Shrinking PI Market on the Horizon?

In this article we discuss the future of the PI market and how businesses are envisioning opportunities to create alternative business structures (ABS).[i]                                                

In last week’s edition (here) we reported that 91 redundancies are scheduled to take place at Simpson Millar LLP, which ‘was acquired by Fairpoint Group in June of 2014, the first of multiple Law firm acquisitions.’ Subsequently, the AIM-listed debt management company entered into administration, after law firm investor, Doorway Capital, bought its debts and financed its previously owned claimant firm with a revolving credit facility.

In previous editions, we have also reported on Slater & Gordon’s (S&G) acquisition of Watchstone’s (formerly Quindell) professional services division. The purchase did not prove to be successful and ultimately led to S&G accruing significant debts. This was bought by an American Hedge Fund Investor, Anchorage Capital, in return for shareholder equity, which was subsequently diluted to just 5%. Both parties are currently engaged in a legal battle over the attribution of fault and alleged misrepresentations.

Both Simpson Millar and Slater and Gordon are examples of law firms seeking to expand, as the Government commences with reform of the legal sector. Will the specialist PI market continue to shrink as ABS become ever present?

This week, Steve Din, founder of Doorway Capital, has suggested that the ‘hundreds of firms specialising in personal injury could be whittled down to barely a dozen within five years.’, as High Street banks retrench from funding small firms to concentrate on funding larger firms. He continued to say that, as a result of impending personal injury reforms:

Of the 800-plus specialist PI firms presently in the market, consolidation appears not only likely but, for us, represents a real opportunity’.

Din revealed Doorway Capital has the necessary capital to press on with further purchases, and plans to do so by ‘making acquisitions, making lateral hires and investing heavily in direct marketing.’ This would suggest that ABS growth is highly likely in the Personal Injury sector. Indeed, Doorway has funded £50m towards various law firms for ‘work-in-progress, case acquisition and ... acquisition of other firms’.

In previous editions we have reported on proposed changes to the small claims limit and the extension of fixed costs. In light of this, Din has stated that ‘smaller claims management companies, particularly those that depend on RTA claims, would largely disappear, with the larger surviving CMCs becoming an alternative business structure and possibly integrating with a law firm.’

 

[i] John Hyde, ‘PI market will shrink to just a dozen firms says legal investor’ (2 March 2018 Law Gazette) <https://www.lawgazette.co.uk/news/pi-market-will-shrink-to-just-a-dozen-firms-says-legal-investor/5065095.article> accessed 6 March 2018.