On the night of Tuesday, 21 February, the Australian Financial Review reported that Slater & Gordon was closing in on a deal to be acquired by Australian private equity firm Allegro Funds for an apparent $150 million, with the transaction to be approved by the firm’s board and big-name shareholders.

On Wednesday morning, trading was halted for the securities of Slater & Gordon Limited, pending an announcement. As of the time of that trading halt, the firm’s share price was $0.56, with market capitalisation at $79.7 million.

Earlier this morning (Friday, 24 February) — exactly 48 hours after the trading halt — Slater & Gordon (ASX: SGH) confirmed it had signed a bid implementation agreement (BIA) with a subsidiary of Allegro Funds, providing for a recommended off-market takeover for 100 per cent of the listed company shares at $0.55 per share.

As of the time of filing this story, the listed firm’s shares were sitting at $0.63.

At the same time as the confirmation of the proposed takeover, the firm posted its FY23 half-year results, which included a $16.7 million net profit.

‘Not about turnaround, not about restructure’

In conversation with Lawyers Weekly following the Friday morning announcement, Slater & Gordon chief executive John Somerville said that the day-to-day of the legal practice will continue. 

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“This is not about turnaround, this is not about restructure. This is about investment for growth,” he declared.

When asked if earlier media reports about expectations that Allegro would recapitalise the listed law firm and execute a turnaround plan were incorrect, Mr Somerville said, “Yes.”

As evidenced by its half-year results, the firm is “on a pretty good trajectory”, he pointed out. Allegro sees this as well, Mr Somerville continued, and is “keen to invest in and be part of that journey”.

“So, it’s not about changing what we do,” he said, although he added that the firm “needs to continue to evolve so we’re relevant for the future, and more digital and more modern than we used to be”.

Allegro as a partner

Reflecting on the firm’s capital structure and journey in recent years, Mr Somerville said that 94 per cent of Slaters’ equities are owned by overseas hedge funds, which are also major debt providers to the firm, having been invested for around six years, “which is typically past their investment horizon”.

The firm is “leveraged quite high”, he explained, and “we’ve got a disconnect between where they want to go, and then truthfully, they’re at the point where it doesn’t really make sense for them to be in this investment anymore. So, they want to exit.”

Slaters has been looking for a financial sponsor to work with its senior lawyers and build a new partnership model “much more seriously” since last August, Mr Somerville detailed, with that search having ramped up in October. However, the process has been going for at least three and a half years, he noted, to ensure the firm can get its balance sheet into the right structure and with the right ownership.

“We are really excited that Allegro is that organisation, because we’ve looked far and wide to get the best partner we can,” Mr Somerville said.

“And it’s Allegro.”

Next steps for Slaters’ legal professionals

When asked what comes next for the firm’s lawyers on the ground, Mr Somerville said that for the vast majority of staff, “this is just business as usual”.

“For our most senior lawyers, it will be an opportunity, over time, to invest in and become partners in the organisation. That will do a great job for us to give other things for our people to aspire to and grow their careers towards,” he said.

“So, it’ll help with attraction, it’ll help with their retention, and also help for people to retire from that partnership too, by having the financial sponsor there.”

“So, we are really excited. We think this is a good model for the future.”

Moving forward

Looking ahead, Mr Somerville said that his job is to continue setting Slaters up for success in the future, and the proposed takeover is  a “significant step in that direction”.

“It just makes me feel wonderful that we are able to take this step,” he mused.

“That’s really motivating for me, because I subscribe to the benefit Slater & Gordon makes to society, and I think that’s what my colleagues feel as well.”

“We are a business about our people and our clients, and we’ve got a partner now that understands it, knows our history. I want to invest in our future around our people and our clients, and that is exciting.”

Slaters won’t be for every legal professional, Mr Somerville reflected, just like any other law firm, but added that this firm stands for something.

“It stands for access to justice, it stands for progressive social policy, and we are proud and have the courage to have a voice. We do fabulous work for injured people every single day, and that is terrific.”

“As we continue to grow and improve our business, it’s a great place for people to build careers. This new capital structure gives people long-term opportunities to benefit from that,” he argued.

‘Unanimous support’ from the board

The directors of Slaters “unanimously support” the offer made by Allegro, the firm said in its market announcement this morning, and recommend that its shareholders accept the offer, in the absence of a superior proposal and subject to independent expert guidance.

“The board has carefully considered the offer and concluded the value and certainty provided provides greater benefit to shareholders than retaining their shares,” the firm posited.  

Slaters chair James MacKenzie said that the board and key management personnel believe that Allegro’s investment in the national plaintiff firm “will bring together a hands-on Australian investor focused on a growth-oriented partnership”.

“Slater & Gordon shares are highly illiquid,” he continued.

“The offer is all cash and provides certainty of value for shareholders. Allegro’s investment also presents an opportunity for Slater & Gordon to simplify its capital structure, which is currently dominated by offshore hedge funds.”

“In this context, the board and executive leadership are excited for shareholders, the Slater & Gordon team, and current and future clients,” he said.

Allegro founding partner Adrian Loader added that the PE firm is excited to partner with the national plaintiff practice “and assist in continuing to grow the firm which has a long and proud history in the Australian consumer law sector”.

“Allegro has significant experience investing in purpose-led professional services organisations such as Slater & Gordon and looks forward to working with its strong team of lawyers whom we are keen to retain, support and incentivise,” he noted.

MORE TO COME.