Departure part of wider restructuring forced by US private equity fund
29 June 2017
Andrew Grech is stepping down as group managing director of Slater and Gordon, bringing to an end the first chapter of the alternative business structure story in the UK.
In an announcement to the Australian stock exchange on 29 June 2017, the company said Grech was leaving his position with immediate effect but would stay on as non-executive director until a replacement was found. Under the laws of the state of Victoria, this has to be a lawyer.
Grech’s departure is part of a wider restructuring forced by US private equity fund Anchorage, whose funds own a majority of the shares in Slater and Gordon, in a bid to rescue the firm from a succession of financial misfortunes.
Ten years ago, in May 2007, Slater and Gordon was the first ever law firm to be listed, raising $35m on the Australian Stock Exchange just as the Legal Services Bill was receiving its second reading in the UK.
Grech led the firm’s ambitious expansion into the UK, playing a key part in the acquisition of Russell Jones and Walker in February 2012 for £53m, which became the fifth alternative business structures when it obtained a licence in April 2012.
With the Co-op, which was in the first trio of entities to secure an ABS licence, Slater and Gordon was one of the major new entrants that sought to take advantage of the new model to scale up into the consumer end of the legal services market.
Unfortunately, the move coincided with costs reforms that hit personal injury claimant firms head on, leading to a dramatic decline in profitability. The government, encouraged by insurers and defendant PI firms, had determined that litigation costs had to be brought under control. They identified ‘compensation culture’ as the enemy, even though there was no supporting evidence for the phenomenon. The first victims would be claimant lawyers. Slater and Gordon was no exception.
The mood was still upbeat four years ago. With plenty of cash in the bank after raising fresh capital in Australia to fund its UK expansion, the firm went on a shopping spree. The firm made several key acquisitions, including Goodmans Law and the PI department of Taylor Vintners, although an attempt to purchase national firm Simpson Millar fell through in 2014. If margins were being eroded, scaling up would be the response and consolidation the way forward.
The following year, Grech was able to say business was ‘running smoothly’ as Slater and Gordon posted a 47.2 per cent increase in profit after tax to £33.7m, nearly half of which came from the firm’s UK activity.
In a difficult context, the acquisition of Quindell’s professional services division in 2015 for a massive £637m, however, looked to be a major miscalculation. Despite Australian institutional investors snapping up new shares, observers such as PwC warned about potentially inappropriate accounting policies.
A year later in February 2016, Slater and Gordon announced a major reorganisation after revealing £493m losses. After peaking at $6.988 in March 2015, shares were now worth less than a dollar. Still, Grech remained confident the firm’s reorganisation would bear fruit.
Last week brought further woes for the firm as it confirmed it was being sued by investors claiming they had been misled into acquiring shares in the business between August 2012 and November 2015.
Shares in the firm closed at their lowest yesterday – AUS$0.088.
This story was first published on Solicitors Journal on 29 June 2017 and is reproduced by kind permission