7 - Chapter 6
Sunil “Sunny” looked on as a few people walked out of the meeting. He had been given very little information on the client, apart from that the time is billable, from his managing partner. The recent changes to legal aid put pressure on his firm of solicitors to increase revenue. The recent screw up by the regulator, that had allowed a rogue legal firm to abscond with £60m in client funds, had also raised solicitors licence costs significantly. Sunny as one of the few solicitor advocates in the firm was able to both deal with clients as well as represent them in court. This allowed the firm to keep additional fees in house instead of instructing barristers chambers and sending client revenue to others.
Hearing the claims made by Tasha, he had to admit it did sound fantastical. However, if true, it could be the making of the firm. They were a small firm with 4 partners and 15 associates. They could certainly take on the work Tasha proposed. The only question was what would it take for them to secure the contract and investment.
Sunny looked over to AJ. At first he had been surprised to see AJ here, then when he heard the pitch it made sense. They were trying to finalise legal and accounts together as both would be needed to finalise business purchases and expedite growth. He and AJ had gone to university together and knew each other well. He wondered if AJ would be willing to partner up.
Sunny decided to ask some questions to better understand the requirements. “Ms Andersen, thanks for inviting us along I have some questions. 1, How quickly are you looking to move. 2, What kind of stake are you looking for in the partnership? 3, How quickly are you looking for other deals to be finalised?” asked Sunny.
“We are ideally looking to have a decision in principal by tomorrow. Ideally we would like to have a controlling stake in any business we tie up with. If you want to retain additional equity, as long as we have controlling voting rights, we would be willing to look at a larger percentage of ownership. In terms of a deal, we have a potential deal on the table and if we can get due diligence completed, we would like to sign by the end of this week, or early next week.” answered Tasha.
“That is a very aggressive deadline for the moves, is there a reason for the speed?” asked AJ.
“That information is currently embargoed. Once you are onboard and part of the group of companies, we would be happy to provide further details.” responded a composed Tasha.
Others started to ask questions to clarify the position, but it seemed like Tasha was unwilling to move on the controlling stake. There was obviously something going on they were not privy too. It wasn't unusual for firms to be disruptive to move fast to avoid information leaking into the market, but even then this seemed to be a far more aggressive schedule than Sunny was expecting. He wondered if could get his partners to half their stakes in the firm. The 5 currently controlled 20% each, to give TA Consulting just over 50% would require them all to take a 50% hit.
“What kind of investment are you able to make to purchase into a firm?” asked a lady in the crowd.
“We would pay market value, based on standard profit/earning multiples to the current partners for their portion of the shares. If they wanted to retain additional revenue percentages, that would be discounted from the price. In addition, we would fund office space, staff perks etc. Any money required for growth would be provided as an interest free loan and can be offset against part of the billable hours. The exact terms can be negotiated. In addition the partner who would take on board responsibilities for the group would receive additional salary and benefits at market rates for the role.” replied Tasha
The deal seemed too good to be true. TA would burn money to build the teams, and would only be able to recoup the costs if their investments paid off. It was certainly a very aggressive approach. Sunny wondered if it was sustainable and what the pay off period was. He decided to ask, even though he might not be given an answer.
“What is the investment period, and at what point do you anticipate exiting the structure and at what return rate?” asked Sunny.
“We are building out a team for the long term. We don't anticipate exiting any of our investments unless they are failing to deliver. We are not only looking at financial returns. Our return on investment can also be intangible benefits to humanity, the environment or advancement in scientific discovery. This is not a standard short term VC setup.” responded Tasha.
Everyone in the room was shell shocked at that response. It was unheard of a VC to be in it for the long haul. How exactly was their going to be payoff if the returns were intangible. If it was something marketable or if the share price went up, that was one thing. Otherwise, it made no sense.
“Are you looking to float your companies on the stock market to capitalise on the investments then?” asked another guy in the room.
“No, we are going to remain private permanently. The only reason to go to the market would be to raise funds, and we have no need of that. In our case, it would only add additional regulatory burden on the firm and reduce our agility.” replied Tasha.
A few more people made their excuses and left at this point, not seeing how they were going to profit.
“What areas are you looking to cover in house from legal and accounting services?” asked another person who had remained and looked uncertain.
“From accounting we need bookkeeping, accounts, internal audit, external audit and regulatory reporting. From legal, we need real estate, employment, commercial, corporate, enviromental, international, and potentially criminal as well as lobbying for legal changes” replied Tasha.
That answer made up the mind for Sunny, and by the way he was nodding to the answer for AJ as well. He wondered who else would be interested in staying.
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“So I am guessing if you are still here you are interested in the proposal. Are there more questions for the room or are you already to continue individually?” asked Tasha. “ James and Ingrid will take individuals to private rooms to continue the discussions. Feel free to order lunch and drinks from the hotel staff whilst you wait.”
No one objected, and everyone settled in to wait. As James and Ingrid started to take individuals away for private discussions, Sunny approached AJ.
“Hey AJ, I really wasn't expecting to see you here, but after hearing the details it sure seems like an interesting proposition. What do you think?” Asked Sunny.
