Firms that want to get out of the personal injury market have just three months to gain best value for their work-in-progress (WIP), according to the practice that recently bought the PI book of failed midlands firm Challinors.
Liverpool-based SGI Legal – which is openly in the market for further acquisitions – said firms need to realise that the longer they leave it, the more of a buyer’s market it will become.
SGI Legal’s managing partner, Simon Gibson, said the more lucrative work that dates from before implementation of the LASPO reforms on 1 April is a constantly diminishing asset.
“Firms that are considering a business or WIP sale but have delayed a decision are losing money every day. While it is currently a seller’s market, I expect this will change in the New Year as the number of sellers increases and the number of credible buyers – that is, firms with the cash resources in place and the support of their indemnity insurers – falls. This will mean that potential acquirers will be justified in driving a harder bargain.
“Law firms with a personal injury offering need to consider whether they are remaining in the sector or not. Those in for the long haul need to focus on making the right investments to retain business sustainability while those looking to leave need to urgently formulate their exit strategy.”
Mr Gibson said that firms that decide instead to run down their WIP over the next two years need to realise that not only is it “a pretty demoralising approach”, but it also may not be profitable given the costs of winding down, such as run-off insurance cover, tax and redundancy costs.
“Firms may generate more cash in a quicker and more risk averse way through a sale,” he said.
But equally Mr Gibson said those wanting to leave the market need to have realistic expectations of what they can achieve.
“Law firms who take a realistic approach as to the value of their business and the payment structure they’re willing to accept can, in the short term, achieve their exit aspirations.
“However, firms who want to have their cake and eat it may be disappointed, particularly as the months progress. There needs to be an incentive for both the buyer and seller. What firms must avoid is just kicking the tin down the road. All personal injury firms need to make a timely decision about their future in the sector.”