Partners in newly listed law firm Gateley will be able to sell 10% of their shares each year from next June as part of their five-year lock-in, it has emerged.
The admission document that Gateley published as trading began in its shares this week revealed a plethora of detail about its operation that is part and parcel of being a listed business and arguably makes it the most transparent law firm in the land.
Having gone public at 95p, the shares closed at 98p yesterday, having fallen back from an initial spike on Monday.
There are two ‘lock-in’ agreements. Under the first, the locked-in partners cannot sell any shares for a year, and for the following year can deal only through broker Cantor Fitzgerald Europe so as to maintain “an orderly market” in the shares.
Under the second agreement, the partners have agreed to be subject to claw-back and restrictions for five years. These provide that:
- Cash will be clawed back on the basis of 100% in the first year, 66% in the second year and 33% in the third year if a locked-in shareholder is a ‘bad leaver’ or ‘retiree’ (as defined in the agreement);
- Ordinary shares will be clawed back at 100% discount to market price in the three years from admission if the shareholder is a bad leaver or retiree, or at a 75% discount in the fourth year and a 50% discount in the fifth year for bad leavers;
- Sales of shares by shareholders who are not bad leavers or retirees will be restricted to 10% after the first year, subject to a minimum hold.
Gateley has been an alternative business structure (ABS) since 1 January 2014, and the document said the introduction of ABSs “has led to a greater focus on the needs of the end-user of legal services and, the directors, believe will ultimately re-shape the commercial mid-market as the demands of commercial clients create a need for an ever more relevant and value-based service offering.
“The directors believe the traditional LLP ownership structure has various inherent shortcomings; accordingly, in an evolving environment, the incorporation of Gateley and proposed flotation on AIM will provide substantial advantages to stakeholders.”
The firm told investors that becoming the first listed law firm in the UK gave it first-mover advantage. “The directors believe that admission, together with its ABS, will provide Gateley an immediate advantage over its competitors in terms of the ability of management to grow the business, organically and through further acquisitions, by expanding and adding to existing service lines and by acquiring complementary business services businesses.
“In addition, the AIM listing will provide the company the opportunity to use its shares as acquisition currency which its LLP competitors cannot.”
The admission document revealed more specific strategic goals, such as:
- Improving Gateley’s bank panel representation and ‘own account’ work for banks;
- Extending the firm’s relationships with the UK’s leading house builders “and in particular in those divisions and regions where it does not currently act for them;
- Obtaining instructions from the Pension Protection Fund to act as independent trustee on large schemes with deficits;
- Expansion of specialist areas such as regulatory into other geographical areas;
- Growing the corporate teams in each region, in particular Yorkshire and the north-west; and
- Developing the project litigation offering and taking advantage of the offshore work this generates.
Other nuggets of information in the admission document include:
- Property accounted for a third of Gateley’s revenue in 2014, followed by banking and financial services (21%), business services (17%), corporate (17%), and employment and pensions (12%);
- The group has agreed two five-year term loans of £5m each with HSBC and Lloyds Bank to repay the fixed capital liability of the LLP to partners, “and support the future working capital requirements of the group”;
- The average profit per LLP member in 2014 was £222,017, up 14%, with the highest-paid member paid £570,429;
- Chief executive Michael Ward, chief operating officer Peter Davies and finance director Neil Smith are each being paid a basic annual salary of £131,750, with non-executive chairman Nigel Payne receiving £36,000 a year;
- Gateley’s professional indemnity insurance is £150m per claim and is enough to cover a claim being brought against the firm by Empirical Property Group should it succeed despite the firm defending it “vigorously”; and
- The flotation cost Gateley £1.2m.