Category: Media

Modern Law magazine’s interview with Jordan Mayo

Originally published in Modern Law Magazine, ABS Supplement 2013

Smedvig Capital has invested in legal services since 2005 when the capital venture firm backed the first ABS, Premier Property (part of myhomemove). Jordan Mayo discusses the benefits and attraction of investing in legal services and why firms need to take a longer term approach and adopt a culture that is open to taking calculated risks.

Q: Why did Smedvig Capital see the legal services arena as a candidate for investment and what elements of the legal services market are most appealing?

A: At Smedvig Capital we invest in fast-growing businesses that are taking an innovative and disruptive position in large, established markets. Clearly the legal services market is enormous, being worth over £23B in aggregate and with several specialist verticals such as conveyancing worth £1B or more. However, despite the large market and although there are some great law firms and lawyers, the sector has generally been underinvested in, principally due to the restrictions on external capital pre-ABS. As a result, and with some notable exceptions, there is often relatively little deployment of technology – both to improve the client experience and to improve efficiency levels – and relatively little investment in sales and marketing infrastructure to help grow firms and their brands. Consequently, the market is highly fragmented with few clear leaders, even in niche segments. For example, when we first invested in myhomemove in December 2005, it was one of the largest mover conveyancing firms with just 0.5% market share. We saw a huge opportunity to significantly extend their lead in this market.

Q: Why has the Private Equity House continued its investment for so long?

A: We are principally funded by the Smedvig family, so we have a very stable, long-term source of capital which in turn allows us the flexibility to commit long-term capital to successful portfolio companies. When we initially funded myhomemove in 2005 we agreed a five year plan with the management team, however the exit timing always remained flexible. In 2008 following the crash we saw an opportunity to invest more capital, increase market share and grow the business further so together with the management team agreed to extend the investment timeframe. Since 2007 the market has stabilised at roughly half the historic volumes of the previous decade, but in the same period myhomemove increased their volumes of activity by over 60% and more than doubled their market share. Investment in infrastructure, technology, processes and people have allowed this growth. Continued investments in people and technology have led to industry-leading customer satisfaction levels and time to completion. In addition our unit cost position is extremely competitive. So we see a huge amount of growth still to go for. In fact, today MHM’s market share is a little over 3% and the aim is to get to 10% in the near future.

Q: What are the benefits of being the first to take part in the ABS route?

A: From a consumer perspective, as an ABS the business has used external investment and expertise to improve customer service and deliver improved efficiency levels. From a Smedvig Capital perspective, we have invested in over 40 fast-growing businesses since 1996 and of course have experience of being an investor in a regulated ABS environment. We feel that we are very well-placed to support other ambitious and innovative legal services firms in future.

Q: Did the nature of Premier Property (being a conveyancing focused, transactional organisation) provide the ingredients for success in terms of prescribing the ABS model and regulatory requirements? Or are all legal services able to benefit from the ABS model, so long as the leadership, ethics, business plan, funding etc meets the requirements?

The ABS model works best when a law firm can efficiently use external capital to improve its processes, customer experience and ultimately create value by growing profitably. The model also needs forward thinking management teams who are prepared to make long-term investment decisions and who are culturally open to outside input and the experiences from other industries. At the moment that seems to be truer of ‘volume’ sectors, where law firms seem to have been quicker to grasp how investment in technology can improve service and profitability. To use a conveyancing example, 80% of clients use MHM’s eWay system to see the progress of their case and view the relevant documents online. All that said, our strong belief is that the whole legal industry will move in this direction over time. Looking out in the medium, or long-term it seems plausible that the whole legal sector will look very different in terms of external investment and use of technology.

Q: Do ABSs require a fresh approach to leadership and management?

A: They certainly require a longer term approach and a culture that is open to taking calculated risks. There is a perception that this is not always the case in traditional multidisciplinary law firms with multiple partners. The partner model does not naturally lend itself well to ABSs; when there are a group of partners in a firm, the structure is often not conducive to making mutual long-term decisions. myhomemove was an external, disruptive entrant into the legal services market. Innovation certainly can come from existing law firms, but it can also come from outside of the sector.

Q: Does Smedvig Capital have any other legal services offerings in its portfolio and would it consider any in the future?

A: Yes, we are actively looking at other legal services investments. More specifically, we are interested in those with ambitious management teams and great people. We want to invest in firms with disruptive, scalable business models, as well as a strong market position where there is the ability for us to add value – from our experience at myhomemove and also at dozens of other fast growth business – as well as, of course, capital.

