Irish Bank (AIB). At the time, Simpson Millar had more than 250 employees based in 10 offices throughout the UK, generating £16.9m in revenue.
By August 2017, however, administrators RSM were called in. A month earlier, Doorway Capital – a risk capital provider for law firms – had been assigned AIB’s debt and provided Simpson Millar with a £5m facility. The Fairpoint board said this provided Simpson Millar a lifeline from which it could take advantage of ‘the size and highly fragmented nature of the consumer legal services market-place’.
Doorway Capital founder Steve Din – now the new owner of Simpson Millar – said his firm acquired AIB’s £24m outstanding debt for a price he could not disclose. Simpson Millar’s company accounts for the year to 31 December 2016 said Doorway Capital acquired Fairpoint’s total legal debts of $29.6m from the administrator and agreed to waive them, of which £17.7m was in respect of Simpson Millar.
Din, formerly a managing director at Morgan Stanley’s fixed income division, said writing off Simpson Millar’s debt meant its only bank borrowings were the £5m agreement with Doorway, an ‘evergreen credit facility’ which had no scheduled payments of principal or interest. He added that the package ‘now improves, very considerably, the financial strength of Simpson Millar.’
The accounts show Simpson Millar’s turnover was £38.9m, but it made an operating loss of £11.8m as staff costs rose to £18.6m in the year, when employee numbers rose to 517 from 391.
Fairpoint’s legal services arm, which included another acquired firm – Coleman CTTS – had recorded more in turnover than established LB 100 firms such as Wedlake Bell, Kingsley Napley and Russell-Cooke as recently as 2015. It had actively talked up multiple potential acquisitions .
Din commented: ‘Simpson Millar is an outstanding firm that enjoys a history of over 170 years, which few law firms can claim to have. Doorway Capital recognises that it needs to invest the capital required by Simpson Millar, both in the short-term and long-term, to scale up its marketing effort.’
Doorway has advanced nearly £50m to various law firms over the past two years and acquired a further £50m in defaulted debt although Simpson Millar, which it owns 100% of, is its only direct investment. Doorway is authorised by the Solicitors Regulation Authority (SRA) to own firms and aims to invest ‘considerably more’ this year.
Din has not ruled out an IPO, although conceded this was unlikely before 2020. He added: ‘Ultimately, as part of our longer-term goal, we expect to drive consolidation across the UK consumer legal services market through a combination of acquisition of law firms as well as very significant organic growth.’
Earlier this month, the managing partner of recently listed firm Gordon Dadds, Adrian Biles, floated ‘nine figures’ as a natural revenue target after the business made its fourth acquisition since going public last August. The business raised about £20m with its IPO, and its model seeks to consolidate the ‘fragmented’ legal services market in England and Wales.