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Legal Pioneers: Parabis – the innovative group eyeing up private equity investment

In the second instalment of our new Legal Pioneers series, Antony Collins profiles Parabis, which currently operates as a co-operative of different insurance-related regulated companies. When the Legal Services Act goes lives, however, integration of legal and non-legal functions and external investment are on the horizon

History, as for the legal profession as a whole, is important to Parabis. The group was created in 2002 as a holding company by Tim Oliver, a former partner at Berrymans Lace Mawer. The group initially brought in Mr Oliver’s claimant firm Rymills Law and then defendant outfit Williams Davies Meltzer. These two firms later rebranded as Cogent Law and Plexus Law respectively.

The two business strands remain the engine of Parabis, generating around two-thirds of the group’s annual income. The organisation, though, has branched out into broader insurance-related advice, with consultancy Parabis Limited, Argent Liability Adjusters, Argent Rehabilitation and support service Argent Health & Safety. It is structured as different regulated companies under one holding group.

As such, the firm is a de facto alternative business structure (ABS) – with legal advice being offered alongside other services – but structured to avoid any regulatory entanglements. So, when the Legal Services Act (LSA) is finally adopted, Parabis is primed to be an early mover.

While much has been written about the history of Parabis Group – its ascendancy to a £100m business, its rapid expansion through acquisition and its novel structure through a union of insurance-related companies – it is the future that is the focus.

Taking stock

The group is set to consolidate into a multi-disciplinary practice when the ABS regime goes live. This means Parabis can become a single business under a single brand, although the logistics and the name have yet to be settled.

“Each group is a separate legal entity but, as part of the ABS reforms, we are hoping we will be able to bring all the different strands together in one integrated business,” explains Mr Oliver.

Structural changes, however, are likely to be undertaken by many legal operators. Parabis has an ambitious growth plan, which includes the potential expansion into building reinsurance and audit inspections. The firm has made no secret of its desire to look towards outside funding to achieve its goals. Parabis has two main options for external financing; private equity investment and flotation but continues to “look at the investment options”.

Parabis, alongside Irwin Mitchell, is one of the few notable firms to seriously discuss flotation. Law firm listings are rare, with Australian litigation practice Slater & Gordon the most high-profile example of a firm gone public. Parabis can offer investors a balanced portfolio and strong clients, like the RBS Insurance, Tesco, the AA and Saga (Cogent Law provides the legal support for the legal services websites set up last year by the latter two businesses). The question remains, though, would flotation be the best option available currently for potential investors?

Mr Oliver does not think so. “At present though, attracting financing from banks is tough and the legal sector is not ready to face the public market or scrutiny that comes with flotation so I think it will be a step too far in the early stages for any law firm,” he says.

Private property

If a listing is unlikely in the short-term, then Parabis’ second option – private equity investment – is the preferable first move. No legal practice, of course, can sell a stake until licensed by the Solicitors Regulation Authority (SRA) (a process now likely to start in early 2012) but Parabis has been in discussions with several suitors, including Duke Street, to become the first UK law firm backed by non-lawyers.

Private equity investment would undoubtedly help mid-sized law firms. Duke Street, for example, has a diverse portfolio that includes Asian food chain Wagamama, debt purchasing company Marlin and marine distributor Navimo. Any business it acquires is restructured and managed in the same way as a FTSE 250 company, no matter what the sector.

“For me, private equity investments would be a good first step,” Mr Oliver comments. “Private equity firms can provide more than just money; they can provide business guidance and a strong system of governance which can really help legal practices develop.”

Uncertainty remains, however. The SRA has not been clear on its view about third-party funding or the responsibilities of external investors. Private equity firms also tend to prefer majority stakes and always have a clear exit strategy, which again is untested in the legal sector.

The delay of the October start-date of ABS, after four years of planning, is a concern for Mr Oliver. “How is the legal sector meant to look professional and attract investment if the regulators can’t get their act together?” he asks.

This symbolises the split in the market between slow-moving traditionalists and those eager to drag the profession into the modern era. Even so, Parabis knows it is merely a matter of when, not if, the changes finally happen.

Source: Legal Futures – 22 August 2011

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