Keystone listing will enable “smooth exit” for private equity investor

Knight: Giving clients confidence

The public listing of Keystone Law will provide its private equity investor with a “smooth exit” once Root Capital chooses to move on, the firm’s chief executive has told Legal Futures.

James Knight was speaking in the wake of yesterday’s news that the ‘dispersed’ or ‘virtual’ firm will list on AIM at the end of the month.

The capital raising saw 20% of new shares created, diluting the existing shareholdings, but he said that such was the demand by institutional investors that he, co-founder Charles Stringer and Root Capital sold, between them, 10% of the firm’s shares to provide greater liquidity – in return for £5m.

“We could have issued more shares but we didn’t need more capital,” said Mr Knight, who explained that the decision to float was not driven by any pressing need.

Rather it was “about establishing a stable platform for the future”.

“Clients put a long of trust in us and having such a strong firm and regulated platform gives them confidence,” he continued. The greater transparency that comes with being listed was part of that, and not a deterrent.

A way for Root to exit eventually was another key benefit but Mr Knight said this was not on the cards. “This is not a good time to sell [shares] because we’re growing so quickly. It’s a time to buy.”

Mr Knight praised the Solicitors Regulation Authority for its assistance in the process.

An alternative business structure since 2013 so that Mr Stringer could become a partner, Keystone has made life easier for itself by not having any institutional investor own more than 10%, the threshold for regulatory approval requirements.

Instead, it has around 20 institutional investors, Mr Knight said.

He also said the listing debunked the view that joining the public market was incompatible with entrepreneurs – “the investors have been so keen because they like what they see”.

Indeed, Mr Knight suggested that Keystone’s alternative model of practice was more attractive to investors than a conventional partnership, where partners might look to move on after receiving the initial pay-out from listing, because they would not be keen on sharing future profits with third parties.

By that point, he said, “you’ve killed the goose that laid the golden egg”.

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