Multi-disciplinary ABS eyes law firm acquisitions

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1 April 2014

Urwin: acquisition of small practices could be a three for one deal

A blue-chip wealth management company has set up an alternative business structure (ABS) to add legal to its mix of services, and is also eyeing up potential acquisitions to boost its client base.

Chesterton House, based in Loughborough, Leicestershire, started operating its ABS earlier this month. The company, which was founded in 1985, already has an accountancy firm, Chesterton House Accounting Services.

Chesterton House Legal Services’ head of finance and administration, Richard Urwin, also a Chesterton House director, said the company’s vision was to bring legal services in-house so as to offer clients a range of “joined-up services” under a single brand in one location “rather than the sort of disjointed way that professionals typically work in their own individual silos – and with their own very separate cultures”.

Chesterton House claims to be “radically” different from other financial firms by offering financial, investment, tax, accounting and legal expertise under one roof.

The law firm has been in operation since January 2013, providing non-reserved legal services such as wills and lasting powers of attorney. It would now offer probate, conveyancing and a small number of other services. “We don’t intend to offer a very wide range of services outside of private client,” said Mr Urwin.

Describing the ABS, he said: “We’re not actually intending with this legal arm doing off-the-street business. It’s not intended to be transactional, it is to provide services in an integrated way to those wealthy individuals who need the financial planning, the tax and the legal aspects taken care of. It’s quite niche and not a huge threat to a lot of solicitors’ firms locally. We push a lot more referrals out than we ever did.”

Looking ahead, he said the business’s “intention in the longer term is growth”. But acquisition of financial planning businesses to achieve growth was expensive – because they were valued as a multiple of recurring revenue or of turnover.  Such businesses tended to have “very good visibility of earnings” and the multiple was typically three.

However, acquisitions of small accountancy firms, in particular, and law firms were a better prospect. He indicated professional practices “where they predominantly do the sorts of things that we are looking to do”, such as probate and property work, would be targets.

Mr Urwin explained that accountancy firms with a retiring principal might carry a valuation multiple of 0.8 to 1.2, whereas “with some solicitors’ firms, the way things are currently, it could be just the case of taking over the name… or taking over the liabilities” such as run-off insurance.

It was then simply a matter of bringing clients over to Chesterton’s multi-disciplinary financial planning, accountancy and legal business: “So we see that as a way to buy clients for potentially three firms, but pay once”.

He continued: “The theme nowadays… it’s very much the trusted adviser client relationship… we’ve been incredibly surprised as to how easy it has been to move existing relationships from existing accountants and solicitors away, because the client has little or no loyalty there.”

He said Chesterton House would consider the need for external investment for expansion. But at present, he said, “we are focusing very much on creating very robust internal processes for the things that we are offering”.

The head of legal practice is solicitor Rebecca Abraham, who previously worked as an assistant at local Leicester firm Crane & Walton.

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