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Cracking the non-PI PI consumer legal market could be the biggest prize yet.

So why is everyone looking the other way?


An analysis of the g grant by the SRA of ABS licences

Law is big business. According to the latest TOPSI1 figures, the UK market generates over 26bn per annum. Recent analyses2 suggest that just under half of that comes from the business and commercial sector. Of the rest, 3.5bn relates to personal injury (PI) and 1. 1.5bn 5bn to crime.

Crime 1.5bn 6%

Non-PI PI consumer 8bn 33%

PI 3.5bn 12%

Business & commercial 12bn 49%

PI consumer legal market in the UK is worth around 8bn 8bn per annum. That means that the non-PI According to TOPSI, this is equivalent to the entire 2012 turnover of the UKs creative, arts and entertainment services industry.

UK Turnover & Orders in Production and Services Industries, published by the National Office of Statistics March 2013 2 IRN Research Limited - The UK Legal Services Market, December 2011 YouGov/SixthSense - Legal Services, November 2010

P a g e |1 Simon Goldhill Consultancy 2013


www.simongoldhill.co.uk

So a third of the he UKs entire legal market spend relates to activities such as conveyancing, wills, probate, employment, consumer issues and family law. Delivery within this market is highly fragmented and largely in the hands of high street firms. 85% (8,850) of all solicitors icitors firms are small businesses with 4 or fewer partners partners. 35.8% (3,700) are sole practitioners. . Most of these will strive to provide their clients with a good service. With apologies to the few exceptions, most will not be particularly efficient or customer omer friendly. Yet nearly all of them are making a sufficient margin to at least survive. Liberalisation of the market opened the door of this market to big business. Here come the major consumer brands led by Tesco Law or so we thought. Those indicators s above would seem to suggest that this sector of the market was ripe for the picking. The experience to date is somewhat different. By 30th April 2013, the SRA had issued 13 138 ABS licences, of which

SME traditional firm Commercial Volume business model

PI/Accident management Non PI consumer uncategorised 2%

Niche Insurer owned

4% 7%

7% 31%

31% 18%

43 were issued to existing solicitors firms, largely small to medium-sized sized local and regional full service practices for whom a licence is unlikely significantly to change the way that they provide their services

P a g e |2 Simon Goldhill Consultancy 2013


www.simongoldhill.co.uk

43 were issued to niche practices, ranging from volume operators in debt collection and residential conveyancing, through to single activity businesses dealing solely with family law, will-writing or food law. Again, most of these are existing practitioners 25 were issued to smaller businesses focused purely on PI and RTA accident management 10 were issued to businesses solely focused on the corporate and commercial market 10 were issued to businesses that are looking to create a volume presence on a national scale, 8 of which are or incorporate existing solicitors firms 5 were issued to motor insurers for their captive operations or brands

Only 15 (11%) licences were granted to businesses that have substantial national aspirations. 5 are run by motor insurers 1, Brilliant Law, is aiming at the SME and corporate market with fixed fees at the heart of their offering3 That just leaves 9 who appear to have the potential (assuming they have the aspiration) to engage with the public, directly or indirectly, to deliver volume non-PI legal services. Currently, however, PI remains the major, if not sole, element of their offering. Of those, the only national consumer brands are Co-operative Legal Services and BT Law.

So why has there been little apparent focus to date on the non-PI consumer market? I dont think these results are surprising. PI is going through massive changes and there has been a huge amount of both internal and public attention on this segment of the market. Consolidation and vertical integration have been the name of the game and the external funders looking to get into the legal market have tended to focus their efforts and resources here in building up large existing operations. Its where the apparent low hanging fruit lies for those who can get their distribution and delivery models right For many traditional full service SME firms, its just another option for how they structure their business, or an opportunity to bring non-lawyers into the equity. Becoming an ABS is unlikely to change their underlying business model A corporate structure with the ability to bring in outside capital could be very attractive to many of the niche players and those looking at the corporate and commercial markets

And what of the future? After the initial spate of investment by Duke Street (Parabis), LDC (Keoghs) and Palamon Capital Partners (Quality Solicitors4), there seems little appetite for external capital to pile in as nearly everyone had predicted. Many looked at traditional law firms, only to discover the

3 4

The other significant player with that objective, Riverview Law, is not an ABS QS is not an ABS, rather a brand wrapper around a group of existing traditional regional firms

P a g e |3 Simon Goldhill Consultancy 2013


www.simongoldhill.co.uk

downsides of the partnership model as an investment opportunity5. With the recent public focus on PI and the revelation of the scale of the rewards that can be made in claims, it is hardly surprising that the major area of activity has been in that market, driven by models such as Quindells accident management vertical integration. To an extent this may depend on what happens next in the PI market. If, as now seems increasingly likely, the Government raises the small claims limit for PI to 5,000, that will rip the business plans of all solicitors in that market to shreds large and small. The larger players may be forced to shift their focus to the non-PI consumer market, which sits alongside PI and remains still largely untapped. The recently announced tie up between Saga and Parabis to offer legal services to Sagas customer base may be the first of a new wave of legal service providers looking to muscle in. It is my view, simply because of the scale of the opportunity in this market, that significant activity in this market is inevitable. Events in the PI market may affect the timing, but when you have a market that is characterised by non-existent brand recognition, poor distribution models, highly fragmented and inefficient delivery, and operates on a broken business model, yet still brings in 8bn per annum and remains profitable for the thousands of businesses involved, people are bound to start looking. It may take another year or two for the penny to drop, but its only a matter of time.

Simon Goldhill 25 April 2013

With the exception so far of James Caans investment in Knights Solicitors LLP

P a g e |4 Simon Goldhill Consultancy 2013


www.simongoldhill.co.uk

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