National firm Irwin Mitchell took a major hit on annual profits in order to push through the biggest merger in its history, accounts have revealed. Profits on ordinary activities at the LLP, which acquired Thomas Eggar LLP in December 2015, fell 59% to £8.4m for the year ending 30 April 2016.
The accounts reveal that Thomas Eggar was acquired for consideration of £23.6m and acquisition costs of £533,514.
While revenues increased by 7% to £199m, the firm said it had expected profits to tumble. The accounts said: ‘The board took a deliberate decision to fast-track the integration of Thomas Eggar which has led to a short-term impact on profitability in FY16 but which we view as being the right decision longer-term to enable us to maximise the return on synergies between Irwin Mitchell and Thomas Eggar as soon as possible.’
Staff numbers rose year-on-year as a result of the acquisition, increasing from 1,741 in 2015 to almost 2,000 in 2016. The number of fee-earners rose from 1,072 to 1,205. The wage bill of the firm grew at the same time, from £53m in 2015 to almost £61m this year.
The profit attributable to the member with the highest entitlement dropped significantly, from £14.56m in 2015 to around £4.2m in 2016.
The accounts also reveal the firm has reviewed all its accounting policies and estimates so revenue is not taken from work yet to be complete.
‘As a result we have amended our accounting policy in respect of valuation of unbilled time on contingent matters, the effect being to recognise work in progress at costs on matters where the contingency has not yet been resolved and where we cannot reliably estimate revenue.’
Accrued income has been reduced by £26m at May 2014 and by £31.4m at April 2016. Work in progress has increased by £28m for 2014 and £31.7m for 2015.
Earlier this year, Irwin Mitchell’s rival Slater and Gordon vowed to stop recognising revenue when it was just ‘probable’ that it would come in. The new standard, adopted retrospectively from July 2014, required income under "no-win, no-fee" agreements to be recognised only when it was ‘highly probable that a significant reversal of revenue recognised will not occur’.