There’s no more reliable way to conclude that a business is terminally ill than if they start threatening legal action against journalists. In more than 1000 articles, I’ve been threatened a mere handful of times. The list reads like a catalogue of corporate rogues: Babcock & Brown, Steve Vizard’s former accountant, Ahmed Fahour, and last year, Slater & Gordon.
It wasn’t surprising, therefore, to see that Australia’s highest-profile ambulance chaser has effectively died, with equity holders about to be completely wiped out and Slater & Gordon’s bankers taking whatever is left of the once high-flying law firm (banks looks like collecting around 30-40 cents in the dollar). Slater & Gordon Limited (SGH) has a current share price of around 9 cents, which is down 99% from its 2014 high. In short, things literally couldn’t be any worse for SGH shareholders.
Slater & Gordon wasn’t the victim of an unfortunate extraneous event — instead the firm made a series of increasingly bad decisions. (If there is any silver lining, at least management went down the with the ship, with managing director Andrew Grech’s stake dropping from more than $50 million, and UK boss Ken Fowlie seeing $45 million evaporate).
Last January, Crikey compared SGH to the disastrous ABC Learning Centres, noting:
“If the ABC experience is any guide, it would appear that Slater & Gordon probably won’t see out the year as a listed entity. It will almost certainly need to massively write down the value of intangibles on its balance sheet, while the debt and payables load of $1.3 billion will loom ever so large (compounded by the business’ terrible cash flow).
“In December, Slaters downgraded earnings — indicating not only is the company performing terribly, but management has no idea as to the extent of the problem and the profitability (or lack thereof) of their business. “
Shortly after Crikey published its forecast of doom, Slater & Gordon management demanded a series of petty corrections (most of which were absurd or missed the point), serving to emphasise that the business was in a diabolical mess. As it turned out, our predictions were perfectly correct, although the business hung on a few months longer than a year.
The disaster at Slater & Gordon would have been exactly the kind of collapse that would have led to a class action led by Slater & Gordon itself (in this case, competitor Maurice Blackburn is leading the class action).
The bad decision-making that led to the destruction of billions of dollars of equity was mind-boggling. Specifically, the decision to acquire UK-based Quindell’s for $1.3 billion has almost single-handedly destroyed the business — in fact, it’s hard to think of too many other acquisitions that have had such a catastrophic effect on a company (Rio’s purchase of Alcan comes close, as did Allco’s related-party acquisition of Rubicon). In total, SGH has written down more than $1.2 billion in the past 18 months — virtually the purchase price of Quindell’s. To make things even worse, the company has recorded higher losses as revenues have dwindled by 25% year on year.
Regardless of your politics and view on Slater & Gordon, Andrew Grech and his board showed why law firms are best placed remaining as partnerships, not listed entities.
*Adam Schwab is a former corporate lawyer and the author of Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed