How Providior played a key part in a strategic M&A transaction in personal injury law

Providior works with personal injury and mixed practice law firms nationally to support working capital through disbursement and WIP funding. We have supported nearly 100 firms over the last decade and a half. Our case-study series shares high-level insight into some of our proudest moments, while protecting the confidentiality of our clients and the specifics of their business strategy and transactions. With that in mind, the following is based on a true story. The names of the participants have been altered to protect the innocent.

Strategic acquisition rationale in PI

When law firm equity partners hear the terms disbursement funding and WIP advance funding, they may not immediately connect them to strategic M&A, but that is the connection that Draper Wilcox, a NSW-based firm, was able to leverage in their acquisition of Cartwright Wilson, a QLD-based firm.

Draper Wilcox has a strong profitability, but faces a constant struggle on cashflow. Just as revenue is realised, cash is consumed by hiring personnel capacity to support growth, office fit-outs and security bonds on larger offices.

The biggest frustration, says Tim Frier, the firm's CFO, is that we can see the amount of WIP that is attributed to matters that have actually settled, but having to wait on Centrelink and other clearances, it can be 8-12 weeks before we can actually make use of the cash. Meanwhile, the growth machine charges on.

Draper Wilcox has grown substantially over the last five years having perfected their secret sauce in terms of marketing and client acquisition which is founded in providing resources for people who have suffered injury to understand at a basic level, what they can expect when pursuing a compensation claim. Their strategic roadmap didn't include the acquisition of another firm. They had assumed that they would just apply that secret sauce to interstate growth and grow organically.

From Frier's perspective: We had a realisation at some point, that an acquisition of the right kind of firm, would simplify and accelerate our entry to the Queensland market. That market has significant idiosyncrasies with regard to what is permitted when marketing personal injury firms, so being able to acquire a not dissimilar marketing machine supported by documented expertise and some great, committed talent, made a lot of sense. That is not to mention the benefits of integrating a ready-made team of highly skilled lawyers.

Funding the transaction

Draper Wilcox's equity partners are all sub-50 years of age and were limited in the personal financial resources that they could bring to bear, but they pulled together to make a bold move. They were supported by a smaller bank who makes a point of funding on character and business fundamentals.

Working capital was the next challenge. By acquiring a business that looked very similar to their own, they were doubling down on what they know, but also magnifying the challenges of the existing business model. A no win no fee firm doesn't necessarily experience fewer cashflow challenges at a larger scale, it's really just a multiplier effect. So, there was a gap to bridge in the order of $1.2m in cashflow which could be made up from a cash injection or an acceleration. From Providior's perspective, the answer was both of the above.

The role of a working capital solution

Providior had long funded disbursements for Draper Wilcox, but they had been operating on the basis of an internal policy to only activate funding on disbursements of $1000 or more. In close coordination with Providior, the firm was able to amend this to fund all disbursements regardless of size, thereby freeing up $210,000 in cashflow per year.

The prospective acquisition coincided with Providior's plan to expand funding terms from 2 years to 3 years. Where the firm had previously had to repay disbursement loans that had fallen due with the matter still on foot, they could now leave the loan in place until those more complex matters settled. This freed up an additional $150,000 in cash annually.

Meanwhile, Cartwright Wilson had been using an outdated, legacy funding product from another disbursement funder that applied a fixed margin markup to the deferred disbursements. In situations where the firm was unable to pass the interest costs on, they were shouldering more interest costs than they needed to. By running off the existing provider and rolling new matters onto Providior's flexible interest product, the projected profitability of the merged firm improved incrementally.

WIP funding was the fourth win. By advancing up to 50% of the professional fees on matters that they could see would be subject to a prolonged post-settlement clearance period, they were able to reduce their average debtor days by 40 days, which resolved the remaining working capital deficiency, allowing the firm to fund operating costs from soon-to-be-realised WIP.

Providior enables post-M&A integration

It was the Providior funding that closed the gap and allowed us all to sleep at night post-acquisition. We knew how to fund the transaction, but we would have been heavily constrained on working capital and that would have been a real struggle. It would have prevented us from focusing on the post-acquisition integration work that is critical to the future success of the merged business. We are 18 months in now and we can already see that we made the right decision. As we generate more cash, we will be able to reduce the leverage and retire the WIP funding, but Providior has made it clear that the facility can remain there for us should we encounter a slowing in settlement timeframes in the future. Or additional acquisition opportunities, says Frier with a wry smile!