The Australian law firm Slater & Gordon Limited (ASX:SGH) has announced a deal to acquire the professional services division of British insurance claims processor Quindell (LON:QPP). In an announcement to the ASX, Slater & Gordon said it offered a $1.225bn upfront consideration for the acquisition. The law firm is also seeking to raise approximately $890m in equity to pay for the acquisition. The company is being both legally and financially advised by Citigroup, Macquarie Capital, Greenhill, Macfarlanes, Arnold Bloch Leibler, and Ernst & Young. After becoming the world’s first publically traded law firm in 2007, Slater & Gordon has grown significantly through acquisitions. It has been in negotiations with Quindell since January.
The firm will be paying a multiple of seven times the earnings before tax and depreciation, significantly higher than its target multiple of three and five tenths to four and five tenths. Slater & Gordon’s UK businesses accounted for nearly half of its $418.5m revenue last year. Although it is paying an acquisition multiple higher than normal, the deal is expected to double the firms UK market share and be more than 30 per cent earnings accretive. The deal is said to be supported by the shareholders of Slater & Gordon, but Quindell shareholders will decide the final approval next month. Quindell’s market capitalisation has fallen from more than half in the last year, decreasing from around £2bn to £600m. Quindell’s professional services division accounts for almost 90 per cent of its revenue and profits. The company is expected to return £500m of the proceeds to its shareholders.
SGH has been performing well this year. Its one-year return is up over 67 per cent and it has advanced almost 18 per cent so far this year. Slater & Gordon managing director Andrew Grech hailed the acquisition as yet another “transformational” move to grow the company’s prospects. “The acquisition of the professional services division is a transformational opportunity, and will allow Slater and Gordon to further penetrate the highly fragmented £2.5bn UK personal injury market.”
Author: Simon Herrmann
Mar 30, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.