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AF Legal Group (ASX: AFL) is looking to create ‘one of the largest personal legal services firms in Australia’ through a merger with GTC Legal Group worth approximately $11 million.
Announced today, the transaction would see AFL take control of GTC in exchange for 49.7 million shares, giving existing GTC shareholders a 39 per cent stake in the merged entity.
Post-merger - which has been unanimously endorsed by the suitor’s board - AFL says the entity will have pro-forma FY22 revenue of $40.8 million and EBITDA of $8.8 million.
AFL executive director Grant Dearlove describes the transaction as a ‘seminal moment for the personal legal services industry in Australia’.
“For shareholders, it delivers immediate scale, increased revenue and profitability and a more diversified earnings base from family law only to an additional six practice areas,” Dearlove says.
“We will have new exposure to the fast-growing revenue-sharing platform model which is challenging the traditional law firm model in regions such as the UK, and our geographic footprint will increase from 19 to 26 offices under seven quality and recognised brands.
“The integration of our complementary businesses will drive immediate and long-term increased revenue and expense synergies, with a significant reduction of duplicated costs already identified. The merged group will have a strengthened board and leadership team with proven track records in legal firm disruption and consolidation.”
Founded in 2009 by managing director James Stevens, GTC operates a ‘platform’ model that includes a ‘traditional’ law firm (Armstrong Legal), a ‘non-traditional’ revenue-sharing law firm (GTC Lawyers), around 1,500 network partners (All Courts Lawyers), and a front and back office service company (GTC Legal Group Services).
The company also operates a legal hotline which operates from 7am to midnight every day, staffed exclusively by practicing lawyers. The hotline fields around 80,000 enquiries every year and runs two legal websites www.gotocourt.com.au and www.armstronglegal.com.au.
Overall, GTC operates across seven segments of personal law, namely family law, criminal law, contested estates, civil and commercial, administrative, agency and immigration. The business has 116 staff, seven offices in Australia and generated pro forma revenue of $20.3 million and EBITDA of $4.8 million in FY22.
“Put simply, the merger of GTC and AFL marks the true beginning of the consolidation of the personal legal services market in Australia – a development that is long overdue,” GTC managing director and founder Stevens says.
“The combined resources of the new group will provide it with all the tools it needs to grow and adapt to a rapidly changing world.
“Our enhanced national presence, top-tier administrative efficiencies and strong record of client acquisition will present a compelling business going forward.”
Post-transaction, Stevens and GTC CEO Wayne Windell will join the AFL board, while existing AF Legal non-executive independent directors Sarah Kelly and Kevin Lynch will step down. Rick Dennis and Grant Dearlove will remain on the board as non-executive chairman and executive director respectively.
While shareholder approval is not required for this transaction, AFL has engaged an independent expert to provide an opinion on whether the merger is fair and reasonable to existing security holders.
Shares in AFL are up 9.09 per cent to 24c per share at 10.09am AEDT.
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