Neil Kinsella, Russell Jones & Walker (RJW)’s chief executive, is non-committal on the possibility of a UK listing for his firm, should its recently announced acquisition by listed Australian firm Slater & Gordon (S&G) complete.
S&G, the world’s first listed law firm, is set to buy UK personal injury firm RJW for £53.8m later this year. The publicly listed Melbourne-based practice will become the first Australian firm to take over a UK firm.
When asked about the likelihood of a secondary UK listing, Kinsella told LB: ‘Maybe a few years down the line. It’s not on the table, but not off it either.’
RJW’s acquisition was announced on the Australian Securities Exchange on 30 January and is S&G’s first foray into international markets.
The deal emerged just a month after the January launch of the new licensing regime for alternative business structures under the Legal Services Act and is still subject to approval from the Solicitors Regulation Authority.
‘It’s a real statement of intent,’ said Peter Gamson, head of the national professional practices group at accountancy firm Grant Thornton. ‘RJW is quite an attractive proposition. It’s got great infrastructure and a good platform, so scaling up will not be that difficult. But I think Slater & Gordon may have paid a slight premium to say “we have arrived” in the UK market.’
‘The fundamental strategy from our point of view is aggressive organic growth.’
Neil Kinsella, RJW
S&G had been in talks with RJW since the end of 2010 and looked at around 30 different UK firms. S&G is paying £16.9m to the firm’s 19 equity partners and other members of senior management and is also providing cash up front to pay off the firm’s £10.8m debt (see chart, below).
S&G has also managed to lock in senior management to the business with a clever mix of share options and performance incentives. Both firms are finalising a share deal that will allow junior members of staff to own shares in the firm. RJW’s senior management team will earn performance-related cash bonuses of £8.8m if they hit their targets for both 2013 and 2014.
‘Effectively there will be no such thing as a partner at RJW when the transaction is finalised,’ said Andrew Grech, S&G’s managing director. ‘Initially the 19 equity partners at RJW will be shareholders in Slater & Gordon Ltd. Over time, we envisage this group will widen significantly. In Australia we now have in excess of 100 employee shareholders, representing about 10% of our workforce.’
S&G has achieved impressive growth since its listing in 2007, almost tripling its turnover in the past five years from revenues of AU$62m in 2007 to AU$182m in 2011. Management at both S&G and RJW stress that they want to achieve organic growth, and are forecasting ambitious revenue growth of 8-10% in the first few years of the deal.
‘The fundamental strategy from our point of view is aggressive organic growth. A lot of the investment will be around branding,’ said Kinsella. ‘What we are not is an outsourcing proposition. This is a direct-to-consumer offering and is the culmination of some ten years of work for us.’
S&G has been on a buying spree since listing but has been building its domestic footprint through purchasing a series of smaller players, most with fewer than ten lawyers. Therefore, the acquisition of RJW’s 144-lawyer business marks a significant departure for the firm.
S&G, which has a market capitalisation of AU$268m, derives over 80% of its revenues from personal injury work, while RJW, which owns the Claims Direct brand, generates around 60% of its £36.5m fee income from this work.
The combined firm will operate as ‘Russell Jones & Walker, part of the Slater & Gordon Group’ from April.
‘Valuations of law firms follow the same principles as any other business. The fact that RJW has been valued at about 5.6 times forecast earnings before interest and taxes highlights the strength of the business and the growth opportunities that it presents,’ said Grech.