Slater & Gordon backs $78 million Allegro Funds takeover offer

The board of law firm Slater & Gordon (ASX: SGH) has today unanimously backed a takeover offer from Sydney-based Allegro Funds that would see the suitor acquire 100 per cent of the company for $78 million.

Under the off-market takeover offer, shareholders would receive 55 cents per share held, valuing the transaction at approximately $78 million based on the 141 million shares currently on issue - the majority of which are held by a consortium led by Anchorage Capital Partners.

The announcement and the firm’s subsequent backing of the deal comes alongside Slater & Gordon’s first half financial results which detailed how the firm has returned to profit in the latest financial period.

According to Slater & Gordon’s chair James MacKenzie, Allegro’s investment in the firm would “bring together a hands-on Australian investor focused on growth-oriented partnership with one of Australia’s leading consumer law firms built on social justice values”.

“Slater & Gordon shares are highly illiquid. The offer is all cash and provides certainty of value for shareholders,” he said.

“Allegro’s investment also presents an opportunity for Slater & Gordon to simplify its capital structure, which is currently dominated by offshore hedge funds.

“In this context, the board and executive leadership group are excited for shareholders, the Slater & Gordon team, and current and future clients.”

Adrian Loader, a founding partner of the investment firm which bought New Zealand petrol station business Gull for $457 million in March 2022, said the deal would enable Slater & Gordon to grow even further.

Allegro is also an investor in Toll Global Express, Perth Radiological Clinic, Best&Less, Pizza Hut and more, and has around $4 billion in assets under management.

“Allegro has significant expertise investing in purpose-led professional services organisations such as Slater & Gordon and looks forward to working with its strong team of lawyers whom we are keen to retain, support and incentivise,” Loader said.

According to Slater & Gordon’s board, the offer ‘provides greater benefit to shareholders than retaining their shares’. As such, the firm has appointed Kroll Australia to conduct an independent expert report to conclude whether the proposal is fair and reasonable.

The deal is also subject to Allegro acquiring a relevant interest of at least 50.1 per cent of SGH shares.

For SGH and its majority shareholders, the takeover comes nearly six years after a consortium of hedge funds scooped the company out of peril following a bungled launch into the UK market by the law firm.

That UK entrance led to SGH posting a $547 million full year loss in FY17, including a $350 million impairment charge relating to its failing UK business.

Since the hedge funds took control of the law firm, Slater & Gordon’s share price has consistently deteriorated and has never been able to return to the highs of 2015 when shares traded close to $700 each.

In addition to the takeover offer, SGH announced its first-half results detailing an increase in net revenue of $110 million and a net profit after tax (NPAT) of $16.7 million compared to a $7.7 million net loss in the prior corresponding half.

SGH said the NPAT increase was driven by higher personal injury law fee revenue attributable to strong resolution rates in the firm’s emerging and civil practices and strong broad growth in work in progress matters.

The company also reported a gross operating cashflow of $5.5 million compared to a loss of $1 million in 1H22, as well as earnings of $35.7 million compared to $3.9 million in the prior corresponding period.

During the half, SGH settled five class actions including three consumer credit insurance class actions on behalf of ANZ (ASX: ANZ), Commonwealth Bank (ASX: CBA) and Westpac (ASX: WBC) customers.

“These are a positive set of results today and they reflect the ongoing rebound from the impacts on our business from COVID, the hard work of our people on behalf of our clients, and the improvements that we are continuing to make to how we operate,” CEO John Somerville said.

“Over the past five years we have made good progress, however we still have more work to do to continue to improve and deliver on our strategy.

“Pleasingly we have seen our ability to progress our clients’ claims return to pre-pandemic levels following the challenges of lockdowns.”

Shares in SGH are up 7.08 per cent to $0.60 per share at 11.29am AEDT.