Beech: Great opportunity to keep scaling firm
The boss of listed law firm Knights has outlined his ambitions to continue expanding the business across England, with Wales, Scotland and Northern Ireland also in his sights.
David Beech made the comments as the firm announced that turnover for the six months to 31 October 2020 increased by 45% on the previous year to £46.2m.
This was because of a £19m income boost from the multiple acquisitions made early last year, which more than offset the £4.8m (15%) decline in organic fee income.
Investors heard that this was mainly due to the significant impact of Covid-19, but also reflected “the restructuring of some less profitable teams within the business”.
As at 31 October, the group employed 902 fee-earners, 32 fewer than six months earlier.
The firm maintained a 46% profit margin thanks to eliminating discretionary spend and reducing board and staff salaries last March. Full salaries resumed from 1 November, but the reductions will not be made up.
In November, Knights returned to the acquisition trail by buying Exeter firm OTB Eveling – its first presence in the South-West – which was its 11th in total since listing in June 2018.
The firm generally targets secondary legal locations and its report to the market today said: “We anticipate that Covid-19 will accentuate the acquisition opportunities for our resilient, larger scale business in the highly fragmented market for legal services outside London.
“We expect that, over the coming months, the uncertain economic environment will continue to boost our strong pipeline of high-quality opportunities as more firms and talented lawyers will look to become part of a larger, high-quality and more diversified business in the context of greater financial pressures.”
Mr Beech explained to Legal Futures that more deals were on the way, probably in late spring or the summer, and he identified East Anglia, the northern home counties and the North-East as gaps in England the firm needed to fill.
South Wales is also a target, while “we like the look of Scotland”, as well as Northern Ireland.
Knights had a turnover of £35m when it listed and Mr Beech said it was likely to be three times that by the third anniversary this June, and he saw “a great opportunity” to keep scaling the firm.
Mr Beech said Covid had made Knights more attractive to new recruits too; it hired 18 new senior fee-earners in the six months, compared to seven in the same period in 2019.
“The challenges and uncertainties of this pandemic, with its initial impact on trading and liquidity across many firms, have left some partners disillusioned with the traditional partnership model, driving more quality candidates to consider our unique business culture in order to maintain a similar income without the financial risk of partnership.”
At the same time, the firm saw a churn of just 4% in senior fee-earners and recorded an increasing employee net promoter score to +43.
Knights is not paying an interim dividend, given the Covid cost-saving measures, but will review this again at the full-year results.
Mr Beech said activity levels have improved further since the end of the period, “providing confidence that we will return to double-digit organic growth for the second half”.
A Legal Futures analysis showed that Knights was the only listed law firm to defy the Covid gloom and end 2020 with its share price higher (at 393.5p) than where it began. It has since dipped but was up 5% on today’s results at 375p.
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