RE: Quindell Portfolio2 Apr 2013 11:05
[QPP]
Acquisition of Compass Costs Consultants Limited ("Compass Costs"), one of the UK's leading legal costs consultancy and costs drafting firms.
Highlights
· Acquisition of one of the UK's largest costs draftsmen for shares at a significant premium
· Earnings enhancing in the current year and significantly earnings enhancing for 2014
· Fast tracks Quindell's growth in this key legal services area
· Ensures our legal operation now includes the largest costs practice in the UK
The terms of the acquisition were satisfied by the issue of 80,000,000 Quindell shares representing approximately 2% of the Group's issued share capital. Based on the agreed valuation of £14.0 million the transaction gives an implied value of 17.5p per Quindell share. The shares are subject to lock in of between 12 and 36 months from the date of issue. In return, Compass Costs has warranted a profit after tax of £2.0 million and operating cash flow of £1.5 million for the year ending 31 December 2013. The most recently filed accounts for Compass Costs, being for the year to 31 January 2012, showed record turnover of circa £6.4 million and profit before tax of circa £1.3 million. The acquisition is expected to be earnings enhancing in the current year and significantly earnings enhancing in 2014 due to the volume of costs work that the Group can direct to Compass Costs associated with its legal services volume, estimated at over £20 million per annum by 2014, making Compass Costs the UK's largest costs draftsmen.
As already one of the largest costs practice in the UK, Compass Costs operates across a broad range of legal case types, specialising in high value and clinical negligence costs recovery, as well as personal injury costs recovery and litigation. Compass Costs, which will operate as a division within Quindell Legal Services ("QLS"), will enable QLS to achieve its full potential by providing its services across the whole of QLS's portfolio of cases, and further enhance the Group's ability to deliver its insurance market offering maintaining its leading position in an evolving market place in light of the recent Ministry of Justice costs reforms and LASPO implementation.
[QPP] has been working with Compass Costs since October 2012 and the operational model that will be in place following this acquisition has been running on test since the start of the current year. During this test period Quindell has validated the quality of the service provided, examined the operational savings, the excellent results obtained and also the strength of the team and business model moving forward that will enable Quindell to maintain its growth in this area, which otherwise would have been difficult to manage organically in the time available.
Rob Terry, Chairman and Chief Executive of [QPP] said: "Compass Costs is already one of the UK's largest cost draftsmen, but with the benefit of our volume, it becomes the largest. Its operation is well respected in the industry for delivering value to its clients, and is both ethical and market leading in its approach. The acquisition has been completed in line with our stated strategy of only issuing stock at a premium to current market valuation and it is expected to be earnings enhancing in the current year and significantly earnings enhancing in 2014.
"Compass Costs operates in such a specialist area, that we could not expect to grow ourselves organically in such a short period of time, particularly as we continue to take on more of our own volume, This, combined with taking into account the proposed Ministry of Justice costs reforms and introduction of LASPO from 1 April 2103 were also key drivers towards the acquisition."
Phil Hodgkinson, Chief Executive of Compass Costs said:"With our detailed understanding of the legal services market it is clear to the board and shareholders of Compass Costs that Quindell has a winning formula, is gaining significant blue chip clients and has been undervalued by the market. As a result, we are very happy to accept our consideration based on shares at 17.5 pence and look forward to sharing in the benefit of the share price correction that we believe will occur once the Quindell model is more fully understood.
"Following the acquisition, Compass Costs will continue to focus on working with existing clients and commercial partners to provide legal services and costs solutions within the new post LASPO arena and will be hosting a series of exclusive presentations to its existing client base to include LASPO compliant funding solutions and documentation over the coming weeks. Operational control of Compass Costs will remain within the existing structure, with the Quindell Group supportive of the delivery of enhanced revenue and costs recovery to Compass Costs' existing client base."
Applicatio