Five deals in two months – Knights on acquisition trail again

Beech: Exciting platform

Listed law firm consolidator Knights today accelerated its growth yet further by announcing two further acquisitions, making it five deals since the beginning of the year alone.

It is to acquire Leeds firm Shulmans for up to £20.1m, and ASB Law, based in Crawley and Maidstone, for up to £8.5m, and has announced a £20m placing to fund the deals.

Once completed next month, they will add 219 fee earners to Knights’ ranks and open up new regional centres for the firm, which is focused in particular on secondary legal locations. It only entered Yorkshire earlier this year by opening an office in York.

Knights – which recently entered the list of the 50 biggest businesses on AIM – said the placing and recently announced £40m revolving credit facility provided “headroom” of around £30m to help it “selectively execute on a strong acquisition pipeline”.

The placing is at a share price of 420p. The net proceeds will be used to fund the initial cash consideration in respect of the acquisitions and repayment of debt and debt-like items within the acquired firms, totalling £14.9m, plus associated costs.

In all, Knights has now made 10 acquisitions since it listed in June 2018. A Legal Futures analysis in January showed that it performed better than any other listed law firm in 2019, with its share price nearly doubling in 2019 to 334p.

The price has continued to surge since, and last week reached an all-time high of 488p, before falling back with the rest of the market amid fears over the impact of the coronavirus. The shares closed yesterday at 455p.

In the year ending 31 March 2019, Shulmans’ revenue was £17.6m, up from £16.1m and £13m in the previous two years. Its profit before tax (PBT) margin was 12.3%, which Knights said it expected to rise to 20% by the financial year ending 30 April 2022 following full integration.

Knights is paying £7.6m in cash upfront – £6.1m to the selling shareholders and £1.5m to repay third-party debt – along with 1.4m shares. Deferred consideration of up to £6.4m will be paid in instalments on the first and second anniversary of completion, subject to conditions.

ASB’s turnover was £12.2m for the year ending 30 April 2019, a slight fall on the previous two years, with a PBT margin of 4%. Knights said it expected to increase that to 15% in two years.

“ASB’s lock-up days at 31 December 2019 of 165 days, and its fee-earner to non-fee-earner ratio of 1.6:1 both represent further opportunities for potential improvement under Knights’ ownership,” its announcement said.

Shulmans’ figures were 103 days and 1.1:1 respectively, which Knights said it could improve as well.

Knights is paying £7.3m in cash plus 181,675 shares, along with deferred cash consideration of up to £400,000, to be paid in instalments on the first and second anniversary of completion, subject to conditions.

Knights chief executive David Beech said: “With their ambitious teams and progressive approach to law, both firms are a strong cultural fit with Knights and provide an exciting platform for growth in their respective regions, in line with our strategy to build the leading legal and professional services business outside London.”

Tim Halstead, managing partner of Shulmans, said: “Having worked alongside Knights previously, we believe its collegiate approach, range of services and broad client base will provide an excellent match for us to continue to grow as part of the wider group.”

Andrew Clinton, managing partner of ASB, praised Knights for “challenging established norms within the legal sector”. He added: “Knights’ scale and ability to invest in our team will enable us to realise our full potential and bring a broader range of services to our large corporate clients.”

In January, Knights bought ERT Law to bo ost the presence it established in Birmingham in November by buying Emms Gilmore Liberson.

At the start of February, it announced a deal for Croftons, a housing industry firm in Manchester, followed by Nottingham practice Fraser Brown.

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