Last year, Australian plaintiffs law giant Slater & Gordon pushed into the U.K. legal market with its acquisition of personal injury firm Russell Jones & Walker. Earlier this month, it announced that it was acquiring three more British personal injury practices.
And Slater & Gordon managing director Andrew Grech says his firm is just getting started.
“We are looking to dominate the market in the U.K.,” he says. The plan is to acquire still more firms and achieve within two years British market share on par with that of the firm in Australia, where Grech estimates Slater & Gordon handles between 20 and 25 percent of personal injury matters. Eventually, the firm also wants to be a leading supplier in the U.K. of legal services to “everyday people” in other areas like family law, employment law, property, and estate planning.
The firm’s British acquisitions to date have cost some $121 million, but Slater & Gordon became the world’s first publicly traded law firm when it listed on the Australian Securities Exchange in 2007. Since then, it has been able to fund expansion by selling shares. From 2007 to 2012, the firm acquired several other Australian firms and almost quadrupled in size, to almost 300 lawyers today, with revenue likewise increasing from $63 million to $218 million. Earlier this month, Slater & Gordon announced that it would be raising $59 million via private placement to finance both its most recent acquisitions and some more to come.
“There is no way we would have been able to expand in the way that we wanted and needed if not for our listing,” says Grech. “By using the capital raisings, we have been able to deepen our resources in terms of staff, technology, and leadership programs.”
Investors seem to agree. The stock, which debuted at $1 per share, has been trading near an all-time high of around $3 for the past few weeks. Equity analyst Brad Dunn, who covers Slater & Gordon for Australian financial advisory firm Ord Minnett and has a “buy” rating on the stock, says investors have found Slater & Gordon a relatively stable investment.
“In the personal injury space, it is well accepted that bad things will always happen, so the work will always be there,” says Dunn.
The analyst also sees great potential in the firm’s expansion in the U.K., where regulatory changes have recently altered the market. Though U.K. legal practices were opened to outside ownership in 2011, a more momentous change for the British personal injury bar may be the ban on the payment of referral fees that went into effect last month. Many firms had paid such fees to claims agents and insurers in exchange for a regular stream of work.
Tony Williams, principal at London-based law firm consultancy Jomati Consultants, says the change has led smaller firms feeling vulnerable and more open to takeover offers. “Smaller firms here used to get regular work from insurance companies,” he says. “Now it’s more of struggle for them.”
Dunn agrees. “Those changes have made the market conducive and attractive for PI firms with strong brands like Slaters to come in and do acquisitions and market consolidation,” he says.
Grech also points to similarities between the U.K. and Australian legal systems  that make expansion in the former more straightforward for Slater & Gordon than, say, a move into the U.S. legal market.
The Australian model for personal injury practice is quite different from that in the United States. American plaintiffs lawyers typically work on a contingent fee basis, meaning they take a percentage, often as high as 40 percent, of any final settlement or judgment. Australian lawyers, on the other hand, are barred from taking a percentage and can only charge by the hour. But these hourly fees too are contingent on a successful outcome, and a losing case will earn a lawyer nothing. Indeed, the losing party will often be ordered to pay the other side’s costs.
The obstacles that lawyers face in bringing plaintiffs cases in Australia have helped fuel consolidation, as smaller practices have sought ways to spread out their risks. It has also led to the development of a large litigation funding industry in the country. Funders, unlike lawyers, are allowed to contract for a percentage of a judgment or settlement.
The U.K. also has such “loser pays” rules and formerly barred percentage contingent fees as well, though the latter rule changed in April and British firms are now allowed to charge contingent fees up to 25 percent.
Grech thinks that Australia should allow contingent fees, as he thinks they are a fairer way of rewarding lawyers who take on high-risk cases against big companies. But he says that issue was unrelated to the firm’s decision to go public. Grech points out that the firm has not raised capital for the purpose of funding litigation itself and that it often works with third-party funders on cases. The listing was always mainly about expansion.
For years, Slater & Gordon was the only publicly listed law firm in the world. But last week, another Australian firm, Brisbane-based Shine Lawyers, also took the plunge. Shine, which has a marketing deal with Erin Brockovich, raised $45 million in an initial public offering that valued the firm at $155 million.
Still, Slater & Gordon’s biggest Australian competitor, Maurice Blackburn, has resolutely said it will not pursue an IPO. “We don’t want to compromise the quality of our work,” says Maurice Blackburn chairman Steve Walsh. “If you are a publicly listed company, then you will have to grow according to market forecast. That’s why the listed firms have to expand in the way that they do, because there are expectations and forecasts to meet.”
Dunn says a listing may not be right for every firm. “There are additional pressures of having shareholders and investors to provide for,” he says. “The change of business can be quite dramatic. The managing partner of a firm will become a CEO and not have a hand in cases that he would usually like to handle. He needs to become more of a business manager because there are pressures to generate value for shareholders and broaden the market.”
With Slater & Gordon in particular, Dunn says, there may also be a risk that management may be spread too thin with its overseas expansions plans, though he says the integration of Russell Jones appears to have gone smoothly so far.
But Grech denies that the quality of the firm’s work has suffered and argues instead that the firm’s greater management and infrastructural resources after listing probably have led to improvements. Grech thinks onerous tax and reporting burdens, along with anxiety about disclosing financial information, are the more likely reasons that other law firms have been slow to go public.
“There are no special risks attached specifically to our business model and not to partnerships,” he says.
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