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Slater and Gordon to Acquire Professional Services of Quindell

Slater and Gordon executes agreement to acquire Quindell’s Professional Services Division and launches A$890m accelerated renounceable entitlement offer.

Slater and Gordon Limited (“Slater and Gordon”) has entered into an agreement to acquire Quindell plc’s (“Quindell”) Professional Services Division (“PSD”) in return for upfront consideration of £637 million (A$1,225 million)1 and an earnout based on performance of PSD’s legacy noise induced hearing loss (“NIHL”) cases.

Slater and Gordon is seeking to raise approximately A$890 million in new equity to fund the acquisition, through a fully underwritten2 2 for 3 pro rata accelerated renounceable entitlement offer (“Entitlement Offer”). The balance of the upfront consideration will be funded by fully underwritten bank debt.

The transaction is conditional on a majority vote by Quindell shareholders, which is scheduled for Friday, 17 April 2015. Quindell’s Board have unanimously recommended that Quindell shareholders vote in support of the transaction. Further, the transaction has been endorsed by Quindell’s Board members-elect and Slater and Gordon has already secured irrevocable undertakings and commitments representing greater than 15% of Quindell’s issued share capital. Financial close is expected in May 2015. The transaction is also subject to customary regulatory approvals.

Transaction Highlights

1. Transformational opportunity in line with Slater and Gordon’s growth strategy, positioning Slater and Gordon as     the leading personal injury law group in the UK. 

2. PSD provides a comprehensive platform of businesses, processes and infrastructure that augments Slater and       Gordon’s existing UK operation. 

3. Significant opportunity to refocus and optimise the performance of PSD.

4. Confidence in the opportunity underpinned by the experience and track record of Slater and Gordon’s                   leadership team, Slater and Gordon’s deep UK market experience, and by an extensive period of due diligence     based on a bottom up, fundamental assessment of PSD. 

5. Anticipated to deliver significant value for Slater and Gordon shareholders 

  • Proposed transaction expected to be substantially EPS accretive (greater than 30%)4 to Slater and Gordon from the first full year of ownership. 
  • Attractive acquisition multiple of c.6.9x5. 
  • Positions Slater and Gordon for inclusion in the S&P/ASX100.

Transaction Overview

Slater and Gordon’s Managing Director, Andrew Grech, said: “The acquisition of PSD is a transformational opportunity, and will allow Slater and Gordon to further penetrate the highly fragmented £2.5bn UK personal injury market. The combination of Slater and Gordon and PSD creates the number one personal injury law group in the UK. It further diversifies our sources of legal work, broadening access to claims management companies, insurers and insurance brokers. PSD’s Health and Motor services increase our touch points along the claims value chain and increase client delivery and capture opportunities. The transaction is expected to create value for Slater and Gordon’s shareholders, and provides an attractive, all cash offer to Quindell, derisking their shareholders’ investments after an extended period of uncertainty.”

PSD is a leading personal injury law firm in the UK, operating across the claims value chain. PSD comprises two key operating segments:

  • Legal Services offers a broad range of specialist personal injury claims services including road traffic accident, NIHL, employers’ liability and public liability claims. These services are delivered through the owned legal practices of Silverbeck Rymer, Pinto Potts, The Compensation Lawyers, Accident Advice Helpline and Fast Claim PPI, and the legal costs practice of Compass Law. PSD Legal Services has a leading market position in the UK, with approximately 7% share6 of the personal injury claims market; 
  • Complementary Services extends PSD’s reach across the personal injuries claim value chain and increases client delivery and capture opportunities. The Motor Services unit provides claims management and related services, managing motor claims from the initial incident through to final resolution. Its clients include some of the UK’s leading insurance companies as well as brokers, bodyshops and fleet companies across the UK. The Health Services unit supplies medical reporting services to legal services providers through a national panel of medical experts, under the Mobile Doctors brand, as well as providing a full-service, integrated, multi-disciplinary rehabilitation service to the insurance industry, employers and occupational health providers. The Marketing Services unit supports Legal Services through claims sourcing and aggregation.

Mr Grech continued, “There is a clear path to optimise PSD, leveraging its unique, comprehensive platform of
businesses, processes and infrastructure to focus on the process-driven, higher velocity, cash generative road traffic accident segment, and Slater and Gordon is well positioned to crystallise this opportunity. The proposed acquisition follows an extensive due diligence process by Slater and Gordon and our financial, accounting, tax, legal and commercial advisers. We have undertaken a bottom-up, fundamental assessment of PSD, which together with our firm’s deep UK market experience and track record of successful acquisitions and integrations, underpins our confidence in the transaction. We look forward to welcoming PSD’s ~2,400 staff to the Slater and Gordon team.”

Under Slater and Gordon’s ownership, PSD will be reoriented to focus on fast track road traffic accident, employers liability and public liability claims. Initially there will be a moratorium on new NIHL client intake, and the existing NIHL file portfolio will be expedited to drive claims resolution and maximise cash generation. The deferred conditional cash consideration for the NIHL portfolio, through a 50% profit share in legacy hearing portfolio, mitigates risk of value leakage while preserving upside for both Slater and Gordon and Quindell shareholders.

