AF Legal acquires Armstrong Contested Wills & Estates in deal worth up to $3.75m

A year on from the failure of an $11 million merger with Go to Court Lawyers (GTC), AF Legal Group (ASX: AFL) has reached a deal to buy the contested wills and estates practice of GTC for $3.75 million.

To help pay for the acquisition of Armstrong Contested Wills & Estates (ACWE), AF Legal will raise the equivalent of around a fifth of its own market capitalisation through an entitlement offer, and also will also draw on an extended finance facility from National Australia Bank (ASX: NAB).

Formerly known as Australian Family Lawyers, AF Legal’s latest takeover will see 25 new staff added to its 100-plus team, which will all transition to new offices throughout 2024. Led by Alun Hill, ACWE joined Go to Court Lawyers (GTC) in late 2019, and operates in Sydney, Melbourne, Canberra and Perth.  

Under the agreement, AF Legal has agreed to an initial purchase price of $3 million, in addition to two potential earnout payments of up to $375,000 subject to ACWE meeting revenue targets after FY24 and FY25 accounts.

At the same time as announcing the takeover, AFL said it is looking to raise $2.95 million in an entitlement offer. The capital will be used to partly fund the acquisition, cover integration costs and capital requirements for the new business, and identify future takeover opportunities.

The offer price of 15 cents per share (cps) represents a 16.67 per cent discount to the closing price of 18cps on 28 February.

“The board of AF Legal Group is pleased to announce the conditional acquisition by one of its wholly-owned subsidiaries of Armstrong Legal’s contested wills and estates practice which manages all aspects of wills and estates disputes including contesting, challenging and defending wills,” the company said in an update to shareholders.

“AFL will acquire the key components of this division of Armstrong Legal’s business, being debtors, work-in-progress, client matters and direct staff.”

More than a year ago, AF Legal announced its plans to create ‘one of the largest personal legal services firms in Australia’ by merging with GTC Legal Group in a deal worth approximately $11 million. However, the groupfailed to proceed with the deal and posted a $8 million loss for the first half of FY23.

A few months after, the group announced that Stace Boardman would be stepping down from her role as top boss to take over as CFO and COO. Chris McFadden, who was CFO/COO at the time, took over as CEO. Meanwhile, Grant Dearlove announced he would continue in his role as Legal Practice Director, but that he would step back from an operational role with the company.

The group recently released its FY24 first-half results, with revenue growing by 21 per cent year-on-year to hit $10.7 million. The firm noted the rise was mainly due to the long-standing brands of Watts McCray and Withnalls, in addition to newer AFL offices in Wollongong, the Gold Coast and Bayside seeing significant uplifts in growth as client lead generation matured.

Net profit after tax (NPBT) attributable to the owners of the AFL Group was $510,000 for the half - a $973,000 increase on the previous year’s loss of $463,000.

The suitor says the takeover of ACWE will provide a “positive but minimal” contribution for the fourth quarter of FY24, while the first full year of ownership is projected to boost revenue by $3 million and net profit by $800,000.

“The recent two half year periods of stabilised performance have benefited the AFL Group, driving stronger revenue and steady profitability,” AFL said in its first-half FY24 report to shareholders.

“This has arisen on the back of the new management structure (including the introduction of the Legal Leadership Team working closer with the Executive Team), and the people-first cultural change which is showing early positive signs reflected in AFL Group’s ability to attract and retain talent and minimise operational change.”