The personal injury market is experiencing a “calm before the storm”, with law firms trying to assess their options rather than actively planning to exit, ‘We buy any files’ pioneer Neil Hudgell has said.
The managing director of Hudgell Solicitors said he was working on a “strategic acquisition” which would add another office to the firm’s existing sites in Hull, London, Leeds and Manchester.
Speaking after a seminar in Manchester on exiting the PI market, and with less than a year to go before implementation of the Civil Liability Act, Mr Hudgell said: “I expect a flurry of activity at the end of this year and the beginning of next as the changes approach.
“People are enquiring and trying to understand their position rather than actively planning to exit. It is an ongoing period of uncertainty – a time when people are reviewing their options.”
Since launching the acquisition vehicle webuyanyfiles.com in 2011, Mr Hudgell has done nearly 40 deals for practices of varying size, taking on thousands of clients in deals worth more than £8m in upfront and deferred payments.
He said a deal to buy a law firm “could be struck very quickly or it could take three years, on and off” and there was “no single profile” of the kind of firm involved.
“They could be desperate for cash, assessing their options or they could never make their minds up.
“The question is how to still make money in the fixed-fee world. There is as much opportunity as risk. If you get your systems right, there is every opportunity.”
Mr Hudgell added that along with the strategic acquisition, he was working on the transfer of cases from two personal injury departments which were shutting down.
Zoe Holland, managing director of law firm consultants Zebra LC, who also spoke at the seminar, said the earlier law firms made decisions about their future, the better placed they would be to get a good return.
“There is plenty of inertia about decision-making, but if the market is flooded with a lot of law firms, it will drive values down.
“There is often unwillingness to talk about the elephant in the room, but it’s time for firms to get their act together.”
Ms Holland said firms wanting to leave the market should get ready for sale by ensuring their caseload was “nice and clean”, discontinuing cases where necessary and being honest about cases “with issues”.
She went on: “Lack of honesty can undermine a deal or its value. If you hide problem files, someone will find them. Transparency is crucial.”
Ms Holland said many potential sellers had unrealistic expectations about what their firm was worth, wrongly believing they would get a lot of upfront cash, rather than receiving an ‘earn out’ as the buyer firm worked through their files.
“Finding the right buyer is crucial – someone who is able to manage their cases properly, who understands the sector and who has done this before.
“Things must be done the right way or there could be a regulatory issue which undermines the value of what is being sold.”
Ms Holland said 2020 Legal in Birkenhead, parent company of Camps solicitors and its brand Your Legal Friend, which announced in January this year that it was running down its practice over two to three years, was a positive example of how to exit the market.
“The firm said it was not trading out because it was in financial difficulties, but because it had made a decision about its future.
“Making a clear and positive statement is much better for the staff. People are not stupid and will realise if a firm has quietly decided to close when it stops taking on new work and starts making people redundant.”