Parabis Group provides legal services for the insurance industry and related services, claims handling, rehabilitation, loss adjusting and health and safety auditing. Their law firm, Cogent Law, sits behind both the AA and Saga’s legal services websites. Last year the Group became one of the first to benefit from the liberalisation of the £25bn legal services market with Duke Street private equity taking just over 50% stake.
The development puts Parabis firmly in the forefront of change for the way legal and non-legal professional services are delivered to the insurance sector.
Fiona Scott, as finance director successfully took the Group through ABS approval and the completion of the PE sale. She shares her views on M&A in the legal sector, liberalisation of the market and her career-to-date in an interview with Michael Page Finance.
The legal sector: an FD’s perspective
1. There is significant consolidation in the legal sector currently, what are your views on the benefits and potential pitfalls of mergers and acquisitions?
Before embarking on any merger, you have to ask yourself, why do this firm want to merge with us? Once you are happy you have answered this, you then need to establish what’s in it for you – there needs to be a motive. You then need to ensure that the merger is essential to achieve this goal, for instance, if you are trying to get on a panel, have you already exhausted all other methods to get onto the panel. Is there a true business driver for the merger or is it just increased turnover? In my experience, acquiring a department or a specialism as opposed to a full merger has proved to be the most profitable, you may not get the fanfare and the press attention but the returns are there. Don’t fall into the trap of chasing the excitement of the merger.
2. What is the key to driving subsequent value out of a merger and what is the CFO's role in this process?
You have to be open and honest with all parties about the reasons for doing the merger and what you hope to gain as a result. You also need to communicate a 100 day plan with both parties involved. I am proud of what we have achieved at Parabis, the future of the firm is secure. Nobody likes change so you will need to communicate to all concerned the benefit of the change. Once the merger is completed, do not continue to operate as two firms and be satisfied with just a bigger practice. Mergers are a perfect way to save costs. Also, you need to approach any resulting duplication and integration in the merged firm with a ‘best of breed’ attitude; the bigger firm will not necessarily have the best people or the best processes.
In terms of the CFO’s role in the merger, the CFO should drive a better deal for the firm. In most firms, the lawyers will do the actual deal but it is the responsibility of the CFO to ensure you get the best deal possible, either by being included directly in the negotiations or by agreeing a top limit price before the negotiations begin.
3. One of the biggest challenges of a successful merger is often about ensuring a good cultural fit; what has been your experience of this?
This is where a CFO (in partnership with IT and other support departments) can really add value. The cultures will merge far quicker if you can merge the firms operationally. A good FD will understand how the new business should run. The actual merger itself can happen really quickly so an operational team should be ready waiting in the wings to start on the day of the completion before you lose impetus. It is very difficult to merge cultures if you are operating on two case management systems!
4. In your view, is there a risk that the liberalisation of the legal market could potentially lead to cheap standardised legal advice?
Brand is incredibly important now in the sector. If you are going to be a volume law firm your brand is the only way you’re going to be trusted. If you are putting in a claim for whiplash, you care much less about the outcome than if you were going through a divorce for instance. There will always be a place for volume legal work however margins are already so low in this area that this area will not be affected.
If you need a lawyer, the chances are you are going through some form of crisis, whether that is a personal/business crisis or a business going through growth. Either way, the outcome is critical to you and for that reason you are unlikely to select on price. In my opinion, ABSs should have a shadow organisation behind a trusted brand. It is the perfect marriage. New entrants to the market will need to see that they are getting a return and before long, they will realise the anticipated savings or profits are not there. High end legal advice is where the margins are and you will always want specialists to carry out this work for you. In short, I suspect that the market will go full circle. ABS is the ‘new toy’ at the moment but I don’t think it will have the huge impact that some are predicting.
5. Do you think the new ABS entrants to the market will encourage the trend for consolidation?
Yes this is possible although as we’ve said ABS is the new toy on the block. To consolidate you need funding and that is why I think it will only be large organisations such as bank and insurance backed ABSs that gain critical mass.
Career progression: what it takes
6. Could you tell me about the journey you have taken to get to where you are in your career?
I didn’t like practice, I felt too removed from the businesses I was advising so having qualified at KPMG, I moved to a role at Dibb Lupton Broomhead. I loved the environment and the stimulus of working with academic people and I made the decision at that point to spend my career in the legal sector. Having spent an incredibly enjoyable five years at Hammonds Direct, I set up my own consultancy in 1999 to give me the flexibility I needed whilst having a young family. Within time, I was doing so much consultancy work for Parabis, they asked me to join as their full time finance director.
7. What have been the biggest challenges in your career to date?
The ABS has been the biggest challenge, we were breaking all the boundaries and the process took so much time that the real challenge was actually ensuring we kept business as usual for the firm and did not lose ground. Also at Hammonds Direct, we introduced a paperless accounting process for 3000 sales and purchase transactions per month and the challenge of achieving that with the Law Society was unbelievable.
8. What in your opinion are the key attributes required for a CFO within the legal sector?
Accountants don’t run businesses and it is the same in the legal sector, you need to respect that the answer does not lie in the numbers; it lies with the fee earners. You are in a support role and you can certainly make the business more profitable; if you are successful you will add an enormous amount of value, but your job is to advise.
9. Who have been your role models?
John Hellar at Hammonds, party because he gave me my break but also as an individual, he was respected because of his ability and not his job title. He took a genuine interest in people; his approach was: we’re in a service business so act like it. He would remember personal details about everyone from the receptionist through to a partner and he did it naturally.
My other role model is Margaret Thatcher, not so much for her politics but because she was an amazing woman. She qualified at the Bar with a young child under one in the 1950s – she never made of a fuss of it, just got on with it. She was vocational and I hugely admire that, you need to believe in what you do and she had the courage of her convictions, whether you believe in her politics or not you’ve got to admire it. I love my work and I believe everything you do should be really important to you, don’t give up, and like Margaret Thatcher, try to approach what you are doing vocationally, whatever it is.
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