Listed law firm consolidator Gordon Dadds Group has made its second acquisition in as many weeks with a deal to buy Bristol firm Metcalfes Solicitors for an initial £2m, rising to a possible £6m.
It also comes just days after Metcalfes acquired fellow general Bristol firm Burroughs Day from administration, saving 79 jobs, and Gordon Dadds bought specialist technology and corporate solicitors White & Black for up to £3.4m.
Gordon Dadds told investors that the acquisition demonstrated its ability “to grow its existing business through opportunistic, attractively valued deals and will provide significant cross-selling opportunities across divisions”.
It said “the board expects that the acquisition will be significantly earnings enhancing in the first full year, to 31 March 2019”.
For the year ended 30 June 2017, Metcalfes had fee income of £2.7m and achieved a profit before members’ profit shares of £670,000. For the six months to 31 October 2017 (following a previous change of ownership), Burroughs Day achieved unaudited fee income of approximately £2m and a small profit before interest and partners’ profit shares.
The enlarged firm should generate annual fee income of at least £4m and the stock exchange announcement said “the cost base will benefit from significant overhead savings including merged offices in Queen Square, Bristol and improved resource management”.
The £2m purchase price is payable in cash, of which £280,000 has been paid upon completion with the balance payable in quarterly instalments over five years.
The vendors have warranted that the fee income of the enlarged business will be not less than £20m over those five years and any shortfall will reduce the consideration on a pound-for-pound basis – or they will receive more if it exceeds £20m, with the total payment capped at £6m.
“This provides a real incentive for the key Metcalfes personnel to remain closely involved and drive growth,” Gordon Dadds said.
Its CEO, Adrian Biles, said: “Metcalfes is a profitable and very well-regarded firm of solicitors in Bristol with whom we have worked to integrate the Burroughs Day business.
“We are confident that the enlarged business can be developed into a significant as well as a respected and highly profitable business. Bristol complements Gordon Dadds’ other locations and is a fertile area for developing a high-quality offering to corporate and private clients…
“We continue to have a strong acquisition pipeline which we expect will enhance earnings and the reach of the Group even further.”
Business recovery firm Quantuma acted on the administration of Burroughs Day. Partner Andrew Hosking said: “Despite being a strong mixed-practice firm with a long history, a combination of declining turnover and a rising cost base has eroded profitability such that the current business was not viable without significant additional working capital.”
Steve Cottee, the partner at Pinsent Masons who advised the administrators, said the failure “illustrates the financial difficulties many law firms are facing particularly at this time of year with partners’ tax payments due at the end of January”.