Cardinal problem. List of recent acquisitions (excluding SGS and...

Cardinal problem.

List of recent acquisitions (excluding SGS and some others such as Gibson & Gibson (PIL) in late 2013 in Perth for $3.3M which was, by then, no longer considered as a material type disclosure requiring much disclosure). In the circumstances presented, the analysis is of those (not necessarily complete) where the acquisition consideration announced at time of acquisition exceeded the annualised revenue base:
1. Leo Abse Cohen + Walker Smith Way (2/15) = 1.07x $/Rev (Paid $37.2M; Rev $34.7M; WIP $46.5M; 16 months of WIP acquired)
2. Nowicki (8/14) = 1.73x $/Rev (Paid $45M; Rev $36M; WIP $39.2M; 18 months of WIP acquired)
3. STOB (8/14) = 1.46x $/Rev (Price $19M; Rev $13M; WIP $???)
4. Pannone (2/14) = 1x $/Rev (Price $59.7M; Rev $60.5M; WIP $41.8M; 8 months of WIP acquired)
5. Fentons (8/13) = 1.17x $/Rev (Price $54.2M; Rev $46.2M; WIP $54.7M; 12 months of WIP acquired)
6. Goodmans + Taylor Vinter 1.62x (Price $19.8M; Rev $12.2M; WIP $????)

In more ways than one, some of the acquired WIP was quickly re-evaluated as organic WIP when in many respects it was either stale, dormant, or slow fusing WIP. The biggest problem however is that a lot of that WIP has since been exhumed, exhausted or converted with little to no subsequent replacement (ie: limited organic generation; more like run off WIP).

The examples given however should reflect both the flavour and the mentality of what was happening at the time, including through to SGS ==> paying high for WIP and high on the expectation of headline revenue numbers, all in order to get (*) critical nationwide mass in AU PIL, critical core in GEL, accelerated critical core in UK PIL. WIP however doesn't last forever even when in run-off mode. Sooner or later, it needs to be replenished /refreshed which is where the organic elements come into play.

Trouble is, having acquired a number of specialty providers, etc, there just wasn't that much more organic growth happening out there (ie: in new accidents, injuries, special diseases, complex litigation events, such as asbestos litigation etc). Hence why also the growing emphasis on project litigation from circa 2010 onwards except that once known as a pioneer in the field of CA, SGH has over the years, roared out in front of the pack, but as the race has progressed and the pace settled, it has come back closer to the field. This is also why there was also a shifting emphasis (circa late 2013 onwards) towards business CA (rather than either disease, product or mis-diagnosis based CAs).

Trouble is, in order to prosecute such matters, the firm needed to have an inherent business minded core which it lacked (still does). In essence, few if any go to a PIL centric firm for business, financial, investment or share market behaviour related advice. After all, even in the area of conveyancing, they closed down their Conveyancing Works acquisition in late 2016, an activity which they originally intended to use as a base to propel them in the area of COLA (consumer law) and in GEL. For them, it simply didn't work as the results are now demonstrating.

In contrast, even though largely cut from the same mould, MB have had a separate, dedicated business /commercial function since circa 2006 which largely runs on a standalone /separated out basis. Hence why perhaps they have a bit more expertise in place in the area of business, commercial and finance. Not much more, but a bit more, relatively speaking.

Economies of scale therefore do not typically match out well with law firms /professional services' firms generally, but especially so in the PIL arena. And especially so when it comes to operating in unfamiliar areas of legal function or practice. The Conveyancing Works experience was meant to provide them with a clear ECOS approach to doing COLA (including transitioning through to the wider GEL genre) but it simply did not work out for them. It never did. The cultures involved were approaching from opposite ends of the spectrum with little existing in common between them. And that's SGH's problem in a nut shell. After all these years, the culture wars are still raging and the uniformed approach, often considered so critical to achieving success and ECOS still remains largely absent, both here in AU and especially in the UK.