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Does the ASX Kill Professional Services Firms?


Posted at Legal Practice Intelligence - 27 January 2015 - by Peter Frankl

Last year provided ample evidence that the ASX and small
professional services businesses are not made for each other.
Some exits (and exits in progress) from the ASX have been more
dignified than others. Of the Voluntary Administration exits, we have
HR/recruitment firm Bluestone Global Limited and law firm
aggregator/integrator ILH Group Limited. Exiting the ASX by selling-up
completely to a private company was accounting business Crowe
Horwath.
There are exceptions. Not every publicly-listed professional services
business has been shown the door of the ASX. In fact, the exceptions
have been so exceptional that it highlights a puzzle.
Two professional services firms listed on the ASX have been powering
along: Slater & Gordon (S&G) and Shine Lawyers (Shine). S&G has
been powering along on the ASX since 2007 and Shine since 2013.
The puzzle is why do some professional services businesses thrive on
the ASX and others dive? Both S&G and Shines core business is
plaintiff personal injury. Is the answer as simple as the plaintiff
personal injury market being better than high-end law, accounting and
recruitment services?
What is it about plaintiff personal injury services that makes it investor
and ASX-friendly compared to high-end legal services, accounting and
recruitment?
Lets consider what went wrong for investors (and/or lenders) with ILH
and Crowe Horwath. Key fee earners left these firms and took their
clients and revenue with them. When there were periods of soft
economic conditions, or downturns in certain areas of work, the
businesses were not able to downsize or re-organise in order to protect
profitability.
In the case of ILH, based on reading their annual reports, it seems that
there was too much hope placed on what could be gained through the
next new acquisition and a lack of success in rectifying the profitability
issues of prior acquisitions.
The listed plaintiff personal injury firms surely must have also lost fee
earners along the way, however what didn't happen was that it didn't
deplete their revenue or profitability. Also what didn't happen with the
plaintiff personal injury firms was that the component of expenses they
paid in salaries and employee benefits didn't sink any chance of them
making a viable profit for equity holders.
Some other recent developments:
In October last year it was reported that Sparke Helmore was
considering a public listing.
Spruson & Ferguson, an IP firm, listed on the ASX late last year. It is

Spruson & Ferguson, an IP firm, listed on the ASX late last year. It is
listed as IPH Holdings - a 300 person firm that raised $165.9 million for
approximately half of its equity.
On Findexs new plans for Crowe Horwarth: Mr Paule, Findex CEO
said recently: We have already started discussions with a number of
people, both in the city and regional areas, to add some scale where
we do need to beef the firm up, he said.
Mr Paule said he intended to capitalise on the position of the
accountant as the most trusted adviser to coordinate the overall
financial affairs of Crowe Horwath clients.
No one trusts banks anymore, no one trusts financial planners all that
much because of all the scandals going on over the last few years, but
there has been no issue about accountants and their trust and their
values, so why shouldnt the accountant be the primary dominant
adviser who can coordinate all of these things for a client?
"On that basis we aim to be that person, that group for them, he said.
Does the ASX kill professional services firms?
Fund managers looking for investments, and banks looking to lend
money to listed companies, are like high octane fuel for professional
services firms. When it becomes necessary to turn the steering wheel
in a different direction or to slow down, the temptation instead is to
keep filling up and take corners at faster and more dangerous speeds.
The next thing you know youre off the race track.
2015 Legal Practice Intelligence

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