Alternative business structure Quindell Portfolio plc has added leading costs business Compass Costs to its long list of acquisitions, with the aim of making it the largest costs firm in the country.
The deal values Compass at £14m, and is being satisfied by the issue of 80m Quindell shares, giving an implied value of 17.5p per Quindell share – although they are currently trading at 11.5p. The shares are subject to lock in of between 12 and 36 months from the date of issue.
In return, Compass Costs has warranted a profit after tax of £2m and operating cash flow of £1.5m for the year ending 31 December 2013. The most recently filed accounts for Compass Costs, for the year to 31 January 2012, showed record turnover of £6.4m and profit before tax of £1.3m.
Quindell said: “The acquisition is expected to be earnings enhancing in the current year and significantly earnings enhancing in 2014 due to the volume of costs work that the group can direct to Compass Costs associated with its legal services volume, estimated at over £20m per annum by 2014, making Compass Costs the UK’s largest costs draftsmen.
Quindell has been working with Compass Costs since October 2012. It said: “During this test period Quindell has validated the quality of the service provided, examined the operational savings, the excellent results obtained and also the strength of the team and business model moving forward that will enable Quindell to maintain its growth in this area, which otherwise would have been difficult to manage organically in the time available.”
Rob Terry, Quindell’s chairman and chief executive, said: “Compass Costs is already one of the UK’s largest cost draftsmen, but with the benefit of our volume, it becomes the largest. Its operation is well respected in the industry for delivering value to its clients, and is both ethical and market leading in its approach…
“Compass Costs operates in such a specialist area, that we could not expect to grow ourselves organically in such a short period of time, particularly as we continue to take on more of our own volume, This, combined with taking into account the proposed Ministry of Justice costs reforms and introduction of LASPO from 1 April 2103 were also key drivers towards the acquisition.”
Compass chief executive Phil Hodgkinson said: “It is clear to the board and shareholders of Compass Costs that Quindell has a winning formula, is gaining significant blue chip clients and has been undervalued by the market. As a result, we are very happy to accept our consideration based on shares at 17.5 pence and look forward to sharing in the benefit of the share price correction that we believe will occur once the Quindell model is more fully understood.
“Following the acquisition, Compass Costs will continue to focus on working with existing clients and commercial partners to provide legal services and costs solutions within the new post-LASPO arena and will be hosting a series of exclusive presentations to its existing client base to include LASPO-compliant funding solutions and documentation over the coming weeks.
“Operational control of Compass Costs will remain within the existing structure, with the Quindell Group supportive of the delivery of enhanced revenue and costs recovery to Compass Costs’ existing client base.”