In March 2021, Lawyers Weekly reported that Australian Family Lawyers (ASX: AFL) was acquiring 100 per cent of the shares of Watts McCray, with the acquisition being completed in June. In June 2021, the listed firm signed a binding heads of agreement to acquire 100 per cent of the assets of Kordos Lawyers, the acquisition for which was completed in July of that year.

In a statement to the market on Wednesday, 8 February, AFL announced that — in line with its proclaimed “AFL: 3.0” strategy, unveiled in August of last year — deeds of variation have been signed with Watts McCray for the sale and purchase of that NSW-based practice and with Kordos Lawyers for the purchase of that Melbourne firm.

The listed firm’s board has, the statement noted, “taken steps to focus on capital management with the objective to avoid dilution of current shareholding, where possible”.

“With the growth of the company and its NAB acquisition funding facility [secured in June 2022], the need for the company to utilise its share capital to acquire firms or attract talent is not necessary at this point in time,” it said.

“The board is desirous of preserving shareholder value and as a step towards this, the board has resolved to pay the earnouts of historical acquisitions with cash in lieu of shares.”

Watts McCray

Earlier on 8 February, AFL and the vendors of Watts McCray signed a deed of variation to the original sale and purchase agreement (SPA), with the proposed issue of shares — under the balance-deferred share consideration, which was supposed to be paid in three equal annual instalments subject to achievement of minimum performance conditions for this financial year and the last — has been cancelled.

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Both parties have, the listed firm outlined, endorsed that the deferred consideration for FY22 and FY23 will be paid in cash in lieu of the shares.

“A $375,000 earn out has been achieved by Watts McCray for 2022. Due to terms of the SPA catering for a reduction of the earn-out sum to offset certain transition expenses including working capital, non-related partnership expenses, and Watts McCray’s partners’ expenses, a total payout of $181,500 to the partners of Watts McCray has been agreed for the 2022 earn out,” AFL said.

“This will now be paid in cash in lieu of shares. The deferred consideration for 2023 will be made in cash, subject to the minimum performance conditions.”

No shares were issued for 2021, the listed firm added, as the minimum performance conditions were not met, AFL said.

Kordos Lawyers

Elsewhere, AFL and the vendors of Kordos Lawyers have signed a deed of variation to the original business purchase agreement, under which the proposed issue of shares under the balance deferred consideration was to be paid 50 per cent in cash and 50 per cent in shares.

These were supposed, the listed firm detailed, to be paid in three equal annual instalments for FY22, FY23 and FY24, subject to achievement of minimum performance conditions.

However, the deed of variation amends the deferred consideration to cancel all share payments and replace those payments with cash.

Kordos Lawyers has thus, AFL noted, “been awarded and paid its agreed 2022 earn out of $250,000 in cash”.

AFL in the news

AFL executive director Grant Dearlove spoke at length with Lawyers Weekly at the start of this year about the “robust and ambitious” goals that the listed firm has for 2023 and beyond.

The news about the deeds of variation follows the termination of the proposed merger between AFL and GTC Legal Group in late November 2022. Despite this, AFL has continued to expand, opening its 19th and 20th offices in August and December 2022, in the Gold Coast and Brisbane’s Bayside, respectively.

The listed firm reported more than $18 million in revenue in the last financial year.