Inflexion acquisition of DWF expected to complete before end of 2023

Manchester-based law firm, DWF, said it expects its £342m recommended takeover by private equity group, Inflexion, to complete within the final quarter of this calendar year.

DWF revealed on July 10, that it was in talks with Inflexion over a possible takeover deal.

Under the terms of the deal, shareholders will receive a special dividend of 3p per share, funded by Inflexion, payable if the offer becomes effective.

DWF outlined the expected conclusion to the acquisition in its annual results for the year to April 30, 2023, today, which revealed an increase in revenues, but a fall in pre-tax profits.

Turnover for the year was £451.6m, an 8.6% increase on the previous year.

Profit before tax came in at £17.2m, which compares with £22.3m. The firm said this was due to a £14m increase in administrative expenses of £168m, attributable to overheads linked to the acquisitions of Acumension and Whitelaw Twining and increases in support staff salaries, travel, business development and IT costs.

Free cash flow was static at £12.9m, although net debt rose by 29.9% to £101.7m, again, due to acquisitions.

Under normal circumstances, the board targets a pay-out ratio of up to 70% of adjusted profit after tax for the final dividend. But in view of the proposed 3p Inflexion special dividend payment, should the offer be accepted, no payout has been proposed.

If the offer does not become effective, the board will consider the appropriate level of dividend, if any, for the second half of 2022/23.

DWF, which floated on the stock market on March 12, 2019, valued at £366m, said the first three months of trading for its new fiscal year 2024 have been in line with management expectations from a revenue and income perspective, however lock-up stretch has had a balance sheet and cash impact. Lock-up is the sum of unbilled work in progress and debtors.

Management said it is considering the achievability of the lock-up target of 170 days given economic headwinds which are driving longer billing and payment cycles.

With the current trends not expected to abate, the board said it is not expecting to undertake any material M&A in the short term on a stand-alone basis as it seeks to address the ongoing challenges presented by lock-up stretch, increasing interest costs and the balance sheet leverage.

Chief executive, Sir Nigel Knowles, said: “We have once again grown the business profitably in what continues to be a very challenging economic environment.

“Like other legal businesses, we have seen salary and inflationary pressures, the impact of interest rate increases and variable demand particularly in transactional areas.

“Despite these challenges, we have seen our organic growth strategy and integrated propositions continue to resonate with clients, and have also added quality businesses to the group via our acquisitions of Acumension and Whitelaw Twining.”

Paul Rimmer, CEO of commercial services, said: “The senior partners and leaders and I wanted to take this opportunity, on behalf of ourselves and the broader DWF partners and employees, to say thank you to our institutional shareholders for their support since DWF’s IPO.

“The business has made substantial progress over the last 4.5 years in an evolving market and we are now excited about delivering the next stage of our strategy under private ownership.

“The quantum of irrevocable undertakings obtained from the senior partners and leaders demonstrates our collective strong belief in the rationale for the proposed acquisition, especially access to additional capital, more flexibility on investment spend and the ability to maintain additional leverage capacity in the business as we invest to counter macro headwinds.”

He added: “This is an essential opportunity to ensure DWF has a firm footing for growth over the medium term and we all look forward to supporting our clients under Inflexion’s ownership.”