Knights raises £50m from “oversubscribed” IPO

Beech: Exciting milestone

Regional law firm Knights has raised £50m from the initial public offering it announced earlier this month, valuing the company at £103.5m when it starts trading on AIM on Friday.

The proceeds will be split between the company – which will receive £30m to repay the majority of its existing debt and fees – and the four selling shareholders, who will receive £20m.

They are Joanne and Mark Beech – the wife and brother of Knights owner and chief executive David Beech – non-executive chairman Bal Johal, managing partner of private equity firm MML Capital Partners, and Knights partner Karl Bamford.

David Beech will retains a 45.5% shareholding in the company and is subject to a three-year lock-in; Mr Johal will hold 1.7% and other management will together hold 3.4%. Some 48.2% of the shares will be in free float.

David Beech said: “This IPO represents an exciting milestone in the growth of Knights. I am delighted there has been such a strong interest from leading institutional investors and I welcome all our new shareholders to the register.

“We believe that the admission to AIM will provide us with a platform to continue our rapid growth, attracting business organically and boosting our profile to secure acquisitions.”

The fifth law firm to go public, Knights has scaled up quickly in recent times, with a compound annual growth rate over the past three years of 30% and adjusted operating profit up 29%.

For the year ended 30 April 2018, revenue was £35m and adjusted operating profit £6.8m. Manchester firm Turner Parkinson, which it recently acquired, generated revenue of £8.5m and an operating profit of £1.8m over the same period.

In a statement to investors today, Knights said that using its alternative business structure status to separate ownership from management has helped drive this growth.

“By having this separation, the directors believe that Knights’ management, unlike a traditional partnership, are able to run the business more effectively by resolving people issues efficiently (particularly poor performance or behaviour of partners) resulting in a high performance, functional business culture.

“Separating management and fee generation has also removed the traditional partner politics focussed on personal client billings alone, freeing up fee-earners to concentrate on client service in a collegiate environment.

“Knights’ meritocratic-based career path to partnership also offers transparency and motivation to aspiring non-partner fee earners.”

This separation has also allowed Knights to “follow a more efficient system of business process management”, it said, with a 4.5 fee-earner to non-fee earner staff ratio at April 2018 – much higher than other large commercial firms.

“This has driven higher profit margins and it has also resulted in fee-earners taking greater ownership over their work and, the directors believe, becoming better skilled to face the ongoing technological challenges that face the legal sector.

“The directors expect this ratio to further increase as the group undertakes further acquisitions of other firms and rationalises their non-fee earning staff, as well as further investing in lateral hires of additional fee earners and technology.”

Knights said it had “clear opportunities” to grow organically much faster than the market, in particular from attracting new talent, opening new offices – it is looking at the North-East in particular – outsourcing from national and international firms, and enhanced cross-selling through the addition of new service lines.

“Whilst legal services will always remain at the heart of the business, management believe there is a compelling logic to adding complementary business services, such as corporate finance and surveying, alongside Knights’ existing service offerings.”

It has set four growth targets to achieve by April 2020: recruiting more than 200 additional fee-earners to the existing 400; maximising “support staff efficiencies by further leveraging overheads”; have at least two new offices on top of the seven it now has; and complete at least three further acquisitions.

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