Former HIP supplier LMS is bought out of administration

Legal Marketing Services, better known as LMS, has been bought out of administration by its management team after going into administration with £30m of debts.

The organisation, which handles conveyancing, energy reports and surveys, last night denied that it is a phoenix company.

LMS is known for its generous lead commissions of between £110-£150 to mortgage brokers and estate agents, had long been rumoured to be in serious trouble.

The parent company, LMS Holdings, which never traded, went very quietly into administration on January 18, with the appointment of administrators Zolfo Cooper.

What was apparently a ‘news blackout’ worked, with no announcement and competitors not noticing.
 
Indeed, just two days after the administration, on January 20, the LMS marketing department sent out what it emphasised to journalists was a ‘good news’ email saying that LMS was 20 years old and looking forward to a ‘year of celebration’.

In reality, the firm – which at the height of the market enabled mortgages of more than £26bn a year and employed over 500 people – marked its birthday by emerging from a financial restructure in which its holding company shed huge debts.

Legal Marketing Services Ltd and LMS Direct Conveyancing have now been sold to Brabco 1019 Ltd, a company owned by a seven-strong management team led by Andy Knee, who set up the business in 1991. The business and assets of sister company Energy Reports & Surveys (ERS) were sold to Brabco 1020 Ltd. Both are understood to be off-the-shelf companies.

LMS had first been backed by private equity firm 3i, and then, in 2006, at the top of the housing market, by RJD Capital, which took a 51% stake. The deal had to be helped along by a large debt element put into the business by Barclays. Managing director Knee had a third stake, of around 10%. Critically, each of the three shareholders put money in via debt, not equity.

Yesterday evening, Knee explained that the three original stakeholders of the holding firm have now been bought out by the new company. He emphasised that for LMS, the trading company, nothing had changed other than the ownership.

LMS had previously been dogged by persistent rumours that, whilst trading profitably, its backers wanted to walk away from insurmountable debts that ran into millions.

Knee had consistently denied the rumours, saying a year ago: “Our demise is just wishful thinking on the part of our competitors.” He added: “People have been saying for five years we are in trouble – in fact, they don’t know how to read the balance sheets of a private equity business. These show that there is £30m of ‘shareholder debt’, when in fact it is equity in the business.”

The LMS business did not carry any of the private equity debt held by its parent holding company. Accounts were last filed for the year to March 31, 2009, which showed sales of £54m and a pre-tax loss of £3m.

LMS, a conveyancing panel manager for lenders, was also until last year a major Home Information Pack supplier. It was a preferred supplier of the National Association of Estate Agents.

The firm had invested around £12m in getting its business ready for HIPs, and expected to supply 1,000 a day, with upwards of 40,000 a year to Halifax Estate Agents.

But the collapse of the housing market just as HIPs were introduced, followed by the fall in demand for conveyancing and remortgaging, triggered heavy losses on top of its equity debt. The loss of Halifax Estate Agents on its sale to LSL and then the abolition of HIPs last year dealt further blows. 


Graham Wild, one of the joint administrators, said that the deal to buy back the firm saved all 100 jobs.

The sale appears to mean that RJD has effectively walked away from its investment. 


Knee acknowledged: “Not everyone is happy with the outcome, but we’ve responded to the challenges very well and we’ve come to what we believe is the best solution given the difficult circumstances we’re in.”

According to one source, among the debtors are search firms. But Knee denied this, emphasising that LMS will continue in business.

Lately, LMS went in with James Caan on a first-time mortgage deal. It is understood that take-up has been unenthusiastic. LMS was also a sponsor of the estate agency apprenticeship venture, the Bloom Academy. A spokesman for LMS said the company would continue to support both ventures.

Former legal services director Chris Harris, who left the firm last year, said LMS had become one of the largest conveyancing panel managers in the UK.

He said: “Particularly known for its remortgage work with lenders, LMS has won plaudits and detractors alike.  Very few conveyancers are ambivalent about LMS; it’s a bit like Marmite.”