Peter Watson : Pioneering change in legal services

30 Oct 2014

peter watsonIn June 2014, Simpson Millar completed a share sale to Fairpoint Plc, an AIM-listed consumer services group, which saw it become one of the first firms in England & Wales to move to a corporate alternative business structure. We met Managing Partner Peter Watson to discuss the background to the deal and the opportunities it presents. 

Peter, when did you and the board at Simpson Millar first start to consider the future of the firm?

Over the course of five or six years, we engaged in a conscious process of preparation to move the firm forward. We knew that alternative business structures were on the horizon and we could see consolidation in the marketplace driven by increased regulation and later as a result of changes such as the Jackson Reforms. We transferred the business to an LLP and diversified to broaden our consumer services offering, increasing and improving our digital marketing capabilities. At board level we introduced a more corporate management structure, taking on a Finance Director to ensure that we would be in a favourable position when ABS came into force.

What options did you consider in addition to the Fairpoint deal?

We looked at bank funding and we also spoke to some private equity houses but neither would afford us the opportunity to be a platform for the growth of a consumer legal services business; Fairpoint offered us that solution. We spoke to Slater & Gordon last summer (2013) with whom a deal would have achieved a number of our goals but this would not have given us the level of ongoing involvement in the growth of the business that we were seeking. The capital behind Fairpoint means that we will be able to grow by takeover rather than merger which allows for a smoother acquisition process.

Who approached who?

Jepson Holt introduced us to Fairpoint who had engaged them to look at the market. Phil Jepson knew we were looking for opportunities and Fairpoint fitted the bill so he made the approach to us.

Why Fairpoint? Why did they stand out and what could they offer that others couldn’t?

In addition to offering us the opportunity to be a platform, the culture fit with Fairpoint, an instrumental part of the decision, for us was apparent from the outset. They have had to streamline their business in a similar way so they understood what we were trying to achieve.

There is substantial cross-sale potential between the two businesses and synergy between client bases; Fairpoint provides debt management solutions to individuals and operate a claims arm, together with various subsidiaries. Simpson Millar is a consumer services-led practice targeting a similar market. In particular, trade unions are a significant client base for Simpson Millar and they often look to broaden the services they offer to members. Fairpoint can provide fee-free debt solutions which presents opportunities to serve our trade union clients beyond legal services and will strengthen our relationships with them. We introduced Fairpoint at the TUC Conference earlier this year where clients could meet representatives and discuss directly any concerns they had.

Were there any moments of doubt in your mind?

Not really! Fairpoint has continued to maintain the style of approach and culture as presented at the start of the process which was always what we were looking for.

How long did discussions take before a deal was concluded?

Fairpoint met us for the first time in September 2013,  presented a deal structure to us in November 2013 and following agreement of heads of terms, a thorough due diligence process was undertaken from January 2014. Contracts were exchanged in April with completion taking place in June. SRA approval to the ABS was required but they were constructive with their guidance and this did not unduly delay the deal.

What was Fairpoint like to deal with in comparison with another law firm?

As a corporate body, answerable to investors, Fairpoint undertook an extremely extensive programme of due diligence. However, despite the large level of resource available to them to invest in the project, negotiations felt even throughout and there was fair compromise on both sides.

How often does Fairpoint do deals like this?

They have made, and continue to make, some smaller acquisitions within  the debt management market and they are certainly experienced in managing the process. We are Fairpoint’s first legal acquisition.

Corporates are often seen as risk-takers and tough negotiators; is that your experience?

We found that because of the need to build investor confidence  Fairpoint, although less conservative than some lawyers, did not take risks. They needed to be absolutely sure that investors, who demand much more by way of structure, process, forward  projections and future plans, would be satisfied. In terms of negotiation, they were willing to compromise; Simpson Millar, with good WIP on the books and a structured management team in place, provided a good balance and a strong platform platform for Fairpoint to grow its legal services business.

How late were the nights in the run-up to completion?

We had aimed for a mid-to-late March exchange which slipped only by a week or so. There were a few late nights but the one memory which stands out was my birthday weekend in Scotland! I was chauffeured there by my wife and spent much of the journey, and the whole weekend, on conference calls trying to complete the deal. I left the hotel once for about an hour! 

What did Fairpoint buy?

The LLP and its subsidiaries, which included financial services, medico-legal and costs drafting businesses. They also acquired our WIP and a management team. The next step is to grow and we are already looking for more opportunities. Expansion plans are well-considered.

Looking forward, what input does Fairpoint have into the operations of Simpson Millar and will staff see any changes internally?

Day-to-day the firm is still run in pretty much the same way. We have twelve ongoing integration projects including HR, IT and disaster recovery systems to streamline the processes of the two businesses and we are running a joint direct-to-consumer marketing project. We are managing integration within the business in a way which ensures that our people do not feel as if too many changes are coming at once. We held some successful events in July to introduce the firms and our people to each other; working smarter and working together are shared values of both businesses.

Fairpoint’s head of M&A and I work closely on planning acquisitions; he manages the corporate finance side whilst I look at the legal-specific aspects. The Simpson Millar executive team, consisting of myself, our FD and Operations Director, meets monthly and some of the Fairpoint executive team members now join us for that.

Do you envisage a corporate-style input helping to shape Simpson Millar differently in the future?

The institutional investors have bought into the future growth and expansion plans for the business and we have given them the appropriate reassurance that we will manage acquisitions and integration properly. There are currently several discussions ongoing relating to future growth and we are hopeful that progress will be made over the next twelve months. The Fairpoint deal removes barriers to takeovers because of the capital backing and opens further opportunities.

Do you envisage entering new markets as a growing firm?

We offer a fairly complete range of consumer legal services and so we will build scale and critical mass in those areas to increase our market strength and share. Gaps can be filled by acquisitions or organic growth; we will stay as a consumer firm with a good SME-focused commercial practice. We are concentrating on growing our travel, clinical negligence and contentious probate practices, along with our family expertise. We still do a lot of PI work and we are changing our processes to allow it to remain profitable. New hires will complement these areas.

What’s the 5-year plan for you?

We are aiming for top 50. We will focus on a central hub but having a national presence is vital to our clients, so whilst some systems such as administrative functions lend themselves to centralisation, we will retain our offices across the country. Expansion into Scotland is something which we have discussed previously and is on the radar if the right opportunity arises. 

We recognise the importance of having and maintaining a digital presence; Simpson Millar already uses this well but as a progressive firm we will continue to expand on it. It takes a leap of faith to employ social media and digital experts but it has proven to be an important investment for us and a large portion of our business, especially in areas such as travel, now comes from the website and social media.

Thank you to Peter for taking the time to talk to us.

Jepson Holt specialise in advising on business strategy and provide M&A consultancy services to the legal sector. Please contact us if you would like to discuss opportunities in the market.