Shares of Australia's largest law firm, Slater & Gordon Limited (ASX: SGH), have fallen 4% today despite news that shareholders of Quindell PLC have approved the divestment of its Professional Services Division (PSD).
In March Slater & Gordon announced a landmark $1.2 billion acquisition of PSD, which would see it leapfrog rivals to become the UK's largest personal injury law firm by market share.
The deal is being funded through debt and both an institutional and retail offer. Eligible retail shareholders have until 5pm (Melbourne time) today to be entitled to receive two new shares for every three they currently hold, at $6.37 apiece.
Should you buy Slater & Gordon shares?
In an ASX announcement today Managing Director, Andrew Grech, said, "The acquisition of PSD is a transformational opportunity for Slater and Gordon." The firm's largest acquisition to date is expected to be 30% earnings per share accretive, within its first year of ownership.
However, investors need to be aware of the significant risks which can arise from such a large acquisition. Indeed, whilst the potential for significant profit increases is obvious, acquisition costs and goodwill can be quickly written-off if the integration of a new business doesn't go according to plan.
As Ken Fowlie, Slater and Gordon's soon-to-be Managing Director United Kingdom & Europe said today: "We restated PSD's financials using Slater and Gordon's own evidence-based accounting policies…This work, together with our firm's deep UK market experience and track record of successful acquisitions and integrations, underpins our confidence in the opportunity."
Personally, whilst it will be a standalone division, I'm waiting to see how PSD plays into the rest of the Slater & Gordon group in coming months before hitting the buy button on any new stock.