Q: What has been the response from the Private Equity / investment sector in the legal services arena in light of ABSs? Will we see more widespread investment in the future?

A: There has been a lot of noise around investments in this sector, however in reality there has been little activity to date and surprisingly few deals have happened. Firstly whilst there are many great law firms, it is difficult to find firms that are culturally a good fit for a PE investor. Secondly, the ABS approval process is still new and the regulatory framework is still more complex than in other industries. However, I think that this will change and we will see more widespread investment in the legal sector in future.

Q: Are transactional-based ABSs in danger of lowering standards of customer care in return for lower fees and a faster service?

A: I think this is one of the most surprising concerns about ABSs. In contrast to small highstreet law firms, large scale businesses like myhomemove and Premier Property Lawyers are able to invest in technology, infrastructure, processes and people. A large scale business like this is going to be more efficient than a small high-street firm and has resources to invest to improve the customer experience. At myhomemove the team provide a consistently personal and trusted conveyancing service, which is strengthened by great technology and innovation. Through investment in technology and people, they can further reduce the risk of fraud and provide reassurance to lenders.

Q: How have ABSs helped meet the Legal Services Act – in terms of providing more choice for consumers – in your view?

A: It is too early to tell really. With the ABS model, we would expect to see consolidation in the number of suppliers – and perhaps very dramatic consolidation in certain segments. So whilst there will be new entrants the number of suppliers will probably fall. That said, we would expect to see far more innovation in propositions, pricing and so forth and so consumers will be offered genuine alternatives in the way legal services are delivered and paid for. In the long run, more investment in legal services and more innovation has to be good news for consumers.

Modern Law magazine: Interview with…Doug Crawford

Doug Crawford, Chief Executive Officer of myhomemove has been steering further investment to help grow the ABSs conveyancing market share over the next five years – currently listed as 3%. However, as he explains to Emma Waddingham, success to date isn’t simply being the first ABS off the block or private equity funding, but investment in people and the systems they use to carry out its commitment to customer service.

Q: Has the vision for myhomemove exceeded the initial expectations and has the business plan changed in the last five years?

A: The company received private equity funding from Smedvig in 2005, before the recession. Despite initially envisaging an exit plan of 3-5 years, post- recession it reset its expectations and committed to further growth and investment. It paid off. By 2012 the market share of myhomemove had grown to 3% of the national conveyancing market and we are firmly aiming to capture 10% of the market in the next four years – more than exceeding expectations!

Q: What have you had to do differently (in terms of competitors) to achieve this?

A: Investment has been a key area; particularly in technology and people – the latter to support the delivery of a personal service. Our processes are as automated and efficient as we can make them but the delivery is still achieved through skilled people to ensure we put the client at the heart of what we do. This is absolutely central to the success of myhomemove – this focus on service demands that conveyancers’ systems are as efficient as possible to help us deliver. But it’s not about production lines; we have personal processes, combined with the most effective and developed technology to assist our professionals.

Q: How has being an ABS helped the organisation, above any other model?

A: We were the first ABS to launch in the UK, making use of external investment behind the business to be well placed to enter the market. But our success tomorrow is about investment today. There has to be a mindset – even in new ABSs which have attracted finance – to invest today, to become the winners of tomorrow. External investment into a law firm enables them to invest in the future but sometimes the structure of an ABS model is what’s needed to make the most of that funding. In terms of myhomemove, we’re well placed to further our success through the ABS model – along with the commitment of our private equity (PE) funding source. While some PE houses may have walked away at the first sight of trouble, Smedvig continued to grow its investment in 2010 – a bad time for the market. It will increase investment suitably if needed to reach our growth targets and has no plans to exit. This puts us in a strong position, to have a proven track record, brand, funding and expertise thanks to the model.

Q: Have we seen any real innovation in terms of ABSs to date?

A: No, but it’s early days. We will see innovation increase as the number of ABSs grows. It’s not a question of ‘if’ we’ll see innovation but when.

Q: How has myhomemove gained 3% of the overall market share (currently one in 20 transactions). What do you put this down to?

