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UK Legal Market Reforms

in Business Law by Mathew Chuck on

The UK market for consumer legal services is undergoing significant change driven by a number of factors.

Firstly, the regulatory environment changed in October 2011 to allow a range of alternative business structures including incorporated law firms with non legal practitioner owners.  This allows legal firms to be owned by non-lawyers and is only the second jurisdiction in the world after Australia.   This change allows firms to seek external capital to allow growth in much the same way that Slater and Gordon did via its IPO in 2007.

Secondly, the personal injuries market has been the subject of substantial change if the major recommendations of a parliamentary review. The key to this change has been the closing down of Claims Management Companies (CMCs).  A key differentiator of the UK consumer legal market is that the key brands in the area are not legal firms but CMCs.  These CMCs operate in a similar manner to mortgage broking businesses in Australia, in that they advertise heavily for personal injury or negligence claims, and then on-sell those claims to law firms.  Many of these CMC’s have been disreputable and the government has closed down or put on notice more than 400 CMCs over the past year.  This parliamentary review concluded that this practice increased the net cost to the consumer and has called for their elimination from April 2013.   A consequence of the rise of CMCs has been that legal firms, especially personal injury firms, have relied on acquiring referrals rather than developing their own brand to attract clients.

This has also meant that the UK consumer legal services market, and especially the personal injuries market, has a developed into a very fragmented market, with no firm having a market share greater than 2-3%.  This compares with the Australian market where Slater and Gordon has approximately 25% market share of the personal injuries market.

Espitirto Santo, a London based investment bank has predicted that these changes will result in a consolidation of the personal injuries market as smaller and regional firms will not be able to compete for advertising in the new regime and will exit the market or be merged into larger firms.

Since 2009 Slater and Gordon closely monitored these changes and as a result of its unique position as the world’s first publicly listed law firm, was able to have discussions with the relevant regulators, a number of financial and investment adviser and over 50 law firms in the UK.   From these discussions we could assess the opportunity and what opportunity, if any, there was for Slater and Gordon to enter the UK legal market.

It was identified that Slater and Gordon had many competitive advantages when compared with the local UK firms, including experience as a corporatised law firm with access to capital, the experience of developing a strong brand name in the Australian market and highly developed systems and processes with experience is operating across multiple jurisdictions (Slater and Gordon currently operates within 7 jurisdictions in the Australian market)

Further, the impact of the GFC has affected the ability of many local firms who are looking to take advantage of the changes from having access to capital, providing Slater and Gordon with a significant advantage.

The key for Slater and Gordon was to find a partner with sufficient scale to take advantage of the opportunity but also with a strong cultural alignment with the Australian practice.  After reviewing over 50 firms in the UK, Slater and Gordon identified Russell Jones and Walker (RJW) as the perfect partner.   RJW had a national presence with 10 locations across England Wales and Scotland, and over 450 staff.  The firms had been in operation since the 1920’s and their beginnings were similarly formed out of relationships with unions.  Its referral sources were not reliant on acquired referrals, and importantly it had a strong management team who were capable of rolling out Slater and Gordon’s UK growth strategy.

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