Beech: Old model for legal sector rapidly becoming redundant
Pioneering alternative business structure Knights is the latest law firm to announce its intention to float on AIM, pledging to make three acquisitions in the next two years as part of its continuing growth strategy.
Once it begins trading in late June, it will become the fifth law firm to list, hot on the heels of City firm Rosenblatt.
Knights, based in Staffordshire, was best known for taking investment from high-profile businessman James Caan in 2012, but as Legal Futures revealed in 2016, he and his fellow investors exited after four years and were replaced by financing from a major European lender. The firm is owned by chief executive David Beech.
A full-service commercial firm, it has developed a strategy of targeting ‘second city’ locations and also growing complementary non-legal services. Last month, it announced a move into Manchester after agreeing to buy Turner Parkinson, its fourth acquisition since 2012.
It currently has offices in Chester, Cheltenham, Derby, Newcastle-Under-Lyme, Oxford and Wilmslow with approximately 430 employees, including 350 fee-earners. The Turner Parkinson deal, which will take place immediately upon Knights’ admission to AIM, will add a seventh office and a further 66 employees, including 45 fee-earners.
Knights has scaled up quickly in recent times, with a compound annual growth rate over the past three years of 30% and adjusted operating profit up 29%.
For the year ended 30 April 2018, revenue was £35m and adjusted operating profit £6.8m. Turner Parkinson generated revenue of £8.5m and an operating profit of £1.8m over the same period.
Knights has approximately 7,500 clients, with more than 70% repeat business from existing clients. Top clients include Aldi, Paddy Power and Rolls Royce.
In a statement to investors today, the firm said listing represented “an important step in the group’s development”.
It said: “Part of the proceeds from the IPO will be used to pay down the majority of the group’s existing debt facilities, general working capital and corporate purposes.
“In addition, broadening the group’s shareholder base by trading on AIM is hoped to provide an alternative financing option to the group to further assist its strong acquisition strategy.
“A public listing will naturally enhance Knights’ profile and the directors believe it will also assist in the growth of the group’s business, providing a long-term framework to support future organic growth and investment, either through the acquisition of firms, teams and lateral hires.”
The firm said it would focus on three areas. First was organic growth: “Management believes that clear opportunities exist for Knights to continue to grow organically much faster than its market peers, through attracting new talent, rolling out new offices into targeted regional locations, outsourcing from national and international firms, and enhanced cross-selling, including through the addition of new service lines”.
Second was acquisitive growth and third leverage and efficiency. The firm wants to increase its 4.5 fee-earner to non-fee earner staff ratio, “compared to a market average of 1.5”, and achieve a 100% cash conversion on client matters by reducing WIP and debtor days.
It laid out four growth targets to achieve by its 2020 financial year: recruiting more than 200 additional fee-earners; “continuing to maximise support staff efficiencies by further leveraging overheads”; having nine or more offices; and completing at least three further acquisitions.
Mr Beech said: “We have worked hard to build a resilient business model that is well-positioned to disrupt the UK legal sector and an AIM listing would enable us to continue with this journey, building on the strong momentum we have generated in recent years to become one of the UK’s leading regional law firms.
“I firmly believe that the old model for the legal sector is rapidly becoming redundant and, as pioneers in the sector following the group’s early adoption of the ABS structure in 2012, we are well placed to benefit from the continued trend of commercial clients demanding an ever more relevant and value-based service offering.”
Balbinder Singh Johal, managing partner of private equity firm MML Capital Partners, is to be the non-executive chairman of the PLC, and there will be two independent directors: Steve Dolton, an accountant who has held senior financial roles at a host of companies, and Richard King, European commercial IT director at Procter & Gamble.
Leave a Comment