Beech: Focus on improving productivity
Listed law firm Knights – which describes itself as now the UK’s largest commercial practice without an office in London – has moved into Bristol with its latest acquisition.
The deal for Meade King was announced alongside its first-half results, which showed revenue and underlying profit before tax for the six months to 31 October 2022 both up 19% to £71m and £9m respectively.
Knights is also expecting to benefit from the impact of rising interest rates on the client money it holds.
With 29 fee-earners, Meade King is at the smaller end of the 19 acquisitions Knights has undertaken since it listed in June 2018. The Bristol firm’s four equity partners will receive £2.1m, with £1.5m up front and £200,000 on each of the first three anniversaries following completion.
It is a second location in the South-West for Knights, after opening in Exeter in November 2020 by buying OTB Eveling.
Meade King reported turnover of £2.7m for its last financial year and a corporatised profit before tax margin of 5%, which Knights told investors it expected to increase to 17%. Knights’ overall margin is 12.6%.
James Hawkins, managing partner of Meade King, said: “As we enter the next phase of our growth as part of a larger group, we are excited by the benefits that Knights’ scale, deep central resource and unique business model will bring.”
The Knights half-year results showed that its acquisitions provided almost all of the income growth and said the firm’s focus was on improving organic growth, “driven by improved margins, improving productivity and investment in more profitable fee-earners”.
They also said the full year outlook was “underpinned by increased interest income on client account monies driven by interest rates returning to normal levels”.
Fee-earner numbers hit 1,075, an increase of 144 on a year earlier, while net debt has risen to £35.6m – after paying around £8m of acquisition consideration and related costs – but Knights retains significant headroom against its £60m revolving credit facility.
Knights chief executive David Beech said: “Knights has delivered profitable, cash-generative growth over the period and maintained this positive momentum into the second half… In a relatively flat market, we have driven our revenue growth through acquisitions.
“With our focus on improving productivity along with improved gross margins, underpinned by increased interest income, we are confident of delivering full-year results in line with market expectations, and continuing to cement our position as the leading legal and professional services business outside London.”
The results said the firm’s longstanding regional presence “means that we have significant experience of working in regions that have not experienced economic prosperity for some time, so we are well positioned to support our clients in times of economic uncertainty”.
Knights announced an interim dividend of 1.53p, slightly higher than last year’s.
Our analysis last week of the performance of listed law firms in 2022 – which was reported today by The Times – showed how, after years of strong growth, Knights’ share price saw a spectacular decline.
From ending 2021 at 410p, it was just 107p last month, 74% lower. In early trading today, the shares were down slightly at 122p.
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