Top insurer Markel enters legal market as Quindell unveils £150m Direct Line deal
Stovin: significant addition to UK retail business
Leading insurer Markel is to enter the legal market after today announcing a deal to buy the owner of alternative business structure Lewis Hymanson Small (LHS).
The Solicitors Regulation Authority has given approval for the change of control of the firm from Abbey Protection plc and Legal Futures understands that it will be business as usual for the practice.
Markel is spending £116.5m to buy Abbey, which provides legal and taxation-related professional fees insurance, including after-the-event insurance. The valuation of the company is 9.3 times its EBITDA (earnings before interest, tax, depreciation and amortisation).
The purchase price is 115p per share; the AIM-listed company’s price closed at nearly 120p yesterday, but today it has slid back to 115.5p at the time of writing.
Members of the senior executive team – who between them own 57% of the shares – have given irrevocable undertakings to vote in favour of the deal. They include solicitor David Hartley, who headed its ATE division and before that worked at the Law Society, who has nearly 400,000 shares.
Abbey bought LHS earlier this year and its recent half-year results showed that the firm made a small dent in the company’s profits during a “tough” initial period.
The purpose of the acquisition was to expand Abbey’s legal services offering and in the first four months of being part of the group, LHS contributed £760,000 of revenue and a loss of £55,000.
The interim report said that Abbey’s investment in the opportunities afforded by its alternative business structure licence is “yet to bear fruit”.
Chief executive Colin Davison said: “Trading in this initial period has, as expected, been tough as we have been undertaking the necessary re-structuring to ensure that LHS is well positioned to take advantage of the opportunities in front of us. I am pleased to say that the signs are encouraging.”
The announcement today said it was Abbey that had gone out looking to be acquired, both because it needed greater scale “to take advantage of certain growth opportunities”, and also for the senior managers to realise their investment in the business.
William Stovin, president of Markel International, said: “Our financial and underwriting strengths, and our established relationships with UK SME customers, fit well with the board of Abbey Protection’s objectives for the further development and expansion of their business…
“It’s our expectation that Abbey Protection will continue to operate under its own successful brand, while our capital and risk appetite will enable it to retain more underwriting risk and to explore growth initiatives currently beyond its reach. Abbey Protection will be a significant addition to our UK retail business.”
Meanwhile, AIM-listed alternative business structure Quindell Portfolio plc, has announced a three-year, £150m contract with Direct Line Group that will see the insurer use key elements of Quindell’s end-to-end motor claims service.
Rob Terry, Quindell’s executive chairman, said: “This agreement once again validates Quindell’s significant market leading model, which we believe will continue to help revolutionise the insurance industry, through a combination of innovative technology and integrated supply chain for motor insurance, stamping down the cost of claims whilst above all improving the customer experience for the brands who choose to partner with Quindell.”
Quindell also revealed that in recent weeks with had also reached agreement with 10 key brands of varying sizes for over £150m of revenue a year. It is planning to transfer to the main list next year.
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