Slater and Gordon’s Quindell acquisition looks like a risky strategic departure.
The fat lady is clearing her throat and Frank Sinatra is on the karaoke: Quindell is leaving the legal services market.
Like the British arrows on the opening credits to Dad’s Army, this juggernaut force has ventured into uncharted territory before pulling back and abandoning the plan. If nothing else, legal journalism will be a duller place without Quindell.
But today’s announcement that Slater and Gordon is to buy Quindell’s professional services division raises serious questions.
How on earth has this collection of small, acquired firms and 50,000-odd noise-induced hearing loss cases come to be valued at £637m? What is Slater and Gordon actually paying for?
Where is the evidence that these claims will actually come to anything? The Quindell statement itself admits that ‘in view of the relatively small numbers of cases that the company has successfully settled to date, the directors are unable to assess with certainty the amount of net fees that might be generated’ by such cases. That’s hardly a cast-iron guarantee.
Is Quindell a reliable judge of the merits of its business? The company itself admitted to previously adopting accounting policies that were ‘at the aggressive end of acceptable’ and that it will have to adopt a ‘more conservative approach’ in future.
Just what exactly has Slater been sold here? Quindell says it had not ‘actively pursued’ the disposal of its professional services division, but later concedes that failure to close a deal would limit the group’s ‘financial and operational flexibility’, particularly the ‘level of financial indebtedness’ the group would retain.
That does not sound like an emperor sitting on top of his goldmine telling the buyer to make him an offer he can’t refuse – it sounds like this deal was very much necessary for Quindell to stay in business.
And as for Slater and Gordon, this deal seems to contradict the entire strategy for building its empire. The plan so far has been to build gradually but progressively – taking hold of established and well-reputed existing firms and building on that. It simply doesn’t back long shots.
Steady accumulation has turned to gluttony. Suddenly Slater’s market share of the personal injury sector has jumped from 5% to 12%. The deal itself is being funded through £460m in new equity, with the balance of the upfront payment funded by fully underwritten bank debt. This just doesn’t feel right as a Slater acquisition.
Everything about this deal seems odd. The cost, the rationale and the tearing up of a strategic plan that was working all raise questions. Slater and Gordon is at pains to say the acquisition has been subject to ‘extensive due diligence’. Others will suggest it is a step too far.
John Hyde is Gazette deputy news editor