Listed law firm Gordon Dadds has unveiled a stripped-down deal to acquire Ince & Co that has seen it buy the UK business for £27m, along with a “refined” acquisition strategy.
The newly named Ince Gordon Dadds has also entered into new arrangements with the affiliated law firms that operated Ince & Co’s offices in Hamburg, Cologne, Piraeus, Dubai, Hong Kong and Singapore. These will continue to trade as Ince & Co.
Ince’s Shanghai and Beijing practices are branches of the London firm and so form part of the enlarged practice.
However, its French affiliates in Le Havre, Marseille, Monaco and Paris do not form part of the arrangement.
Back in October, Gordon Dadds announced that it had agreed terms in principle to acquire all of the equity partners’ interests in both Ince & Co and Ince & Co International, its affiliated entities, by 31 December 2018. They operate in the shipping, insurance and transport sectors.
Where legal or regulatory considerations required it, the firm said it would enter into alternative arrangements in respect of the overseas affiliates.
A statement to the stock exchange on Monday said it had now gone down this latter road because “it would not be possible to agree arrangements with the affiliated network entities and obtain local regulatory approvals (which is a time-consuming process) by 31 December 2018.
“Accordingly, the parties agreed to change the transaction to exclude the acquisition of the affiliated network entities.” The change means the acquisition is no longer classified as a reverse takeover.
Gordon Dadds has entered into a new service agreement with the network firms to provide common services and “will continue to seek to develop deeper arrangements” with them, at which time their financial results will be consolidated into the firm’s results.
Ince UK’s 24 equity partners have joined Ince Gordon Dadds and have committed to stay for a minimum of 18 months.
Ince & Co reported its UK and international revenues separately. The UK revenue for the year ending 30 April was £42.8m and the international network generated £40.6m.
Under the original terms of the deal, Gordon Dadds was to pay £43m in return for the business representing £52.5m of Ince’s turnover.
Now it is paying a projected £27.3m for the part of the business representing £30.5m of the turnover.
This is in two chunks. Some £12.3m is covering the equity partners’ capital and current account balances, and repaying the capital account balances of the members of Ince International and certain former members, as many of them were funded by borrowings effectively guaranteed by Ince UK.
Gordon Dadds will then make a goodwill payment equivalent to a percentage of the turnover generated in the first three years by the members joining.
Based on their fee income in the last financial year, it is estimated that this will amount to £15m.
In addition, Ince fee-earners will be granted options to acquire a total of up to 3m shares at 140p.
The shares have been suspended since late September, when talk of the deal first emerged, at 181p. They recommenced trading today.
To finance the payments, Gordon Dadds has arranged a three-year term loan of £6m, which is being drawn down at completion, and a three-year revolving credit facility of £6.5m.
The firm also published its unaudited results for the six months to 30 September 2018, showing revenue up by 56% to £20.1m – reflecting the five acquisitions made in the previous financial year – and operating profits up 23% to £4.3m.
Adjusted profit before tax of £1.1m – after deducting partners’ profit shares – was an increase of 91%.
Shareholders were told: “We continue to look for attractive opportunities for further acquisitions and have broadened our horizons to look for international firms which will complement our business while increasing the scale of businesses we are looking to acquire.”
The firm said it had made “further progress” on gross margin but was still a couple of percentage points short of its target of 50%.
Adrian Biles, chief executive of Gordon Dadds, described the Ince deal as “a landmark in our development”.
He continued: “It increases our capacity hugely and we expect it to boost revenue significantly in the coming years.
“We will foster the close working relationships under the Ince Gordon Dadds International Network, ensuring that the enlarged business and the affiliate network will offer our clients breadth of service both by practice area and by geography.”
On the results, Mr Biles said the focus had been on interoffice collaboration and cross-selling to deliver organic growth: “These activities are beginning to bear fruit and there is much more to come.
“The group has traded to our expectations and the second half of the year should again produce the greater proportion of revenue and profits which gives us confidence that we will meet market expectations for the full year.”
When it listed on 2017, Gordon Dadds highlighted the opportunity to act “as a consolidator of firms ranked between 69 and 185 in the UK top 200 market”, and also small firms that would use its back-office platform.
Ince & Co, though, sat higher in the law firm tables and Mr Biles said: “The quality of this deal reflects the attractiveness of our business model. We have had many approaches from other firms that are similarly interested.
“We have refined our acquisition strategy into three categories: UK firms with over £10m of annual fee income, international acquisitions which will add to the depth of our core business and smaller acquisitions which can be absorbed into existing offices, increasing the intellectual capital of the group through niche specialisms and promoting cross-selling.”
Gordon Dadds will be moving into Ince UK’s London office from next weekend.