A Strategic Acquisition for Helphire

Helphire (LON:HHR) announced on Thursday that they had agreed terms to acquire the New Law group of companies for a cash consideration of £24.5m plus up to £10.5m in HHR shares, subject to achievement of EBITDA targets for 2013 and 2014. This strategic acquisition strengthens Helphire’s market position in terms of vertical integration and extended reach while also enhancing earnings – the acquisition adds £7m pre-tax profits on sales of £29.4m. Having raised £60m for strategic growth in December 2013, it is clear that further earnings enhancing acquisitions are likely to follow.

Alongside details of the acquisition, Helphire also announced interim results for the half year ended 31st December 2013 and a third interim dividend of 0.054p per share. The interim results showed increased pre-tax profits of £4.2m on revenues of £92.3m. These revenues were down 16% year-on-year and this was attributed to the ban on referral fees for personal injury claims from 1st April 2013. Clearly HHR leadership anticipated the shifting landscape of their sector and have taken measures to protect and grow the overall business, not least through their acquisition strategy.

There has been a somewhat mooted response to this news with a slight softening of the share price. It is difficult to understand why other than the “buy on rumour, sell on news” mindset. As things currently stand, the new enlarged group should have annual profits of around £15-16m against a market capitalisation of c£180m with significant tax losses to carry forward. With a further £35m in cash to make further earnings enhancing acquisitions and a prospective yield of over 5%, I believe it is only a matter of time before the shares are re-rated. In the meantime, the progressive dividend policy and the prospect of a special dividend from a potential litigation settlement makes it fairly easy for investors to be patient.

Disclosure – I own shares in HHR