Stock market: Gateley clients have invested
The price of shares in Gateley rose in early trading today as it broke historic new ground as the first UK law firm to list on the stock exchange.
The AIM-listed business, which listed at 95p, saw its shares reach 110p initially before easing back to 99p by close of trading.
It told the market that “the successful transition from an LLP to a PLC and admission will provide the platform to facilitate the group’s anticipated organic and acquisitive growth strategy”.
With a market capitalisation of £100m, based on the placing price, the alternative businesss structure has raised £30m from institutional and other investors, with £5m of the gross proceeds going back into the company and £25m to the selling shareholders.
Around 10% of the proceeds are investments by Gateley clients, while it is planning to distribute up to 70% of post-tax profits to shareholders.
In an interview with the Sunday Times yesterday, Michael Ward, the chief executive of the PLC, said: “We’re going to be the only law firm that sends its clients a dividend cheque twice a year. You’re actually going to get money from a lawyer. It’s quite revolutionary.”
Over the last 10 years, Gateley has increased its revenue by a compound annual growth rate of 14.3% and operating profit by 14.8% through “new office openings and expansion, selective acquisitions and increased number of fee-earners”, it told investors.
“The group is highly cash generative with typical cash conversion of 95% every year over the last three years supporting both growth aspirations and an attractive dividend policy.”
In a statement issued today, Mr Ward said: “We are delighted to be the first UK law firm to list on AIM and today marks a significant achievement for this successful, fast growing and entrepreneurial legal services group. The IPO will provide the platform for the continued success of the business, as well as accelerate its growth opportunities and facilitate value creation through an increased ability to acquire, incentivise, differentiate and where sensible diversify.
“We view the support from staff, partners, clients and investors as a strong endorsement of the group’s growth plans and we look forward to creating value for our new shareholders as we begin life as a listed public company.”
In his interview with the Sunday Times, Mr Ward acknowledged that there was some risk in the transition from a partnership to a PLC. “Some investors have said the risk is too great for them to come in at the float stage but they would be interested in our stock once we have proved the concept… Once we have done it, it will make it easier for others to succeed.”
He also admitted that being able to cash in at retirement was an important factor in leading the firm to the stock market. “In law firms, you generally come with nothing and leave with nothing, but you earn well in between. This is the start of people being able to leave with something. It will be a momentous change for the profession.”
But the float was not a cashing-out exercise, he told the paper. “We are retaining 70% of the firm, so we are sending a huge message to our staff, and the market, that we are still buyers and not sellers.”
With the firm’s partners having to agree to five-year lock-ins, he said anyone exiting before then will be deemed to be bad leavers, “unless they leave in a box”.
The ability to cash out on retirement is a powerful pull for lawyers as this is a really problematic issue for many.
The five-year tie in is simply good business…one should ask of ANY investment, is this the best investment I can make?
On that basis, the answer is no from me. I doubt that in the longer run the returns form this will better those available in the market generally.