Beech: People have traded well through Covid
Listed law firm consolidator Knights said today that the pandemic has added “wind to the sails” of its regional strategy as it unveiled strong results for the first half of its financial year.
“More professionals are considering work life balance and commute time in their career decisions, which is fuelling our recruitment drive,” explained chief executive David Beech, who added that they were increasingly recruiting from the top 50 firms.
In the six months to 31 October 2021, Knights’ revenue increased by 29% to £60m. Of this increase, £9.1m came from the four acquisitions completed in the previous six months, with £4.4m (9%) relating to organic growth.
Notably its gross margins increased to from 46.4% to 48%, with underlying profit before tax up 26% to £7.6m. But the underlying profit before tax margin fell slightly to 12.6%.
Knights’ lock-up rose by five days to 99 days, underpinned by debtor days of 33, down from 36.
The four acquisitions were Surrey firm Mundays, Sheffield practice Keebles, Housing Law Services in Battle, and Teesside firm Archers – making 15 in all since listing in 2018.
Mr Beech told Legal Futures that, while it has been able to continue recruiting during the pandemic, acquisitions had become more difficult because of the need to spend face-to-face time with them.
He hoped to “get a bit more momentum into the M&A” and Knights has a “growing pipeline of acquisition opportunities”.
Though the pandemic had helped recruitment, it had not caused law firms financial problems such that they were keener to be acquired, Mr Beech said: “People have traded well through Covid. The legal sector’s shown great resilience.”
He added: “As we look forward, our regional business is more resilient to any slowdown in the economy through inflationary pressure or cyclical change and we are not currently seeing the same salary inflation issues which are affecting London and major city professional service businesses.”
Mr Beech said that succession was developing as a significant issue for firms, however.
Knights told investors that its recently agreed £60m revolving credit facility “provides significant headroom, with net debt having stood at £23.3m as at 31 October 2021 (FY 21: £21.1m), to continue to scale our business across the UK organically and through selected acquisitions”.
The firm is also adding combining legal and other professional services: having built a team of tax specialists in recent years, it recently launched a debt advisory practice that also includes accountants and corporate bankers.
“We look forward to bringing our differentiated business model to larger and more complex transactions as a result,” it said.
Our annual review of listed law firms’ performances, published last week, showed that Knights’ share price growth plateaued by its own standards, up 4% on the year at 410p, having been as high as 465p in April. At the time of writing, it had dipped to 400p off the back of today’s results.
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