A: Two factors; firstly, technology. We have internally developed an award-winning system, eWay, for case management, tracking and client-facing processes. These market-leading, specific innovations have been the core of our success and we continue to roll out a version of eWay to introducers and panel management – available also to panel members. This ensures a consistent and in-house approach to all cases. We have a team of internal developers which we are increasing by 30% in 2013 to increase the capability to invest and develop our systems as we sit fit for the market.

Secondly, our people. We deal with people on a daily basis, either with those introducing new business or with those moving house. It’s a stressful time of life and while technology enables the efficiency and communication, it’s people that deliver and empathise with the client to ensure a high calibre of service. When looking to employ staff we look at a number of elements to ensure they will fit in – there are plenty of legally qualified people out there but they have to share our clear values about focusing on the client and customer service. British businesses traditionally underestimate mindset when employing staff. As a company you need to engage with your employees and create a culture within the company – a ‘this is how we do things around here’ approach that everyone subscribes to. It’s essential to invest in how you get people to feel a part of what the brand is doing. We don’t see this investment – time or financial – as a cost. People put too much focus on investment and capital opportunities when discussing and even planning ABS’s. You’ve got to have a strong, committed team of people working with you and that means you’ve got to train everyone – continuously – as the vision and objectives develop. It’s not enough for those funding and directing to know where the company is going or for marketing to know the brand values.

Q: What holds your competitors back?

A: Probably a lack of recognition of the need to invest so significantly into technology and people – as well as the culture. There is a difference of opinion about what is meant by investment but for clarity I mean cost and time. There’s no doubt that our investments have put us ahead of our competitors so significantly.

Q: Looking at the conveyancing market itself, what would Sep Rep do to the sector, for lawyers and for clients?

A: From the client’s perspective it potentially costs more and slows down the process – it’s hard to see the benefit for the client. However, it could mitigate mortgage fraud and I understand that lenders would see this as a positive step. Lawyers, meanwhile, depend upon pricing and panels. The panel situation (especially the fall out after HSBC) has really highlighted the fact that lenders panels will get smaller and fewer law firms will end up on them. Panel issues follow a trend of natural consolidation as the top 100 conveyancing firms hold 26% of the market share. Smaller firms cannot viably service the panels and the larger ones will get larger and possibly even merge further.

Q: Is the future of the conveyancing market now a fully commoditised one?

A: I don’t think it’s fully commoditised – there are still opportunities to differentiate, although it requires an enabler, such as a funder. Myhomemove will continue to differentiate the proposition to market and compete on a number of bases. We’re not going towards a commoditised service based on price but have a clear view going forward – on our own terms, not perceptions of the market. The client ultimately comes first.

Exclusive: private equity firm behind UK’s first ABS on the hunt for another investment

Originally posted on http://www.legalfutures.co.uk

The private equity firm behind the UK’s first – and so far only – alternative business structure (ABS) is beginning the hunt for another investment in the law, Legal Futures can reveal.

Smedvig Capital – which has invested around £500m since opening in 1996 – is looking for a volume practice where its money could improve both the customer experience and the firm’s own systems.

Avin Rabheru, a senior associate at Smedvig, said: “The businesses that excite us are volume players where our capital and expertise can help improve their systems.”

Smedvig has been invested in MyHomeMove for nearly seven years – MyHomeMove’s subsidiary Premier Property Lawyers, the UK’s biggest conveyancing practice, received its ABS licence from the Council for Licensed Conveyancers on 6 October last year.

Mr Rabheru said the experience with MyHomeMove made it well placed to understand volume legal practices and what can be achieved. “We’d love to back another MyHomeMove in a different part of the legal market.”

Smedvig looks for “young, exciting and growing businesses” that are either market leaders or have a disruptive model, and need investment of £2m to £15m, he said. It is managing internal capital and so is able to take a “longer-term view” of its investments without the pressures some other private equity firms have to buy and sell businesses in order to raise more funds.

Mr Rabheru reckoned it would take another couple of years before most private equity firms caught onto the possibilities and then there will be a lot of activity. Duke Street’s purchase of the Parabis Group will “raise some profile and I suspect that over the next couple of years there will be a few funds active in this space who will seek to develop expertise in the legal sector”.

He also suggested that the conventional wisdom that private equity will steer away from more traditional partnerships will shift. The state of the economy means “funds need to consider more complex investments, where they can truly add value” and take on the task of persuading a large group of partners to accept investment.

http://www.legalfutures.co.uk/latest-news/private-equity-firm-behind-uks-first-abs-on-the-hunt-for-another-investment