“Hey Sunny, yes I wasn't expecting you here either. It's certainly interesting. Still it seems like there is a lot they arent telling us yet. Also given what the scale they are talking about, I would have expected to see a lot more staff, not just three people. What's with the speed they are trying to move at?” replied AJ
“I think they are trying to stay ahead of news getting out, or trying to grab an opportunity before it's lost. I can't think of any other reason. Also their stated win conditions seem very open. I can't decide if that is good or bad.” responded Sunny. “Let’s see what they say during the private meetings. We can catch up after we have both spoken to them and then see if we want to join them.”
They continued catching up while waiting to be called in.
*
James called AJ in to the private room for his meeting. “Mr Shah, thanks for coming and staying till the end. Apologies for the rushed nature of meetings today. As you can see we are trying to get a lot done in a very short amount of time.” said James as motioned for AJ to take a seat.
“We have looked into the basic backgrounds of those who stayed. We have asked a few people to leave as their profiles were not what we were looking for.” continued James.
“You managed to do a background search on companies and individuals between yesterday and today?” asked a shocked AJ.
“Yes, TA Consulting started life as a corporate intelligence firm. We are able to put together a basic profile pretty quickly. It's the detailed background that takes time. So are you interested it he offer and what are you looking for?” replied James
“Well, my firm would interested in the providing the in house services. We would need to outsource the external audit to another firm. I am also interested in the head of Finance role, if the terms are right.” responded AJ.
“We are aware that you have a couple of clients that have taken financial hits, so your bottom line is impacted. Yes, for external audits we would need to change firms every couple of years to adhere to best practice anyway, so no point trying to bring it in house. We know you are the managing partner, are you able to make decisions for the firm today, or would you need to go away and discuss it with your team? What are you looking for from us to buy into the company and what level of investment would be looking at to properly support us going forward?” elaborated James.
“We would look at the usual multiples, so for our firm we would be looking at around £5m to buy the shares and around £2m investment based on current revenue and growth requirements” replied AJ.
“Those figures are not unreasonable. Let me speak to Ms Andersen. I would suggest you also speak to your partners and we can ask one of our legal team out there to draft up a contract in principle today.” responded James as he showed AJ out.
*
Ingrid called Sunny in, while AJ was still in with James.
“Mr Shah, thanks for taking the time today, it’s much appreciated. We are aware we have put everyone on the clock with this decision.” said Ingrid, as she motioned for Sunny to take a seat. “Since you are here, I assume you are interested. What role would you like to play going forward and what are you looking for in regards to us buying into your firm, your investment requirement and for the role as head of legal?”
“Well, I would need to finalise the figures with my partners, but I would see the buy out as a range between £3m to £5m, the investment would depend on what we need to add to the teams, and personally i would be looking for around £250K per year pluck package to take on the role of head of legal. Are you going to be merging all the businesses you take on into the main firm, or will you allow them an independent existence?” replied Sunny.
“That seems to be within expectations, so no concerns there, but we are looking to sign a deal in principle today. Is that something you can arrange? Why don't you go and speak to your partners and I will speak to Ms Andersen and we can see if this is something we can move forward with.” replied Ingrid.
*
Tasha was speaking to Sally, a lawyer from one of the more specialised firms she had contacted. Sallys firm was an activist firm, taking on environmental cases, as well as litigation and defence. Sally had been surprised to be invited, and was even more surprised to be still in the running.
“Based on your answers out there, I am not sure what we can provide you with Ms Andersen. I am also surprised why you picked me out to speak to when the more commercial firms would fit your needs better.” asked a suspicious Sally.
“Well Sally, we have 2 parts to our stated objectives. Yes we need to build out the teams and get moving with our agenda. However, another part of the company will be the Foundation we are setting up to help support the third sector and to actually do some good for humanity. I felt based on my research, that you would do well with that portion of our remit. You would work mostly with Ingrid, but you would also get support from some other assets. I can't say more just yet, but I think you would really be able to deliver on your aims with our support.” replied Tasha.
“Well, I am sure since you seem to have done your homework, that we are in a lot of debt due to our activist side. We would need £20m just to cover our debts, and I am not sure if we even gave you the firm, we could cover that. We would be a cash sink with the way we operate.” responded Sally.
“I think you would do well as the head of ESG for the group Sally. We are happy to move your team from partners to salaries with an ongoing budget. I think that would suite your needs a lot more than the current setup. We would also wipe out the debts you are carrying. You would need to get your partners to agree. What do you think?” responded Tasha
Sally was left dumbfounded at the offer. “ I will go and speak to them now, I am sure they would be interested. What sort of salary did you have in mind? We would need to make sure it was reasonable, and not too low.” replied Sally thinking that after assuming the debts, Tasha would offer low salaries to keep them on.
“I was thinking around £150k for the other partners and £350k for you in your joint role. If you think that's low we can certainly look at the increase based on performance.” smirked Tasha.
“That's…that's very generous, is it sustainable? We wouldn't want to start with a new model to find out that we would have to look at something new in the short term.” responded Sally
“Speak to your team and we can finalise the deal after that.” responded Tasha.