Mergers, acquisitions and personal injury claims: what will you gain?

Fevered activity in the personal injury (PI) market has led many firms to consider their strategic future. Some deals have been soundly thought out, with real commercial, strategic and cultural issues clearly considered. At the other end of the spectrum, there's been some 'head scratchers'.

You could be forgiven for thinking we're in the middle of a PI dot-com bubble. For some, misplaced confidence that the firms buying PI work will turn future profits where others have failed, coupled with increasingly accessible finance to fund deals, has created an environment where many are overlooking the processes necessary to build credible and sustainable business models.

It remains to be seen whether some of the relatively new market entrants with a 'build a big brand fast' strategy will lead to the bubble bursting. The ?Slater & Gordon approach of acquiring firms makes sense for what they are looking to achieve, in giving the acquired firms a platform to move into a larger market following years of hard work developing expertise, culture and brand.

Conversely, in interventions, pre-pack deals and firm failures where a measured and strategic approach has not been possible, firms have closed, for example, Harris Cartier.

Some firms are choosing to publically announce their strategy to exit PI, most recently Walker Morris. No doubt they are considering their options in terms of trade out or sale. I'm sure once the news broke, their phones didn't stop ringing from interested acquirers. It will be interesting to see what happens with the Co-op if they scale down and/or decide if they have the stomach to trade on or trade out of this practice area.

Reducing the value

So, for firms considering their options, is there a diminishing value in PI work? For those that have not adapted their business models, yes. However, the innovative and adaptable - those that have effectively geared their work-assessed risk management, invested in IT and used their senior fee earners at the right time in the process - can be even more profitable and capture the additional work ?that others no longer feel able ?to deal with.

I'm particularly worried about offers of work-in-progress (WIP) calculators to lure sellers to the negotiating table. There is no easy way to value WIP and broker a deal without first knowing what lies beneath. Factors such as work type, hourly rates ?applied, proportionality, risk assessment, case length, quality of expert witnesses and ?probable fee income to be derived are all crucial factors in assessing the value of past WIP and future potential.

Furthermore, when you build in retainers and assignment of CFAs, together with potential indemnity insurance and successor practice risk issues, you could be facing a wide margin of error. If the value of WIP and file purchases is incorrectly assessed then, at best, a bad deal is done. At worst, professional negligence and financial pain is staring you in the face. Not to mention the probable great disservice heaped up on the clients, with associated regulatory risks.

One recent deal that made me appreciate the true value of strategy and alignment in legal expertise was the tie-up between Irwin Mitchell and MPH. The lawyers who negotiated that deal, Roger Pannone and Michael Napier QC, set up Pannone Napier over 20 years ago. Following several high profile PI disasters, they decided to pool their resources and expertise, creating a market-leading specialist venture to deal with such horrific events.

If there is ever an example of law firms able to meet the challenges of the future PI market, look no further than those Pannone partners who ultimately became MPH and Irwin Mitchell. They are doing it again, in a different way, fit for 2014 and beyond. SJ

Lesley Graves is managing director of Citadel Law

www.citadel-law.com

@Citadel_Lesley

Watch Lesley share her insight further in this interview with Solicitors Journal editor Jean-Yves Gilg (or view the 60-second sampler here).

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