Exiting PI: the value of a strategic and measured approach to selling WIP

Posted by Zoe Holland, managing director of Legal Futures Associate Zebra Legal Consulting

Holland: PI market is set for significant acquisitions

With more than 200 law firms having failed to secure professional indemnity insurance (PII), it is highly likely that this will include a number with personal injury (PI) WIP books. Will this create a buyers’ or sellers’ market?

The spotlight on the injury sector is shining again following the recent announcement that high-profile serious injury and clinical negligence specialists Harris Cartier entered into a pre-pack deal with prolifically acquisitive firm Neil Hudgell Solicitors. This was followed by Manchester firm Taylor Legal. This was another firm that failed to secure PII, and included a small number of personal injury files.

The last two months has seen an unprecedented increase in buyers entering the market, ready to purchase an increasing number of WIP books for sale. This has included DBS Law, SGI Legal, Slater & Gordon and the rebranded PI Solutions, amongst a growing number of other smaller acquirers entering the market. Enquiries to Zebra from firms looking to acquire has significantly increased, and in last the two weeks alone has involved three due diligence projects, with WIP values exceeding £2m.

What does an ideal WIP book look like?

Good WIP books have acquirers competing for purchase, and this has the potential to drive prices upwards. Our experience shows that deals such as these are strategic sales. The decision to off-load a personal injury caseload will have been well thought through, and time will be spent “packaging” the caseload for sale, sometimes involving a bid process.

If more law firms approach a sale in this way, there is the ability for ‘market making’ to drive prices further upwards. In these scenarios, this is not a fire sale.

An ideal WIP book have a clear matter listing readily available and will accurately log key data. Case files will be tidy/chronologically recorded (paper or paperless) and truly reflect the recorded management information data.

Prior to any due diligence, it is advisable for firms to remove cases with little prospects of success from the listings along with dormant files. If a firm can offer triangulation, providing historic settlement patterns and win/loss ratios, this will add potential value.

The more prepared the vendor is for a sale, including an understanding of valuation and transactional processes, the better the likely outcome for them.

A survey this month carried out by Zebra of 15 acquisitive firms, revealed that 13 are actively looking for strategic off-loads. Serious injury and clinical negligence caseloads have the potential to attract some big players, particularly if the selling firm has a high profile, and is known for technical excellence.

What are the WIP books that flag as high risk?

Industrial disease and clinical negligence where the vendor has limited history of handling such matters, along with any book associated with a distressed sale.

In more distressed sales, market prices can be harder to achieve. Clearly, the risk is greater. Buyers need to have the infrastructure to move at significant pace, with the need for funding, legal documents, due diligence, and PII to be in place without delay. The reality is that such buyers are less in abundance.

What does the PI retail market look like over the next six months?

There is undoubtedly going to be an increase in M&A activity, with more acquisitive entities entering the market. There are two new entities to the knowledge of Zebra that are looking to launch next month.

Having discussed the Scottish market with David Johnstone, a director of PI Solutions, if we follow the same pattern south of the border, the PI market is set for significant acquisitions over the next six months.

He says: “Given the Scottish experience, I am in no doubt that the level of activity in the sector will accelerate, although I think mergers will become the exception and acquisitive practices will simply look to acquire books of cases without the added complications of whole firm acquisitions.

“You cannot reduce revenue levels so dramatically overnight and not create ‘change’ on such a grand scale that only the fittest businesses can cope with it.”

It may be appropriate to conclude that any firm looking to sell a personal injury WIP book would be well advised to approach the market sooner rather than later. Those that approach a sale in a measured and timely manner may well have greater opportunity to secure a better price.

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