M&A in the personal injury sector
Why is M&A in the personal injury sector here to stay?
M&A in the PI sector started in earnest in 2012, largely based around WIP book deals in the run up to LASPO. Essentially, the market started with Neil Hudgell’s “We buy any file.com.” What we have seen since is a number of new entrants into the sector, some successful and other high profile failures, together with consolidation by larger practices acquiring smaller practices and/or departments. During 2016, the pace of M&A instructions in the PI sector has continued but these have been largely focused around niche areas such as serious injury and clinical negligence rather than volume based RTA. There is certainly more caution around M&A deals with future financial modelling more difficult due to proposed fixed fees.
New entrant ABSs such as Fairpoint Group PLC have significant sums of money to invest and a captive client base for cross selling. They have the benefit of corporate structures, clear leadership and a clear vision for the future. Fairpoint’s acquisition of both Simpson Millar and Colemans CTTS included significant areas of personal injury; the former being focused around niche serious injury and clinical negligence and the latter focused on volume based PI. Colemans was also an attractive purchase due to its large conveyancing arm.
The debt management arena has been an interesting option for ABSs deals in areas outside of PI have included Harrington Brooks and private equity backed debt advice company, Money Plus Group, bought Manchester high street firm Richardson Mail in an attempt to cross-sell to customers and become a player in the legal services market.
There are always new entrant M&A deals that don’t come to final fruition and ZebraLC has seen a number of these over the last 18 months. Driven by a host of motivators into the sector, and already with their own consumer brands, new entrants’ approaches to due diligence in getting to the deal takes a different perspective from traditional law firm to law firm M&A. The investment board in such deals require reassurance that the target law firm’s asset base is investable/suitable for funding, that positioning in the market and strategic future is significantly attractive, that technical expertise fits their own brand quality, and that operational risk is low. With the number of high profile failures from scenarios like Parabis, the new entrant market is undoubtedly more cautious. Combine this caution with the threat of fixed fees, PI acquisition isn’t for the faint hearted.
Consolidation and instructions for due diligence at law firm to law firm level continues but not at the pace of new entrant M&A activity and successful acquisition. What we have seen is the law firm to law firm ‘acquirer pool’ get smaller. Partly this is due to available cash and partly this is due to the rising number of CFA assignment cases at first instance. There is nervousness in the sector. Personal injury WIP valuation is not an easy process.
There are further market entrants to come. There is continual fluidity and the landscape will no doubt significantly evolve further over the coming months. The outcome of Slater & Gordon also has the potential to significantly impact on M&A in the PI sector. It is a watching brief…. ..
2. What are the drivers behind consolidation in the PI sector?
With the advent of further fixed fees including into niche areas, and with pre LASPO cases dwindling, there could well be a perfect storm brewing. An increasing number of law firms willing to sell and experienced and seasoned acquirers looking to buy.
For law firm to law firm M&A, there is opportunity to purchase cases that will provide staggered cash flow; from case settlements and also disbursement funding and costs advance schemes. Such schemes were not as readily available l8 months ago. At the end of last year, for example, Pure Legal Group’s acquisition of Pryers used such funding via Canadian backed funder Spectra Legal.
Potentially, the advent of fixed fees in clinical negligence will see a different M&A proposition to what we have seen in volume based PI. Clinical negligence of the future will need to become far more processed driven and as such, some firms will simply not have the ability or cash to invest to process drive theses areas. Volume based PI firms have been used to capturing case level MI data at reasonably sophisticated level for years. This is often not the case in clinical negligence. As such, the ability to adapt quickly enough may well prove a challenge too much. It is like that very good technical and quality clinical negligence firms and departments will be on the market. This will make for some valuable acquisitions.