Slater & Gordon Takes Big Step To Penetrate UK With Quindell Unit

Slater & Gordon Takes Big Step To Penetrate UK With Quindell Unit
Quindell Plc QPP

Slater & Gordon took a big step to penetrate the personal injury market in the United Kingdom after agreeing to buy the Professional Services unit of Quindell, a British a technology and outsourcing company.

The Australian law firm agreed to buy Quindell’s unit for A$1.2 billion ($928.1 million). Slater & Gordon is paying a multiple of 6.9X in earnings before interest and tax (EBIT), which is nearly twice its target acquisition multiple of 3.5x to 4.5x.

Slater & Gordon has been making small acquisitions in the United Kingdom since 2012.

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Market observers believed that Slater & Gordon could increase its earnings significantly with the acquisition of Quindell’s unit.They considered the deal a great opportunity and a significant step to increase its presence in the country’s personal injury market.

Slater & Gordon emphasized that the acquisition was a “transformational opportunity” and in line with its objective to “further penetrate the highly fragmented 2.5 billion pound U.K. personal injury market.”

The Australiam law firm estimated that it will increase its British personal injury market share from 5% to 12% after the acqusition.

The law firm expected the acquisition to be earnings accretive by over 30% in it’s the first full-year of ownership.

Andrew Grech, managing director of Slater & Gordon, said combining the law firm with PSD will create a leading personal injury firm in the United Kingdom. He added the acquisition “further diversifies our sources of legal work.” It also broadens access to claims management companies, insurers, and insurance brokers.

According to Slater & Gordon, Robert Fielding, chief executive of Quindell will join the Australian law firm, and Richard Rose will be appointed non-executive chairman if the deal will close.

Quindell breaks from challenges

Quindell is facing different challenges including an attack by Gotham City Research, a controversial share sale, several public relations disaster, and an investigation of its accounting practices.

Gotham took to twitter today, stating:

Quindell’s interim chairman David Currie said, “It was a perfect storm surrounding Quindell. There was a big retail base, a lot of short positions and some accounting concerns that were easily fuelled through online blogs.”

“We’re selling the business where doubts have been seeded. There is a break from the past,” added Currie.

Slater & Gordon to raise A$890 million to fund the deal

The Australian law firm will raise A$890 million in new equity and obtain $375 million in bank debt to fund the transaction. Slater & Gordon is offering its equity at A$6.37 per share, which is 15% cheaper than its closing price of A$7.55 per share on Friday.

The Quindell’s board of directors unanimously approved the transaction, which is expected to close in May. Its shareholders will still approve the deal on April 17. The British technology and outsourcing company already received commitments from its shareholders, representing more than 15% of its issued shares, to vote in favor of the deal

Quindell plans to use the proceeds from the transaction to return cash to shareholders and to repay its debt. The company expects to return approximately £500 million.

The stock price of Quindell rose 6% to 146.25 pence around 4:00 BST in London on Monday.

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