Law firm Slater & Gordon Limited (ASX: SGH) has confirmed it has entered into "exclusivity arrangements" relating to a disposal of an operating division of UK AIM-listed financial and professional services business Quindell Group.
A mystery deal
That operating division is probably Quindell's Liverpool-headquartered legal services business comprising of several operating units.
Slater & Gordon already has a large footprint in the UK's other big north-western metropolis of Manchester and this looks like the next step in its acquisitive growth strategy.
The deal's details are shrouded in mystery, secrecy and innuendo, perhaps an unsurprising consequence of a deal that involves lawyers working with lawyers about acquiring a firm of lawyers.
However, London's Financial Times newspaper has reported that a person familiar with the deal told them Slater and Gordon has offered to pay six times the "operating division's" sustainable revenues.
Th FT reports in the first half of 2014 the acquisition target's total revenues were £180 million. Although notably it is not known what part of these revenues are considered "sustainable", even if the FT's story is remotely accurate.
It's also worth noting that Quindell's has been struggling recently and Slater & Gordon are likely looking to pick the assets up at fire sale prices.
All will be revealed in due course so investors must remember this is just speculation for now and there's no guarantee of a deal at all. However, it's worth investigating Slater & Gordon's acquisitive growth strategy in the huge UK market.
Have you ever suffered a Personal Injury?
That's a question asked much more commonly by people these days due to the tantalisingly juicy compensation available to the more accident-prone citizens of Australia and the UK.
Injuries at work, road traffic accidents, or general slips and trips just about anywhere, anytime, can now lead to compensation claims paid by insurers.
For example if you've ever learned how to tie your shoe laces at work, or received a certificate on how to lift a box – it's likely you've helped your employer to navigate the dangerous world of personal injury claims.
That explains why entrepreneurial lawyers like Slater & Gordon and Shine Corporate Ltd (ASX: SHJ) have been able to cash-in on this fast-growing area of legal practice and lucky investors have enjoyed the ride.
Indeed in the UK's north-west Slater & Gordon has pioneered drop-in centres for those with a potential claim to swing by for a chat. Moreover, the "no-win, no-fee" system tends to mean there's never a shortage of people with potential personal injury claims.
Be warned though, as those just looking to shake-down an insurer for a few grand will be sent on their way. These legal eagles only take on claimants with genuine injuries.
This is where brand power and scale becomes advantageous as claimants want to go to the lawyers with a good reputation for getting them cash and scale gives the advantage of military like efficiency in case-load management for clients who can sometimes be less than reliable.
Slater & Gordon is also growing its more general legal services business both in Australia the UK and perhaps other common law countries one day. Its long growth runway underpinned by disciplined cost management and brand power is what should make it attractive to investors.
In my opinion the business remains a good buy given its valuation, but it's not the only one in a growth sweet spot. There's another business building significant competitive advantages, scale, and global opportunities having dominated in Australia.
