Beech: We can give equity partners a return for their life’s work
Knights has unveiled strong results for its first year as a listed company and is now looking to “scale” its business model by acting as a consolidator of independent law firms.
The four acquisitions it made during the year to 30 April 2019 helped a 51% increase in revenue to £53m, which also included 15% organic growth. Profit before tax more than doubled to £9.8m.
Other key metrics included net debt of £14m, £3.7m lower than expected, average fees per fee-earner growing 22% to £131,000, and staff numbers growing from 435 to 553.
Knights has been a good investment. It floated on 29 June 2018 on 145p and closed yesterday on 281p, having reached a high of 311p in March.
The listing raised £28m and earlier this year the firm agreed a new extended revolving credit facility of £27m until June 2023; the four acquisitions – Turner Parkinson in Manchester, Leicester firms Spearing Waite and Cummins Solicitors, and Oxfordshire practice BrookStreet des Roches – cost £21m in the last financial year, with nearly £7m more to be paid over the next three.
Chief executive David Beech said: “Our strong organic growth, combined with four high-quality acquisitions during the year, means we are now a more diversified business with strengthened positions in our key target markets.
“The group has made a good start to the financial year and we have the team and financial resources in place to deliver our organic and acquisitive growth strategy as we scale up to be the leading legal and professional services business outside London.”
Non-executive chairman Bal Johal, who is managing partner of private equity firm MML Capital Partners, told investors: “As well as the reputational benefits of the transparency and recognition that comes from being listed, a key advantage was that the people who had helped us build the business were able to participate in the listing; our people are delighted to be stakeholders in a public company.
“We are already seeing the benefits of the listing as we attract a wider pool of potential talent and acquisition targets.”
He stressed that Knights was “a legal and professional services business, not a law firm”, as shown by the fact that Mr Beech was the only member of the board with a legal background – and he has not practised as a lawyer for 15 years.
“It also gives Knights a significant point of difference in that our profits are reinvested for growth, rather than having to distribute them to partners.”
He added that “the size of our clients and the volume of work has grown” as the firm has expanded – clients include McDonald’s, Bupa, Prudential, and MBNA.
“The benefit of our model is that we are able to work with local corporate clients as well as large national organisations that want to work with advisory firms of scale.”
In his review of the year, Mr Beech said the appeal of being bought by Knights was that “we are able to give equity partners a return for their life’s work”.
He explained: “They can de-risk financially and continue to work without the pressures of running a business, and without all of the ever-increasing demands concerning compliance and technology investment.
“As part of Knights, former equity partners can forget all the worry and focus on what they like and do best, client work.”
He divided the corporate legal market into three: the top 20 “global elite”, a further tier of the top 50 firms with revenues between £100m and £400m that were facing increasing competition from the Big Four accountancy firms, and “a swathe of single office, independent firms”.
He continued: “The independent segment is very interesting to us. These firms have typically reached a glass ceiling, are facing more and more pressure and risk, and are vulnerable to consolidation. We want to consolidate that third tier of independent law firms.
“We’ve acquired four this year, and will continue to acquire if there is alignment with our geographical strategy and cultural fit. That approach will complement our organic growth, which is equally important to achieving our ambition.”
Mr Beech said Knights had first proven the corporate model and then over the past two to three years achieved “critical mass”. It was now entering the third phase, “scaling the business model”.
Meanwhile, fellow listed law firm Gateley has named Rod Waldie, its senior office partner in Manchester and head of the national property team, as the successor to Michael Ward as chief executive from 30 April 2020.
After standing down, Mr Ward will remain a main board director and be responsible for the non-legal businesses within the group. He will also retain a significant shareholding in Gateley “for the foreseeable future”, a stock exchange announcement said today.
“Succession planning is an important part of Gateley’s corporate governance and is key to ensuring that the prosperity and collaborative culture of the business are maintained in the long term.
“This early addressing and announcement of the group’s succession plans has been undertaken to enable a managed and orderly handover to take place.”
It said the board decided that an internal appointment was “the best way to ensure the continuation of the group’s sustainable growth strategy, as well as preserving its culture”.
Mr Waldie, who joined in 2010 following Gateley’s acquisition of the Manchester office of Halliwells, will shadow Mr Ward in the run-up to taking over.
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