The acquisition will be funded by way of a fully underwritten7 Entitlement Offer to eligible shareholders, raising
approximately A$890 million, and A$375 million of fully underwritten bank debt. Slater and Gordon is expected to
maintain its prudent capital structure within its 30 – 40% gearing range8, with pro forma net debt / EBITDA of c. 1.9x (December 2014)9. The earnout will be based on a 50% sharing of after tax profits from the settlement of existing NIHL files over the next two years.

In the event that the acquisition of PSD is not completed, Slater and Gordon will assess the most appropriate way to return proceeds from the Entitlement Offer to shareholders.

Slater and Gordon is being advised by Citigroup and Greenhill (joint financial advisors), Macfarlanes (UK legal counsel and legal diligence), Arnold Bloch Leibler (Australian legal counsel), and Ernst & Young (accounting and tax diligence).

FY15 Outlook

Slater and Gordon confirms its FY15 guidance for existing operations10:

  • Total revenue of A$500 million (excluding announced UK acquisitions) 
  • Normalised EBITDA margin of 23 – 24% 
  • Cash from operations (as % NPAT) of >70%

Key Entitlement Offer Details

  • Fully underwritten11 2 for 3 Entitlement Offer to raise approximately A$890 million 
  • Offer price of A$6.37 per new share (the “Offer Price”) 
  • The institutional component of the Entitlement Offer (“Institutional Entitlement Offer”) is accelerated

The Offer Price of A$6.37 per new share represents:

  • A 10.0% discount to the theoretical ex-rights price (“TERP”)12; and 
  • A 15.6% discount to last closing price13 of $7.55

Entitlement Offer

The Entitlement Offer comprises the Institutional Entitlement Offer and a retail entitlement offer (“Retail Entitlement
Offer”).

Under the Entitlement Offer, eligible shareholders are invited to subscribe for 2 (two) new Slater and Gordon ordinary shares (“New Shares”) for every 3 (three) existing Slater and Gordon ordinary shares (“Entitlement”) held as at 7.00pm (Melbourne Time) on Thursday, 2 April 2015 (Record Date).

New Shares issued under the Entitlement Offer will rank equally with existing Shares from the date of allotment. The first dividend payable in respect of the New Shares will be the final dividend for FY15 which is expected to be announced in August 2015.

Institutional Entitlement Offer

Eligible institutional shareholders will be invited to participate in the Institutional Entitlement Offer which will take place from Monday, 30 March 2015 to Tuesday, 31 March 2015 (“Institutional Entitlement Offer”).

Eligible institutional shareholders can choose to take up all, part or none of their Entitlement.

Institutional entitlements cannot be traded on the ASX. Institutional entitlements that eligible institutional shareholders do not take up by the close of the Institutional Entitlement Offer, and institutional entitlements that would otherwise have been offered to ineligible institutional shareholders, will be sold through an institutional shortfall bookbuild on Wednesday, 1 April 2015 (“Institutional Shortfall Bookbuild”). If the Institutional Shortfall Bookbuild price exceeds the Offer Price, the difference between the two amounts will be paid (net of any withholding tax) to Eligible Institutional Shareholders in respect of entitlements they did not take up and to Ineligible Institutional Shareholders in respect of New Shares that would have represented their entitlements had they been eligible to participate in the Institutional Entitlement Offer. There is no guarantee that there will be any proceeds remitted to those institutional shareholders.

Slater and Gordon shares have been placed in trading halt whilst the Institutional Entitlement Offer and Institutional Shortfall Bookbuild is undertaken.

Retail Entitlement Offer

Eligible retail shareholders in Australia and New Zealand and a limited number in the UK will be invited to participate in the Retail Entitlement Offer at the same Offer Price and offer ratio as the Institutional Entitlement Offer. The Retail Entitlement Offer will open on Thursday, 9 April 2015 and close at 5.00pm (Melbourne time) on Monday, 20 April 2015.

The Retail Entitlement Offer is open to eligible shareholders with a registered address in Australia or New Zealand and a limited number of employees of Slater and Gordon with a registered address in the United Kingdom.

Retail Entitlements which are not taken up by eligible retail shareholders by the close of the Retail Entitlement Offer and Entitlements that would otherwise have been offered to ineligible retail shareholders will be sold through the Retail Shortfall Bookbuild on Thursday, 23 April 2015 (“Retail Shortfall Bookbuild”). If the Retail Shortfall Bookbuild price exceeds the Offer Price, the difference between the two amounts will be paid (net of any withholding tax) to Eligible Retail Shareholders in respect of entitlements they did not take up and to Ineligible Retail Shareholders in respect of New Shares that would have represented their entitlements had they been eligible to participate in the Retail Entitlement Offer. There is no guarantee that there will be any proceeds remitted to those retail shareholders.

Eligible retail shareholders wishing to participate in the Retail Entitlement Offer should carefully read the retail offer booklet and an accompanying personalised entitlement and acceptance form which are expected to be despatched on Thursday, 9 April 2015. Copies of the retail offer booklet will be available on the ASX website and our website at www.slatergordon.com.au from Thursday, 9 April 2015.

Additional information about PSD and the transaction are included in the attached presentation.

Slater and Gordon Limited is a leading international consumer law firm employing 1,300 people in 82 locations across Australia and 1,450 people across 18 locations in the United Kingdom. Slater and Gordon’s mission is to give people easier access to world class legal services. The firm provides specialist legal services in a range of practice areas including Personal Injury, Conveyancing, Family Law and Business and Specialised Litigation Services.