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AF Legal (ASX: AFL) is on track to consolidate its position as one of Australia's largest family law firms with the merger and acquisition of NSW-based Watts McCray, a practice with five locations and owner of the domain name 'divorce.com.au'.
The group founded by Top 100 Young Entrepreneur lister Edward Finn in 2015 has been on a bullish expansion path since its backdoor listing on the ASX in 2019, spreading out to all mainland capitals except Darwin.
With due diligence still underway, AF Legal expects to complete a transaction to acquire all Watts McCray shares in April, including an upfront payment of $375,000, a $1.125 million deferred share consideration and absorbing $1.5 million of the target's debt.
AF Legal expects the deal will be earnings accretive with Watts McCray historically servicing 1,000 clients annually with a revenue of $6 million from its locations in Sydney, Parramatta, the Northern Beaches, Norwest Business Park and Canberra.
This compares to an FY20 revenue of $7 million for AF Legal, a group that has turned itself around from a loss-making enterprise in FY19 and whose profits doubled year-on-year in the December half to $248,494.
The move comes as AF Legal is in the midst of a $5 million entitlement raise, due for completion on 23 March, to fund its acquisition plans including this one.
"We are excited to merge with the Watts McCray team. NSW is the largest legal market in Australia for family law underpinned by population and asset values," says AF Legal executive chairman Grant Dearlove.
"This merger with one of Australia's most recognised family law firms is a significant step in our growth strategy and expands our national footprint to three new locations in Australia's largest region.
"We will combine our innovative client acquisition model and NewLaw practice with the pedigree, brand, and legal power of Watts McCray to accelerate our growth."
Dearlove adds the merger also expands the groups' combined offering to a new, more "affluent" segment of the legal market such as wealthy complex large estate and asset disputes for clients locally and around the globe.
He also notes the individual vendors of Watts McCray will continue to work in the business in their existing capacity, and work closely with the board to grow the national platform.
"Their election to accept their transaction consideration in shares in the company is symbolic of their desire and motivation to grow the combined business for the benefit and alignment of all shareholders," he says.
Watts McCray managing director Jackie Vincent highlights how AF Legal has disrupted the family law market and grown its national footprint since listing on the ASX.
"Our team shares the same strategic vision for the family law market both in Australia and internationally," says Vincent.
"We believe that that our merged businesses will accelerate the growth of the combined businesses and offer Australians more ways to retain and receive the best family law service possible. This is an exciting period for both businesses, our clients and our staff."
Watts McCray has been in operation for more than 40 years, and was recently named the Global 100 awards winner for "Family Mediation Law Firm of the Year 2021 Australia".
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