Profits up as Knights benefits from Caan factor, while Parabis chief warns of accountant threat

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23 November 2012


Beech: investor opens doors

Investment by Dragon’s Den star James Caan has given the law firm Knights privileged access to clients and helped it boost fee income by 20%, according to its managing partner.

Also, publicity surrounding the entrepreneur’s recent criticism of law firm culture that labelled profit a “dirty word” gave a boost to Knights’ profile, David Beech told the Legal Futures conference in London earlier this week.

Meanwhile, Tim Oliver, the chief executive of another firm with private equity investment, Parabis Group, warned that the big four accountancy firms are like “vultures” poised to ravage the legal profession if it does not take defensive action with the aid of private equity.

In June Staffordshire-based Knights signed an investment deal with Mr Caan’s Hamilton Bradshaw (HB) – its first departure from the recruitment business – and Mr Beech said the firm has cut overheads by 15%, with fees up by a fifth on last year. Debtor days have also reduced from 85 to 40.

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In a first step towards providing business process outsourcing, he revealed the firm is actively seeking to link with “very talented partners” who do not want to join the firm but would welcome some sort of joint venture. “We could be their back office, perhaps their support function in respect of legal areas they don’t do, and we can invest in them.” He suggested this could extend in time to provide the back office of full-service law firms.

The firm is “about to embark on a large IT spend”, Mr Beech added. “Historically Knights did have a document management system. It was called Microsoft Word – so we have to improve on that.”

From a business point of view, being associated with a high-profile investor has benefited the firm, he said. “Their profile allows us to have meetings with our key clients that are different meetings, and also allows us to target new clients that wouldn’t see us otherwise. For that reason alone, I like it.”

In the future, acquiring law firms is on the agenda, Mr Beech said, although “lower down the list after recruiting lateral hire partners, teams and joint ventures – but we will consider acquisitions”.

The HB investment has been received “incredibly positively” by key clients and the firm has “attracted our first equity partner from another firm”. It also recruited a further 20 staff to add to the 150 across its headquarters in Newcastle-under-Lyme and further offices in Cheltenham and Alderley Edge in Cheshire.

Also addressing the conference, Mr Oliver said the Parabis Group, an alternative business structure (ABS) that includes both defendant and claimant law firms and is now part-owned by private equity firm Duke Street, was focusing on “business survival”.

Parabis’s “ability to move and change with… an immensely fluid market” will provide protection at a time of fundamental change in the legal market. He predicted that in five years “I don’t think I will recognise large bits of the law and the legal profession”.

Referencing Mr Caan’s comments, Mr Oliver said lawyers should acknowledge that profit is a key driver. “It’s no different from doing any other job, so I think perhaps the profession needs to be a little bit more savvy about recognising that.”

The main challenge to Parabis will come not “necessarily from other law firms… the concern for me is non-law firms”, he said, adding: “When the big four accountancy firms obtain ABS licenses, which they will do shortly, those are the vultures – those are the ones that are going to come in and ravage the legal profession if the profession doesn’t do something to protect itself.”

Mr Oliver and Mr Beech agreed that the law firm partnership model is outdated and that separating ownership from management – in a post-ABS market in which speed of manoeuvre and capital investment is vital – is essential to be able to compete.

Mr Oliver said adjusting your law firm to a private equity structure “encourages you to perhaps stretch yourself in terms of your ambitions, but equally it accesses the capital that I don’t think we would have got as a privately owned partnership”.

Mr Beech said: “The big advantage of the corporate private equity model is that decision-making is rapid, [it] allows alternative skills to come onto the board, and it gives the firm strategic direction, makes it cohesive and makes it agile so that business can adapt to this changing market. I think private equity is a valid alternative for those reasons.”

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